Launch of

Internet bank

YAR-Bank start of new products

and customers’ service

19.05.2014

MoscowOlga Maslova

Project Leader

1. Executive summary

It took more than two years of enormous day-to-day efforts of our small, but effective team to begin our internet bank. By now we have accomplished to:

1. Create and tide together into one network several very powerful and complex IT systems,

2. Develop and design modern retail products with very attractive market conditions,

3. Do rebranding of our Bank to get its appearance as much client oriented as possible,

4. Go strictly within the budget, approved by the shareholders, affecting very little other units of the Bank.

Today we are confident to ensure smooth and successful launch of our new service during theese months.

Please refer to next pages to view our results in more details.

2. New functionality implementation

Built for Internet Bank project (10 new applications were created from scratches):

Processing Center (“Compass+” based)• Introduce modern chips plastic cards;

ABS for retail business (“Inversia XXI centure” based)• ABS can calculate more then 1 mln. Clients;

Application Conveyor (CRM “Terrasoft” based)• Flexibility business process support;

Credit Conveyor (“Neoflex FO” & FICO based)• Make fast automatic credit decision;

Deposit Conveyor (CRM “Terrasoft” based)• Make fast automatic deposit decision;

Call center (CRM “Terrasoft” & Cisco based)• Flexibility connect with clients;

General Leger Accounting System (ABS “RS-Bank” based)• Minimum changes;

New Internet Site (“Qulix” based)• New friendly looking for users design;

Internet Bank (“iSimple” based)• Chip and appropriate decision;

Integration (IBM WebSphere & P2P based)• Modern architecture.

Bonus for existing business:

Change all existing plastic card with

magnetic stripe to modern plastic cards with chips (based on

our Processing Center)

Japanese experience in building of Internet-banks (Soft-bank, Tokyo)

Platforms IBM, Oracle

FICO products for Risk management

3. IT Architecture

Distribution Channels

Customer

CALL-CENTER

Internet-Bank/

WEB-Site

Risk managementCredit conveyer

Business-process

management

Управление

данными (MDM)

Аналитические приложения

IBM Web-sphere (intergation)

Product

managementScore

Decision-

making

Credit

History

AntiFraud

ABS CRM ProcessingCourier service

Cards’

delivery

4. Fraud prevention policy

• “Zero Tolerance’ for fraud attempts” - all suspicious cases referred to authorities

• 100% documents verification prior to card activation

• 100% applications verification through the Credit Bureaus

• 100% passports verification through the Federal Migration Service

• Underwriters and Validators trained in falsified documents recognition

• Regular meetings of Credit Risk Manager - review of all suspicious cases and deciding on actions to be taken

• Manual underwriting system will be used in line with automated Fraud Prevention tools: ID Verification, National Hunter & Passport data check through FMS

• Income verification calls to customers with status “No credit history” or “Indefinite credit history”

• No cash disbursement/cards activations without verification by Call-Center

5. Credit Risk mitigation:

processes and analysis

Technical analysis

• Stop-list verification

• List of Terrorists verification

• Federal Migration Service: stolen, lost and/or overdue passports verification

• National Hunter verification – confirmed fraud cases and/or suspicious application (multiple requests with different data)

• ID Verification

• Photo docs on-line verification

Financial analysis

• FICO-Score & NBCH-score calculation

• Own scorecard for customers with “No Credit history” status

• Credit history analysis

• Income verification

• Essential Ratio to be observed calculation: Debt to Income ratio, Obligations to Income ratio, etc.

• Max available loan amount calculation (credit capacity)

Disbursement Analysis

• Borrower’s docs review after delivery by Couriers

• Jumbo-loans and “Grey Zone” loans review by Credit Officers

• Credit card/accounts activation and loan disbursement in case of positive Customers’ identification via Call Center

• SMS-confirmation for each transactions done by Customer

6. Credit Risk mitigation:

Behavioral Scorecard

• Bureau Score – is behavioral score-card designed by United Credit Bureau (former

Experian-Interfax) and National Bureau of Credit histories and completely meets

international quality standards and requirements

• Bureau Score aggregates data from both credit histories and credit enquiries

• Bureau Score estimates the risk of borrower credit default during next 12 months

• Bureau Score is an efficient tool for credit risk assessment process

• Min acceptable Score will not allow to exceed the admissible level of Bad rate of

4,15% (based on ГСИ) and 5,7% (based on NBCH).

Bureau

Bank 1

Bank 2

Bank 3

Bank N

`

`

`

`

`

`

Requests to Bureau

Credit records update

500

7. New products and services• Loans • Deposits

Classical

• Fixed high interest rate,• Maturity period ranges from 31 days to 730 days,• Interest paid monthly (optional reinvestment of

principal and interest),• Prolongation,• Banking card with free of charge first year service

Apply online Apply online

With minimum balance• Recurring,• Maturity period ranges from 31 days to 730 days,• Interest paid monthly (optional reinvestment of

principal and interest),• Prolongation,• Banking card with free of charge first year service

Flexible rate

• Floating rate deposit with advantage of rate increase based on a level of balance,

• Recurring, prolongation available• Maturity period ranges from 31 days to 730 days,• Interest paid monthly (optional reinvestment of

principal and interest),• Banking card with free of charge first year service

Credit card with grace period the product, that offers competitive market conditions

Major benefits:

• TTY: 2+ minutes,• TTC: 3+ days, • Single APR for cash withdrawal and non-cash

operations is charged,• Risk-based pricing implemented• High credit limit: RUB 1 Million,• Grace period up to 55 days,• Minimal monthly payment – only 5% from

outstanding principle and interest,• Individual interest rate ranges from 17.5% to

38.9%,• Free of charge first year service,• Card is issued for 4 years

Additional benefits:

• Chip-And-Pin modern security technology,• Option of service: Classic or Premium,• Premium cards (Gold and Platinum) are subject to

privileges provided by Visa and MC, if applicable,• 5000 units available for cash withdrawal,• FREE Up-front fee for the 1st year,• FREE cash transfer (for incoming amounts),• 28,000+ ATMs of bank-partners for FREE cash deposit, • 4,500+ terminals of Eleksnet for FREE cash deposits

Our plan is to have 11’958 loans and 2’640 deposits by the end of 2014

8. Our competitive advantagesParameters YAR-Bank TKS bank

Credit limit RUB 50’000 – RUB 1’000’000 Up to RUB 300’000

Interest rate for non-cash operations

From 17,5% up to 38,9 %

From 24,9% up to 45,9 %

Interest rate for cash withdrawal From 32,9% up to 45,9 %

Grace period Up to 55 days

Minimal monthly payment5 % from loan o/s + %%

(min RUB 600)6 % from total debt

(min RUB 600)

Up-front Fee:

1st year FREE Platinum only - RUB 590

2nd year +Gold – RUB 900

Platinum – RUB 1’200Platinum only - RUB 590

Cash withdrawal Fee3,3% from amount + RUB 330 (both

cash and non-cash transactions)2,9% from amount+ RUB 290

Cash transfer Fee (incoming)

FREE

Cash deposit Fee: Through Eleksnet and ATMs of banks-partners

Eleksnet payment system(4,500+ cash terminals)

FREE

NKO ORS (160+ banks & ATMs 28,000+)

FREE

Our service fees’ proposals are better or the same at least. We plan to offer better quality of

service to our clients: attentiveness to needs, flexibility, accuracy in details, simplicity

9. Launch To Do plan

Pre-Launch promotion (from the end of March 2013);

Social media marketing:- SNS official account (Facebook, Bkontakte,

Odnoklassniki),- YAR-Bank own blog,

Launch promotion;

1) Public relation:- Press conference (expect to plan on September 2014),- Media (Mass, Consumer) communication

2) Online advertising:- Search engine marketing (SEO, Search AD),- Display banner/text AD,- Lead generation partner

3) Campaign

10. Launch plan in details

Product Target number of application

Credit Card 6,000 per month

Deposit 1,000 per month

1) Public relation 2) Online advertisement

Event with journalist and blogger

■ IB project’ challenge from 2014 financial model

Create a unique information for media

Increase lead generation partner

Quality control of advertising channel

Brand recognition ↑ High quality traffic volume ↑

Synergy

3) Branding campaign “Matsuri” (Lottery)

Total 13 Japanese company in Moscow will join our campaign

They provide their high quality product / service for YAR Bank customer

KRUB 51’040 (KUSD

1’398) is budgeted for

Marketing and

advertising in 2014)

Appendices

I. Decision-making automated system:Bureau score Generation 2

II. Application Score card

III. Scoring-Bureau:Score for New-to-Bank customers

I. Decision-making automated system:

Bureau score Generation 2

Score bands

GB oddsBad rate Decision

MIN MAX

0 560 0,5:1 52,91% reject

560 640 2:1 27,48% refer

640 720 4:1 17,77% refer

720 800 8:1 9,48% refer

800 880 24:1 4,15% approve

880 960 60:1 1,75% approve

960 1040 85:1 1,1% approve

Reliability index

At least one credit history record found at UCB Credit history record found only at NBCH

Score and risk index returned according to table above (United Credit Bureau and

National Bureau of Credit bands).

Min acceptable Score will not allow to exceed the admissible level of Bad rate included in

Financial Model for break-even point calculation.

Score bandsG:B Odds Bad Rate Decision

MIN MAX

0 499 1,2:1 44,80% reject

500 549 1,8:1 35,90% refer

550 599 3,4:1 22,80% refer

600 659 7,2:1 12,20% refer

660 699 16,7:1 5,70% approve

700 749 30,5:1 3,20% approve

750 789 62,1:1 1,60% approve

790+ 97,0:1 1,00% approve

II. Application Score cardReliability index

No credit history records found at Credit Bureau

Score bandsGB odds Bad rate Decision

MIN MAX0 883 60,34:1 1.6% reject

884 895 61,55:1 1.6% reject

896 906 65,03:1 1.5% reject

907 916 68,96:1 1.4% reject

917 928 78,13:1 1.3% Refer

929 939 89,20:1 1.1% Refer

940 950 106,29:1 0.9% Refer

951 961 116,29:1 0.9% Refer

962 972 134,67:1 0.7% Refer

973 984 142,13:1 0.7% Refer

985 995 160,70:1 0.6% Refer

Score and risk index returned according to table above (in case of lack of data from Credit Bureau).

Application score card was developed based on the customers from credit portfolio of United Credit

Bureau and used in the absence of data from the Credit Bureau.

III. Scoring-Bureau:

score for New-to-Bank customers

Bureau score is incorporated into

current process flow with other scoring

steps as well as it is used as

independent score

Bureau score will be used for Risk-

Based pricing (assigning interest rate

and/or credit limit)

Score band Risk index Credit limit Interest rate

[Low : 560] 1 None None

[561.0 : 640] 1 Low High

[641.0 : 720] 2 Medium Medium

[721.0 : 800] 3 Medium Medium

[801.0 : 880] 4 Medium Medium

[881.0 : 960] 4 High Medium

[961.0 : 1040] 5 High Low

Score bandsBad rate Decision

MIN MAX

0 560 52,91% reject

560 640 27,48% refer

640 720 17,77% refer

720 800 9,48% refer

800 880 4,15% approve

880 960 1,75% approve

960 1040 1,1% approve