'Banking is boring': Sberbank's radical transformation to tech firm

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Sberbank, the largest bank in Russia, is officially changing its name to Sber and relaunching itself as a tech company Friday.

It will start offering some consumer electronic products — a TV streaming device called SberBox and a smart speaker with an attached screen called SberPortal. It’s debuting SmartMarket, its version of an App Store, in which other companies can post apps for its devices. It’s also releasing a family of virtual assistants, each with its own personality (cultured, joyful and pedantic) and redesigning its 14,000 branches to be community centers.

The $401 billion-asset bank, which has an investment banking arm in the United States, says it's not planning to sell these products in the U.S. market at this time. But its attempt at a radical, tech-based transformation of its business may be of interest to traditional banks anwhere that are trying to adapt to change and think creatively in pursuit of growth.

Sberbank is based in Moscow, is majority state-owned (50% plus one share) and has 100 million customers in a country of 145 million citizens. It has 66 million active digital banking customers.

Though it dominates the Russian market, it's under competitive pressure: The bank had a 10-year relationship with a technology company called Yandex that was severed in June. Yandex announced in recent days that it is in talks to acquire the digital-only Tinkoff Bank, which would make it a direct rival to Sber.

David Rafalovsky, chief technology officer, Sber
"We want to be in the business of giving you happiness," says David Rafalovsky, chief technology officer at Sber.

David Rafalovsky, Sber’s chief technology officer, explained some of the changes the company is making in an interview just before his company announced its strategic shift Friday.

So Sberbank is transitioning into more of a tech company. How far do you think you'll take that? Are you trying to become the next Apple or Microsoft or whatever the Russian version of that is?

DAVID RAFALOVSKY: If I told you we would like to become the next Apple, would you believe me? No, we don't want to be an Apple. We want to be mentioned in the same breath as Apple, Facebook, Microsoft and so on. But we are comfortable being ourselves.

Are you launching general-purpose electronic devices, or are you trying to create a way for people to bank from home?

It's not about banking. Banking is boring. And it’s not very profitable, just look at the European market. Banking is a necessary evil in modern society. We mastered how to be a very successful financial institution in this particular market. And trust me, we will not forget how to do it tomorrow. But I don’t know anyone who is waking up in the morning and saying yippee, I have a mortgage. Perhaps there are people like that, but a mortgage is a means to an end.

Banks, generally speaking, are not providers of happiness. We want to be in the business of giving you happiness. And for me to give you happiness, if you decide to move with your family to a new home, I want to help you all the way in that journey, even through financing. You might need to sell the house you’re in. You might need to hire someone to mow your lawn. We want to occupy that the entire value chain, because that's how you get happy.

Why get into consumer electronics?

Because that's what customers want. Sber is a technology company. I have a huge technology team.

How many people are in your tech team?

It's a small army. It's much bigger than you think it would be at a bank.

We want to be with our customer on a much broader basis. Not only when you check your account balances. We need to have presence in more circumstances and more scenarios than just in your phone. We decided that it makes sense for us to build a series of devices where our presence will be more prominent and more aligned with our strategy. We're not building a phone or TV. We're building devices to enrich people's lives so we can be closer to them than just the typical online banking in the phone format.

When I heard you guys were doing this, I thought maybe it was partly because of the pandemic and everybody being home and a lot of branches being closed, but it sounds like this was is in the works before that.

This is a multiyear strategy and a multiyear investment, primarily technology investment. We are the only bank I know of that built its own supercomputer, called Christofari. Why did we do that? Not to brag. We needed it as a tool to create many of the products we are launching Friday. I wish this was a strategy that could be implemented in six months or even a year.

Can you tell me a little bit about these devices, starting with the TV device, the Sberbox?

I'm not going to answer your question. You're looking at what you can see and touch, not what's inside. Let's talk about that. We believe in virtual assistants, we believe in voice as a means of interaction with our customer. People also want to use gestures. Recognizing your gestures, recognizing your fingerprint in addition to touch and voice gives us a very rich application experience. And we would like to control the platform.

We're releasing a family of virtual assistants and the electronics endeavors are primarily because we want a proper home for our virtual assistant. At least one manufacturer will sell TV sets that come with our virtual system pre-installed.

When you say family of virtual assistants, are these virtual assistants with different personalities or intended for different kinds of people?

Here's what we noticed. When people describe Alexa, they typically say, Alexa, I know what it is. It's a virtual assistant from Amazon. Siri is a virtual assistant from Apple. I want this to be helpful to the customer, not to the manufacturer who made it for us. We thought, if you’re going to choose a personal assistant, would you not look at their personality? Would you not see what they can do?

So we thought we should make our lives dramatically more complicated and create not one assistant, but a family of assistants with three very different personalities. Each has a different voice, a different level of energy, a different way of interacting. They’re designed to make life easier. One of them is a personality called Joy.

Is some of what you're doing due to distrust in U.S. companies like Amazon and Apple that sell these virtual assistant devices today? And is part of it to gain more knowledge about people's lives and what they like and what they do?

I wouldn't say it's distrust. It's a lack of control. I cannot put my assistant in Apple phone or Google phone for that matter because Siri is there. You're actually asking a very astute question. The vast majority of banks look at the world differently. They would be very happy to be a skill or a mini application in somebody else's ecosystem. So many American banks have built skills for Alexa.

But as a customer interacts with Alexa, probably the perception is that the customer interaction tier belongs to Amazon and banks are sort of secondary.

We want a direct interaction with our customer. We think we can add more value this way when we're creating products. We are not part of somebody else's ecosystem, but we are building our own. And we would like to control the customer experience.

We have built several unique features that are over and above what you would expect from a virtual voice assistant. We can help you with your daily routine. You want to make an appointment for a haircut, we can help you with that.

These assistants will know my calendar and where I typically go. They will dial the phone number of the hair cuttery and in a very humanlike, very polite voice ask to make an appointment. The human on the other end doesn't even know that a computer is interacting with them. It's actually very, very difficult to build something like that.

The banking business is about trust and advice, and we believe this is a right conduit to get the financial advice. And that's where it's going. And especially in a pandemic, there are fewer reasons to go to a physical branch — though our new branches Apple designers would be proud of.

Are you borrowing the look of Apple Stores?

Any bank with a significant installed base of branches is faced with the same dilemma: What do we have these branches for when more things are done online and real estate is expensive? Are we going to close them over time? Are we going to downsize?

We have almost 14,000 branches. And we think about our branches as a center of the community. We decided to give people reasons to come to our offices, forget about banking. Yes, we do banking. You can also send and receive parcels. We will be providing very high- grade and very inexpensive coffee. So if you just want to drink a cup of coffee and have a conversation with your friend, you can. I think Capital One tried to do that at some point, but they don't have 14,000 branches.

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