Fintech role model Tinkoff: “N26 and Revolut cannot ignore the lending business”

The Russian digital bank Tinkoff is considered a global fintech pioneer: The super app continues to grow and at the same time makes good profits. One reason for its success is the lending business. A lesson for the European smartphone banks?

Now he has also had the Russian football league named after his company; the cycling team was apparently not enough for Oleg Tinkov. He can advertise. In Europe, his Tinkoff Bank is still largely unknown, it has not yet ventured beyond its national borders. With the finance app, customers can not only handle their banking, loans and insurance digitally, but also buy many other things such as tickets, reserve restaurants, order a taxi or shop. The digital bank also offers its own mobile operator.

Not only is the app a role model for Revolut, N26, Vivid and Co. – the fact that Tinkoff has been profitable since 2008 should also prove that the business model can generate good profits. The position in the fintech world is clear: Tinkoff is a pioneer. Before founding Brazilian fintech Nubank, $ 25 billion, David Vélez spent some time at Tinkoff learning from the Russians.

German tech stock experts have also discovered the listed TCS Group, the company behind the bank, as a promising investment in recent months. “The company could grow three to five times as big in the coming years,” says Bitcapital founder Jan Beckers, who is betting on the TCS Group with his very successful Internet Global Leaders fund. On Wednesday, the company presented its investors with what it plans for the coming years. Tinkoff is pursuing a product strategy that differs from the European smartphone banks in one important respect.

75,000 letters in Volgograd

With Russia, Tinkoff is playing on a market whose banking world had to make a fresh start in the early 1990s. For this reason, even the larger, now older banks are more tech-savvy compared to European banks, said fintech investor Olga Shikhantsova in the FinanceFWD podcast. The founder Oleg Tinkov was once inspired by the success of the US credit card company Capital One and began with a lot of advertising in the mail.

As a first test, it sent 75,000 letters in the city of Volgograd and received 1,500 responses, not a bad value compared to the US model. The first phase of growth began in 2006 (the Newsletter Net Interest retold the story of the early days in detail). Meanwhile, the company has also succeeded in turning into the smartphone age in recent years. It has built a “super app” with numerous products around the credit card. And it is growing rapidly, especially in the recent past, now it has 13.3 million customers.

For Tinkoff, customers are those who have used at least one product of the bank. Only those who have already generated sales are active customers. The difference between the two values ​​is healthy. For comparison: At N26, only half of the customers belong to the earnings-relevant group, as recent figures have shown.

Tinkoff achieved sales of the equivalent of 2.1 billion euros last year, of which 483.3 million euros remained in profit. Tinkoff makes a large part of its turnover and profit in the “Cosumer Finance” category – it is the core of the company.

Behind this is the Russian bank’s lending business. It’s an area where the company is already very strong, with a total of 6.9 million customers currently using credit products. Fund manager Jan Beckers sees this as a factor for success. “Tinkoff has a good loan book, and even in crises they have made profits with the business,” says the investor. “Even during the corona pandemic, they had their failure rates under control.”

The focus is actually unusual, European fintech companies are not trying to grant the loans themselves, but are looking for partners. For example, N26 works with Auxmoney. “The stock markets value credit business models relatively low, in the case of Tinkoff they are undervalued from our point of view,” said Beckers. It is a cyclical business and many have “burned their fingers” in the past.

Tinkoff benefits from the neo broker hype

What can also be seen from the numbers: Bank cards are above all a way of attracting customers. The bank achieves a ten percent share of sales through debit card fees, but little is left. The insurance business, on the other hand, is lucrative: the Insurtech segment only accounts for ten percent of sales, but already 19 percent of profit. Equity expert Beckers sees the potential as limited, however, and the online sale of insurance is difficult.

Stock trading, which is currently still small, is more promising. Customers have been able to buy shares through Tinkoff for five years. Initially through a partner, the company has been offering the service itself since 2018 and quickly developed into the market leader in its own country. “Despite our leading position in this market, we are still at the beginning of a long-term shift towards brokerage and wealth management in Russia,” said a recent “earnings call”. One thing is clear: Tinkoff is benefiting from the neo broker hype.

There is still a lot of growth possible in Russia, said CEO Oliver Hughes, who came from Visa. He is planning both a growth in the number of customers and so-called cross-selling. Every customer now buys an average of 1.4 products. The bank boss formulates clear goals: The number of active customers is to grow from 9.1 million to 16.5 million by 2023 and Tinkoff wants to sell an average of 1.7 products per customer.