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A bank that capitalized on the crisis

Article - September 15, 2011
Despite the global recession, PrivatBank was able to continue making profits in the Ukrainian banking sector. Alexander Dubilet, CEO of PrivatBank, discusses how this bank with 100% Ukrainian capital has participated in the world financial market and proven to be the ‘laboratory’ of banking sector innovations in Europe
For several years, PrivatBank, which is not a part of any global financial groups, has been a market leader in terms of both financial performance and levels of client confidence. How does the bank manage to retain its clear leadership and even continue to strengthen its position despite difficult market conditions?

Any problem can open new opportunities. In response to the reduction in consumer lending, foreign banks in Ukraine started to lower their pace of development, which gave us a chance to strengthen our position and prove ourselves as market leader.

We quickly changed our strategic philosophy in order to grow transaction profits, and as quickly as possible, we switched over to a new model of “payment bank”, rather than just a lending or deposit bank. Our focus on processing small, but numerous, consumer payments triggered the modernization of technologies and implementation of innovations, including the “No Coins” system that allows traders to give small change in electronic format. This cuts the expenditures on storage and turnover of coins.

We offered a whole new set of modern services for retail consumers, such as remote account access, non-contact banking and cellular payments.

This “No Coins” system was recognized in 2010 as the world’s best innovation in cash and treasury technologies. How do you come up with such innovative ideas?

Technologies are not thought of entirely by IT. Technologies are a fundamental understanding of what the client needs and how we can provide this with maximum convenience for the client, not for the banker. Innovations should be an area of development involving the entire personnel of the bank. The “No Coins” system started with a question from one of our clients. The director of a large retail network complained: “Why do I have to pay almost double the price of their nominal value, for the collection of small coins?”

The search for an answer led to the introduction of an absolutely new technology called “Electronic Change”. Instead of small coins, the client receives an electronic voucher equal to the amount of change or the change is automatically transferred to the account, which is linked to their cellular phone.



What is the present situation with cellular payments, considering the fact that in Ukraine, Internet usage is still considerably lower than in the U.S.?

The banking culture in Ukraine also lags far behind Western Europe and the U.S. However, in order to really attract and provide services to such numbers of clients (as of today we have more than 10 million unique ongoing contracts), it is necessary to focus on the newest technologies. And when talking about new technologies, I am not referring to the reproduction or imitation of well known services in the West; I’m referring to really new, unique, innovative technologies never seen before anywhere in the world.

I can give you a very recent example: this year we have become the first bank to launch the unique service of instant money transfers between Visa cards. Now this transaction only takes roughly 3.5 seconds – and the recipient has the money.

Many users of social networks were pleasantly surprised with the implementation of such services as social banking or Facebook-auction by PrivatBank. How important are these services for Ukrainian clients?

How are Ukrainian Facebook users different from those in Russia or USA? I think if you try to use the services of our bank on Facebook, you will like it. Today our Internet payment technologies that help operate accounts are becoming socially oriented. Our online-bank Privat 24 is accessible to any user through Facebook, iPhone, or any other electronic communication platform.

Here in Ukraine, people like to talk, which makes cell phones and social networks very popular. Wireless Internet and cellular telecoms have reached the level where it is possible and comfortable to use bank services on your phone or computer. Clients find it convenient to have the bank so nearby, and we actively implement payment applications for social networks.

By the way, our payment application for Facebook was the first payment facility on social network sites anywhere in the world.

What is PrivatBank’s position in the market?

According to the recent studies of the banking market, today one of every three clients of the Ukrainian banking system is a client of PrivatBank, and one of four considers PrivatBank to be their principal bank. Our share of the market of plastic cards is about 50%. For ATMs, we account for more than 30% and for POS-terminals, we account for more than 60%.

At the same time, there is potential for our further development in Ukraine, and our objectives are ambitious: every company and every citizen in Ukraine has to have the possibility to easily and quickly open a PrivatBank account or use the bank’s services.     

It is a unique phenomenon that a Ukrainian bank has entered the markets of 12 countries around the world. What is the secret of your success?

There are more than 8,300 miles separating our offices in China from Great Britain, this is one third of the length of the equator. We plan to develop our infrastructure, and there is no international expansion “the Ukrainian way” in it.

Our development strategy in other countries stipulates the provision of services to the natives of Ukraine, tourists, and financial migrants, where they live and work. This is like a part of Ukraine for our former and current compatriots abroad. According to different estimates, there are 5 to 7 million Ukrainians working outside of Ukraine.

We already have branches in Italy, Cyprus and Portugal, we are opening a branch in Germany, and we have a bank in Russia. At the same time, we cooperate with large western corporations. For example, one large company in Portugal has recently opened  €3 million credit with PrivatBank. Today we have a clear vision of what we can offer to our large number of clients abroad.

As for the secret of our success, there is no special “recipe” that we follow which guarantees us a successful result. From the very beginning, it was our aim to create a high quality retail bank and we never once intended to sell it during the financial boom of 2004-2007.

Another distinctive feature of our group is its independence from external markets: today our lending programs are fully secured by internal deposits, credit-deposit ratio being 104%, while our main competitors have a 230-250% or sometimes even a 350% ratio. They depend heavily on the resources of the international market, first of all, through parent companies. PrivatBank is the only large Ukrainian bank with 100% Ukrainian capital and a truly high level of customer confidence. All these factors combined make it possible for us to retain leadership positions.