Unclaimed territory

Russia and the CIS present significant new opportunities and plenty of fresh challenges. Citibank’s Bhaskar Katta gives an FST an insight into a rapidly growing market.

Working in Russia is clearly very different from my previous experience. On the professional front, I find it extremely challenging as well as exciting. The pace at which the business has been going here and the opportunities which lie ahead are incredible. The dynamics have been phenomenally different from any other market, and that's what makes it very exciting. It’s also what makes the market so exciting to other banks.

The products which are typically common in most markets are new in this market, so we are leading innovation. This means trying to convince regulators and various authorities to accept new things. We require a lot of investment to happen just for the simplest of products to be launched. So it's painful, but once we do it, it's extremely profitable.

In fact it’s the regulatory environment and the sheer amount of red tape that presents some of the most significant challenges. Citibank was the first to launch a real credit card with a grace period in Russia. We negotiated with the central bank for quite some time before we allowed customers to have some grace period; otherwise, they would be due to pay right from day one. Likewise, managing cash transportation, just getting money to our network of ATMs, has been difficult. Every bank has its own fleet of vehicles, which is not a core business in a bank. Normally, in most countries this is outsourced totally. Also, getting good quality real estate has been extremely challenging. Establishing the ownership of real estate is difficult, as is the number of regulatory approvals which have to be done sequentially. Often, the first one expires by the time we get the last one. In most developed countries this is a question of getting real estate and getting going. Here, the process can be very, very different.

We've been predominantly based out of Moscow and St. Petersburg in the first few years, and now we are moving across geographies. By the end of this year, we should be in close to eight cities in Russia. Our plans are to try and get more footprint in each of those cities and do justice to each other's markets. Of course there are infrastructure challenges connected to things like communications and power supply, but there are a number of benefits too. For example, there is no concept of cheques in this market. Instead they have instant funds transfers between banks, which is effectively a generational leap. This gives us the opportunity to position ourselves to try and lead through innovation and simplicity. Given the fact that firstly, there are well entrenched large Russian banks which we cannot take head on, we need to fight for our positioning space. That's where we see ourselves being a bank where the speed and simplicity is the theme that we are running. The speed at which we can provide services puts us in a very different bracket from the competition. It’s not easy to do because we need to get through a great deal of bureaucratic hassles and a massive amount of documentation requirements. It's a very documentation-heavy country, and it's a very cash-heavy country. We’re trying to get around these documentation requirements finding legally acceptable ways of doing business. We want to improve processes and streamline the customer experience. Speed and simplicity is our strategy in this market, and innovation is the driver on both these fronts.

Customer experience is of particular importance. Our ‘goodwill factor’ is going to hold us in good shape when the competition starts stepping in. By the end of this year or maybe next year, we expect quite a few banks which are already in pipeline to be in this retail banking space. That's where we are really focusing on positioning ourselves as a fast institution, and also responsive in terms of customer experience. We are offering multiple type of services and trying to be a leader. For example, we’re out front in cash machines and ATMs. These are new things to this market and because of the cash intensive nature of the region, they offer some significant opportunities. Another issue around more and more banks looking to exploit this market is the shortage of skilled people. Trying to get the kind of staff with the necessary experience is incredibly difficult. These skills are virtually nonexistent. Therefore getting those people means mostly hiring the fresh and then trying to train them up. As our competitors come into the region, our staff members become a target. We’re almost like a university producing continual retail banking experienced people. Any new bank which enters this market is clearly looking at Citi's staff for ready made experience. Since there is a shortage of such people, they're willing to pay multiple times, not just percentage.

We’re also looking to position ourselves in the payment solutions, because there are not really very robust payment solutions in terms of paying your utilities. There's no concept direct debit in this market. We have created our own set of direct debits for customers by buying up with the utilities companies and trying to find how we can take payments and send them through multiple channels. This could be through phone banking, the Internet or through ATMs. We’re working very hard to offering multi-channel utility initiatives that really enhance customer experience.

Going forward, we aim to continue the growth that has seen us move from a very small base to around 800,000 customers in just a few years. As I’ve noted, building corporate real estate in the form of branches is very difficult, so we need to find alternative ways of growing. We actively use direct sales agents, telecalling, Internet sourcing and so on. But even bringing in new consumers that way has its problems. Even if someone signs up online we need to get that customer to physically sign documents in ink, because digital signatures aren’t yet in the market.

Nonetheless, I’m confident we can keep expanding in this market. We are growing at a good 35-40% in terms of cumulative aggregated growth. These are extremely good numbers on the kind of base we currently have.

Bhaskar Katta is Citigroup’s Russia and CIS Cluster Operations and Technology Head. He has been with Citi for 14 years and is responsible for operations, technology and service in the region, which includes Russia, Ukraine and Kazakhstan. Previously based in Dubai as head of Citibank’s Treasury, Investment, Insurance and Brokerage Operations, Katta moved to ZAO Citibank as COO for the consumer bank in 2005. He moved into his current position in summer 2008.