For years, Sberbank thought its thousands of green-liveried branches across Russia were holding it back from becoming a global tech leader, and spoke of closing them as customers migrated online.
But the branches, once relics of the time when Sberbank was the Soviet Union’s only savings bank, are now key to the state-owned lender’s ambitions to create a “Russian Amazon”, repurposed as hubs for last-mile ecommerce delivery.
The shift in approach indicates how Sberbank, which has a quasi-monopoly in retail banking, wants to use the competitive advantages from its enormous funding base to offer users everything from food delivery to streaming entertainment.
The idea — which Sberbank admits will not deliver significant profits for years — has proven controversial in some corners of the Russian government. Officials believe the group’s duty is to boost the dividend payouts that power president Vladimir Putin’s spending promises.
But the giant lender believes that entering the race to create such an “ecosystem” is vital to its survival, as the tech industry encroaches on its financial turf. Eventually Sberbank wants to combine the 40 or so companies involved into a China-style super app.
Lev Khasis, the first deputy chief executive in charge of Sberbank’s ecosystem push, frames the move as a national security priority at a time when Russia is increasingly worried about its dependence on western tech.
“Ecosystems are growing all over the world. If there won’t be any Russian ecosystems, then Russians will be forced to live in American or Chinese networks,” Khasis said in an interview.
“Apple have their own ecosystem based on monopoly access to popular devices. Google and its systems are an ecosystem. You have Facebook. They’re all developing ecommerce and payment systems and so on in their services. So if you don’t grow your own, you have to use someone else’s.”
Ecommerce is central to the “ecosystem” race. Russia’s long-dormant market is growing rapidly, with online sales of physical goods rising to Rbs2.7tn ($37bn) last year, according to consultancy Data Insight.
The players all want to leverage their reams of user data to offer customers more to buy.
Yandex and Mail.ru, Russia’s two largest tech companies, are developing ambitious ecommerce platforms of their own, while Wildberries and Ozon, the country’s two largest online marketplaces, bought banks this year for a planned move into financial services.
Sberbank is uniquely positioned to take advantage. It has 100m customers, 27m of whom use its banking app daily. The company posted record profits of $8.5bn in the first half of this year.
Analysts at Moody’s attribute the success to an AI-driven cost-efficiency approach that saved it Rbs60bn, or 7 per cent of its operating expenses, in 2020 while posting a 34 per cent cost-to-income ratio — lower than any of its tech-focused banking peers in western Europe and Scandinavia.
But its foray into online shopping has been rocky. The bank sold its half of an ecommerce joint venture with Yandex last year amid disputes over its direction. Similar disagreements torpedoed a mooted partnership with China’s Alibaba — which eventually tied up with Mail.ru instead — and a deal to buy a stake in Ozon.
Those difficulties have also plagued a separate taxi and food delivery business Sberbank co-owns with Mail.ru, which the companies have had advanced discussions about splitting up, said people familiar with the talks.
Khasis admitted that partnering with Mail.ru in some areas and competing in others had created “difficulties for our relationship” but denied that a split was in the works and said both companies were “doing all we can to make sure [the JV] develops successfully”.
Now, Sberbank is going it alone with SberMegaMarket, a beefed-up version of a small ecommerce site it bought earlier this year. It plans to invest up to Rbs35bn into growing the ecommerce business, part of a plan to spend up to Rbs350bn by 2023. Sberbank is also investing in grocery delivery app SberMarket, which has a 13 per cent market share, and fast delivery service Samokat.
Though its market share is about 0.5 per cent, according to a report by Goldman Sachs in August, Wildberries and Ozon only account for 16 and 8 per cent respectively, leaving substantial room for growth.
The returns have been modest: the ecosystem made an Rbs11.2bn loss in 2020 despite $2bn of investment up to that point, though its revenue in the first half of 2021 grew to Rbs74.7bn — more than all of last year.
Sberbank is targeting growing ecosystem revenue to 5 per cent of its total operating income in 2023, rising to about 30 per cent in 2030.
But Moody’s analysts said Sberbank’s expectation that most of the ecosystem businesses will break even by 2023 is too optimistic, pointing to lossmaking peers such as JD and Just Eat.
The biggest investment is a spend on logistics that Goldman Sachs estimates at Rbs250bn in 2022 and 2023, which Khasis insisted will pay off by extending the ecosystem’s reach to the bank’s 2.9m business clients as well as retail customers.
Sberbank also wants to leverage its omnipresent 13,900 branches as delivery hubs for purchases, including from its online pharmacy, while attracting more people to use its financial services.
“We’re trying to offer as many services as we can to everyone,” Khasis said. “We’ll deliver goods even if you didn’t buy them from our marketplace. It helps us make our logistics infrastructure more efficient.”
Another way to potentially offset losses is directing customers to discounted financial products and other services through an Amazon-like subscription, SberPrime. The service has 2.7m monthly active users and boosts per-user revenue between 40 and 110 per cent, depending on the app used, Sberbank said.
Unlike Ozon or top online bank Tinkoff — whose share prices have doubled and quadrupled in the last year even with far more modest ecosystem plans — Sberbank’s stock, one of the most widely held among Russian and EM investors, has yet to reflect the investment: Goldman Sachs estimated the ecosystem only adds an “incremental” 15 per cent upside.
Khasis said investors have yet to truly appreciate the ecosystem’s potential thanks to US sanctions and Sberbank’s overwhelming dominance in its traditional markets. “We have an enormous banking business that blots out everything,” he said.
“It’s hard to see the moon when the sun is shining brightly . . . But with time that’s going to change. It’s entirely possible that if you take any of the businesses public in three to four years, they might be valued on public markets significantly more than if they were part of Sberbank.”