Last year was a record year for Air Bank on multiple fronts. Which metric is most meaningful to you?
The idea behind the merger with Moneta was to become the most relevant retail bank. After we pulled the plug on this deal, and rightly so, we agreed with our shareholders that our future should be built on organic growth.
So, at a time when most of the market was retrenching, we invested even more in new product development, hired new people, and concentrated on growing our customer base organically. And that’s where we were most successful last year, welcoming some 186,000 new customers, with the vast majority using us on a day-to-day basis.
You mentioned the Moneta deal. In hindsight, do you think that not going through with it was a good decision?
It was the right decision. The whole deal was actually underpinned by very sound reasoning. Air Bank and Moneta are both retail-centric banks, and they are both intent on doing banking well, digitalising it, investing in technology, and so on… Merging two banks like that would save you a ton of costs because you don’t have to do those things twice over.
The second logical aspect was that we at Air Bank have always been committed to changing the world of banking, to modernising it. And of course, if we want to introduce a new payment method, it’s going to be a lot easier for us if we’re twice as big.
Moneta and us are similarly sized banks at the moment. We have 1.35 million customers, Moneta has 1.4 million, and although at the time we were discussing the deal those numbers were slightly less on both sides, the merger would have made us the market’s number-one or -two bank. And that would have made things much easier to change.
Those are the reasons in the pros column…
The fact of the matter is that there are two sides to every deal, and the way we structured this one was relatively complex. To put it simply, we would first have had to be bought by Moneta and then we would have merged the two banks to transform ourselves into one big Air Bank.
That’s a pretty convoluted way of going about it, but it was also the only way to make it work effectively. Three years ago, though, the economic climate began to change quite drastically, with major implications for the economics of the whole deal.
For both sides?
Yes. We weren’t too happy with the price Moneta would be buying us for, and, equally, not all the Moneta shareholders were fully on board with the terms of the deal. So we came up with a compromise, but then the process of getting everyone to approve was taking ages and the conditions started to shift so much that it no longer made any economic sense.
And there’s no point in moving forwards with a deal if the economics you were projecting at the beginning have evaporated. Especially as the integration of such large banks is a three-year project. It would have stretched the teams to the limit and we would have been hamstrung as to what new things we could offer customers during that integration period. Faced with that, we figured we’d rather focus on organic growth instead, and it was a very good decision at that point in time.
Does this mean that acquiring another bank somewhere down the line is not on your radar?
It’s not something we’re planning, and if you take a look around the market, we wouldn’t have anyone to buy anyway. The Moneta merger made sense in that we are two banks that are similar in size and philosophy. The primary benefit you gain from that is economies of scale.
If, on the other hand, we were to merge with a very different bank, that could also make sense because we’d complement each other’s portfolios, even though the savings effect might not be as great. Still, we can’t see any viable entity at the moment. That’s why we’re better off channelling our energy and time into making more products for our customers.
Jiří Šmejc, the CEO of PPF Group, to which Air Bank belongs, recently claimed that he wants to make the bank the most relevant bank for retail customers in the Czech Republic. What is this relevance?
The use of “most relevant” is a great way to describe it, because we place all our numbers in some kind of context. Two years ago we said we wanted to grow to twice the size we were then, but there are various ways to go about that. It’s not that hard to find customers.
The difficult part is recruiting customers who want to use you as a bank on a day-to-day basis. Our goal of doubling in size therefore only works if we assume that new customers will behave in the same way as they did before the bank expanded.
How’s that, exactly?
We want somewhere in the order of 1.5 million customers who consider us their main bank. That’s the critical metric for me.
How do you find that out?
You can ask the customers themselves. That’s the easiest approach, and sometimes that’s what we do. When it comes to data, you’ll generally see the highest correlation in indicators such as whether customers are sending their income to an Air Bank account or using one of our cards to make payments. The chances are that these customers are using us as their principal bank.
You were made head of retail banking when Air Bank was founded in 2011. Did the bank have this sort of ambition back then?
The simple answer to that would be no. No one plans that far ahead. It is true, though, that we have always been ambitious to grow into a large-scale bank. Our business model is built on simplifying banking for customers so that they can understand it and find it easy to use. And the way we have chosen to do this is that we prefer to devise one solution for one particular need and make it as perfect as possible. In the words of our product strategy, it’s a “one size fits all” approach. We don’t split services into basic and premium – we want to deliver the best possible service to every single customer.
Can you elaborate on that?
Say someone expects us to offer gold cards, they’ll never get one from us, even though there’s a particular group of customers for whom a card like that is important – whether for status or functionality.
You can picture this by comparing the product strategies of household names like Apple and Samsung. They’re two successful companies, but Apple’s strategy is to have a single phone that’s going to be amazing. Samsung, on the other hand, has adopted a strategy of capturing the entire market, so it will build five different models for five different target segments.
And you don’t want to do that…
Exactly. Sure, both of these strategies are clearly successful, but we are more like Apple in our product strategy.
But that strategy, by definition, has a limit to how many customers you can land…
Yes, just as Apple will never have more than a third of the Czech market, give or take, we too know that there are natural limits to this strategy. Take that one-third number more as a yardstick. You’ll recognise the limit when you start to run out of new customers who appreciate that simplicity, in other words, your approach.
And at that point, it’s easy to ask yourself whether you should stick to your strategy or switch it up and start making three of those metaphorical phones. We believe that most companies who choose to go down that path of rethinking their product strategy will fail because suddenly they start to change their DNA.
So your ceiling is 1.5 million customers?
Not quite. The banking population in the Czech Republic is 7.5 million, so 1.5 million customers is about twenty per cent of the market. I reckon that, with the current strategy, our ceiling is around the 25 per cent mark. So 1.5 million customers is not the ceiling, but we’ll come relatively close to it.
So how do you work towards that ceiling?
We were established as a retail bank focused exclusively on the Czech market. This means that all anyone in our team is thinking about is how to make the best possible product for the Czech retail market. That gives us a significant advantage over other banks, which have to focus on entrepreneurs, businesses, and municipalities as well.
Another point is that we’re a greenfield project. So we’ve got modern systems that are tailored to our needs and a management system that supports it all. This gives us a lot of flexibility. This is reflected, for example, in the fact that we have eleven releases of the app per year and we are constantly changing and improving it to make it as user-friendly as possible – adding features, removing unnecessary ones, or fine-tuning them.
Fifty per cent of our development capacity is allocated to continuously improving what we already have, and we are constantly striving to improve. It may sound glib, but we’ve been riding on that mindset of “change and improve” since the very first day we started delivering our services to customers. Looking back ten years, they may seem pretty trivial at times, but they’ve made a huge impact on the market over time.
Can you give me an example?
For instance, at the time we were starting to build our first ATMs, people were annoyed that if they needed to withdraw, say, two thousand, their bank’s ATM would only give them a two-thousand-crown banknote. Try paying with that in your local corner shop. We were the first to say we were going to do things completely differently and let the customer choose the banknotes they wanted. Everyone scoffed at us back then, but now, whatever ATM you use, you’ll find a choice of banknotes. Even those of the banks who initially mocked us.
Most recently, we’ve started offering the Cvak payment method. This isn’t actually so much about Air Bank itself, but an agreement with other like-minded banks on the market. Because we know that people don’t want to use cash. As we all know, even merchants don’t want to take cash. And yet there are still lots of retailers who aren’t willing to accept card payments either.
How come?
There are three reasons: one group wants cash because they have suppliers they can only pay in cash, or they’re operating on the margins of the law and don’t want money flowing through their accounts.
The other two thirds that don’t have terminals, preventing you from paying with anything other than cash, would actually be happy to accept cards. But either it’s expensive for them – if you’re skimming one-and-a-half to two-and-a-half per cent of their turnover, that’s a lot for them, or else the admin is too complicated for them.
That’s why we’ve teamed up with a few other banks to launch Cvak, an app that makes it easy to pay digitally at merchants without a terminal.
What about the “pay a contact” service, which everyone has been talking about in recent months?
That’s a feature we could have done with five years ago. But its potential to help people is now pretty much exhausted. You can use it, for example, if you pay your cleaner regularly and you don’t know her account number or don’t want to have to fill in her account number every time. Nowadays, however, the vast majority of banks automatically suggest frequently used accounts. Or people pay using a QR code. People have simply already found other ways to deal with these situations.
Are these new tools helping you to grow?
Absolutely. For example, we are now one of the first banks to let you apply for a mortgage on your mobile phone. Is this some sort of big breakthrough? Not in and of itself. But I promise you that, in ten years’ time, every bank will be doing it. Being first movers and the first to master it gives us a huge advantage because we can then apply these principles to more and more products.
Other banks may not need to offer it yet because they have a large network of branches where you can go in and apply for a mortgage. We don’t have that. Our branch network is only there to help guide customers if they feel uneasy in the digital sphere for any reason.
Speaking of mortgages, how do you think the mortgage market will play out this year?
The market is bouncing back, largely because people are feeling more optimistic again. They’re happy to invest more and go into debt for longer periods of time. Needless to say, this has given the property market a boost. There’s more construction going on and more choice for buyers. From that angle, this year is going to be much better than last. We’re already seeing 90% year-on-year growth in some months. Taking the year as a whole, there won’t be such a big jump, of course, but the market is recovering.
How important is this to you as a bank?
We treat mortgages as a service for customers who already use us for their day-to-day banking. Different banks take different approaches. Some use mortgages as an avenue for acquisition – if I give you a mortgage, you’ll come to me with the rest of your banking needs. We do it the other way around. If you’re already a customer, we want you to have the best service, and that extends to mortgages.
But we have no interest in chasing new customers by running around the market and trying to offer the best mortgage deal. That also defines how aggressively we communicate this to the outside world and how much we’re willing to work with third parties, who still play an important role. Over fifty per cent of that market is brokered in some way by other parties, although changes are afoot this year.
And at your bank?
For us, it’s zero, precisely because we treat mortgages as a service for existing customers. And we’re quite capable of helping existing customers ourselves.
So how important is it to you for the CNB to keep cutting interest rates?
Not much in terms of mortgages. But as interest rates come down, other factors come into play. In general, cutting rates encourages people to spend more, which helps the economy to grow. This pushes down some costs, so we want those reductions simply because we are keen for our customers to be better off. As far as mortgages themselves are concerned, we’re looking at how we can pass on the rate cuts to our customers as soon as we can.
How?
Some customers already have a mortgage with us. We reach out to them off our own bat to let them know that the market situation has changed, and that, if they want, we’ll adjust their fixed rate for the upcoming period. Then there’s another group who have a mortgage with another bank. They can transfer it to us at the new rate, which is often lower than the rate they got two years ago with their other bank. So both these approaches usually result in our customers getting a better mortgage rate.
Source: Forbes
Author: Taťána Lysková
