BRANCHES + REMOTE BANKING = MIXED

APPROACH

@Kozlov_Sergey Nadra Bank Board Member Director of Retail Business

PhD in Economics

June 3, 2013

MOVIE: ASSAULT ON WALL STREET

A security guard for an armored truck, Jim is a blue-collar New Yorker who works hard to earn a living. His wages support himself and his wife Rosie, who is on the upswing recovering from a near-fatal illness. Yet things start to fall apart after Rosie's health insurance stops covering her treatment and Jim's life savings are lost via a disastrous investment his stockbroker had advised him to make. As a row of professional and personal dominoes falls, Jim is confronted by the realization that, after being abused and exploited by financial institutions for far too long, he has only one choice: to strike back.

http://youtu.be/8Y-NqShTj5w

FINANCIAL CRISIS: BANKING VS. CASH

1. Raise your hand who wants to lose all your life savings due to some financial institution?

3. Raise your hand who do care whether it was remote (mobile) or branch banking when you have real threat of loosing all your life savings?

“This is not a game for me. This is my LIFE!” Jim “ASSAULT ON WALL STREET”

2. Raise your hand who prefer banking vs. cash in circumstances of severe

financial crisis?

20 YEARS AND 3 CHANCES TO LOSE ALL LIFE SAVINGS

Date Consequences of Financial Crisis in Ukraine and Russia 1990-1992

- Fall of Soviet Union to 15 independent states including Ukraine and Russia - Frozen savings in Sberbank of USSR - Hyperinflation of more then 1000 times Result: total loss of life savings by majority of former USSR population

1997-1998

- Collapse on stock exchanges - Local currencies devaluation (2-3 times for Hryvnia and Ruble) - States defaults - Massive bank bankruptcies in Russia Result: partial loss of life savings due to devaluation and deposits lost in banks which went bankrupt

2008-2009

- Collapse on stock exchanges - Hryvnia devaluation from 5 to 8 hryvnias per dollar - Banks bankruptcies with deposits compensated by Deposit Insurance systems Result: partial loss of life savings due to devaluation and delays in deposit repayments

LIFE FINANCE HIERARCHY

Life

Finance

Remote Banking

Branch Banking

Money Exchange

Natural Exchange

Experience

Service

Utility

Survival

Personal Data

Channel

Location

Transaction

Need

Focus

Food

Inco

me

per c

apita

Fina

nce

Com

plex

ity

LIFE FINANCE DEFINITION

Life Finance (personal finance) refers to the financial decisions which an individual or a family unit is required to make to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. When planning Life Finances the individual would consider the suitability to his or her needs of a range of banking products (checking, savings accounts, credit cards and consumer loans) or investment (stock market, bonds, mutual funds) and insurance (life insurance, health insurance, disability insurance) products or participation and monitoring of individual- or employer-sponsored retirement plans, social security benefits, and income tax management. Source: http://en.wikipedia.org/wiki/Personal_finance

LIFE FINANCE HIERARCHY PRINCIPALS

!  5 levels of Life Finance are ranked, according to the order in which they influence human financial behavior, in hierarchical fashion.

!  So long as lower levels are not covered, they exist as a driving or motivating force for financial behavior.

!  Jump from Natural Exchange or Money Exchange levels to Life Finance is not possible unless there is a relevant shift in per capita income level.

LIFE FINANCE HIERARCHY BY COUNTRIES

Level   GDP  per  capita  (current  US$)*   Countries  

Remote  Banking   >  30  000   30  countries:  Norway,  Switzerland,  USA,  

Japan,  Germany,  France,  UK  

Branch  Banking  

>  10  000  and    <  30  000  

33  countries:  Greece,  Estonia,  Lithuania,  Latvia,  Poland,  Russia,  Brazil,  Kazakhstan  

Money  Exchange  

>  1  000  and    <  10  000  

85  countries:  Azerbaijan,  Belarus,  Turkmenistan,  China,  Ukraine,  Armenia,  Georgia,  Moldova,  Uzbekistan,  India,  Kyrgyzstan  

Natural  Exchange   <  1  000  

31  country:  Tajikistan,  Cambodia,  Nepal,  Bangladesh,  Rwanda  

* World Bank national accounts data, and OECD National Accounts data files for 2011

The more you know about financial institutions and banks the less TRUST you have

Country   TRUST   Level  

Rwanda   91%   Natural  Exchange  

Cambodia   87%   Natural  Exchange  

Nepal   81%   Natural  Exchange  

Bangladesh   81%   Natural  Exchange  

Norway   73%   Remote  Banking  

China   72%   Money  Exchange  

India   70%   Money  Exchange  

Uzbekistan   66%   Money  Exchange  

Tajikistan   66%   Natural  Exchange  

Japan   63%   Remote  Banking  

Georgia   62%   Money  Exchange  

Kazakhstan   57%   Branch  Banking  

Estonia   55%   Branch  Banking  

Armenia   54%   Money  Exchange  

Kyrgyzstan   52%   Money  Exchange  

Country   TRUST   Level  

Azerbaijan   50%   Money  Exchange  

Poland   50%   Branch  Banking  

Switzerland   47%   Remote  Banking  

Belarus   47%   Money  Exchange  

Brazil   45%   Branch  Banking  

Germany   38%   Remote  Banking  

USA   37%   Remote  Banking  

Moldova   37%   Money  Exchange  

Russia   33%   Branch  Banking  

France   32%   Remote  Banking  

Latvia   32%   Branch  Banking  

Lithuania   29%   Branch  Banking  

Ukraine   28%   Money  Exchange  

UK   27%   Remote  Banking  

Greece   13%   Branch  Banking  

Source: GALLUP World 2012 http://www.gallup.com/poll/162602/european-countries-lead-world-distrust-banks.aspx#2

M-PESA CASE: FROM NATURAL EXCHANGE TO MONEY EXCHANGE

UTILITY

A CENTURY AGO: FROM MONEY EXCHANGE TO BRANCH BANKING

SERVICE

15 YEARS FROM NOW: FROM BRANCH BANKING TO REMOTE BANKING

E X P E R I E N C E

THE FUTURE IS HERE: FROM REMOTE BANKING TO LIFE FINANCE

Personal

VALUE CHAIN: EVOLUTION OR REVOLUTION?

Level Value Extractor Commodity Life Finance Life Finance Providers

(Internet Start-ups, Social Networks, Telecoms, etc.)

Banking Services

Remote Banking Banks Non-cash Money Branch Banking Banks Physical Money

(cash, gold, etc.) Money Exchange Merchant Goods Natural Exchange Seller and Buyer Item

Loss of TRUST in existing financial institutions and banks leads to raise of new Life Finance Providers

UKRAINE: INTERNET AND MOBILE REVOLUTION

Technology drives the speed of change but does not determine the system

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Internet Users, % of population

Ukraine USA

TECHNOLOGY DOES NOT REPLACE THE TRUST

M2 to M1 Money Supply Ratio

0%

100%

200%

300%

400%

500%

600%

2005 2006 2007 2008 2009 2010 2011

Ukraine + Foreign Currency Cash Ukraine USA

BACK FROM BRANCH BANKING TO MONEY EXCHANGE

12000

13000

14000

15000

16000

17000

18000

19000

20000

21000

2005 2006 2007 2008 2009 2010 2011 2012

Ukraine: Decreasing Number of Branches

UKRAINE: SELL BRANCH BANKING BEFORE YOU SELL REMOTE BANKING

!  BACK TO CASH: Due to 2008-2009 economic crisis decrease in the number of branches connected with the switching of customers from Branch Banking to Money Exchange rather then development of Remote Banking.

!  TARGETING BRANCH BANKING: According to proposed Life Finance Hierarchy Ukraine is on Money Exchange level. Further advance to Branch Banking will lead to increase in the number of branches.

!  MIXED APPROACH: The key challenge for Ukrainian Banking System today is to restore TRUST and confidence. Branches play key role in this process as well as in the process of advancing customers further from Branch Banking to Remote Banking levels.

@Kozlov_Sergey

@Kozlov_Sergey Nadra Bank Board Member Director of Retail Business

PhD in Economics

THANK YOU! QUESTIONS?

www.facebook.com/ sergey.a.kozlov

ua.linkedin.com/in/ kozlovsergey

P.S. WHO IS THIS MAN?

P.S. LEV GUMILEV: ANCIENT RUS’ AND GREAT VALLEY

Aberration of Proximity - significant

exaggeration of recent events in comparison with

earlier

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