Fintech Pioneering in Retail: Andrey Gunin’s Story of Adaptation and Success

Can you provide an overview of your experience in the fintech industry and how you initially became involved in this sector?

Financial technology has been part of my professional and personal life for many years. For the first time I came across the fintech industry professionally at a time when I think it wasn’t even called that. Twenty years ago, when I was CFO of the Rolf group of companies, we in our company began to actively develop car lending and car insurance. For a couple of years, I even headed our subsidiary that provided these products to our customers. Rolf, as the largest car dealer in Russia, was a very desirable partner for banks who wanted to issue loans for the purchase of cars in our car dealerships, and insurance companies wanted us to offer insurance to our customers right at the point of purchase. Therefore, we created a technological platform that allowed our financial salespeople, by filling out a questionnaire, to receive several options for loans and insurance, and the clients could choose what suited them best. For doing this we received good commissions from banks and insurance companies and I was very glad that I was able to launch this project and then pass the CEO role in this subsidiary to my colleague and focus on developing other projects within Rolf. Well, the position of CFO of the group, of course, required a lot of time, since we were doing unique things in that field too.

This is quite unusual. Fintech projects usually seem to originate in the financial services industry but in your case fintech project was conceived within retail business.

Yes, that’s right. In fact, retail is an excellent industry for the development of fintech applications. A client of a retail shop always needs to make a payment and in addition he may often be interested in a loan or insurance for the purchase. And this applies not only to cars. In fact, after Rolf, I used this experience in my next company, when I worked for several years at Svyaznoy, where I was the Group CFO and CEO of the main operating company. Our company was the largest retailer of mobile phones and digital gadgets on the market. Nevertheless, we also turned out to be one of the pioneers of fintech in Russia. With over 3,000 stores, we knew we had very unique access to our customers. Our stores were in convenient locations, near the metro, in shopping centers, at busy intersections. Millions of people visited us every day. While the mobile phone market was booming, our task was to keep up with selling them. However, over time, the market became more saturated, a rapid explosion of consumption was replaced by a calmer rate of growth in sales of gadgets, telecom operators also began to exercise pressure by lowering their commissions for contracting clients, and we realized that in a changing market we had to change our strategy. I headed a working group that spent a few months on developing the new strategy. One of the results was a firm decision to actively develop sales of financial services in our stores.

What financial services are you talking about?

First of all, payments. People need to pay phone bills, utility bills, for Internet, for cable TV, repay loans, and so on. At that time, such payments through mobile banking applications or online were not yet very common. Customers trusted the cashier in our store more.

But there are often queues in the store, right?

Yes, and in order to avoid creating additional queues, we have put electronic terminals in each of our stores. A person could stop by a store near his metro station, spend a couple of minutes at the terminal to pay a bill and then run off to work.

And how big was this business?

Very high volumes of cashflow. We’ve reached about $10 billion a year. The flow of money that passed through us was undreamed of by many Russian banks.

It’s amazing. And what was the reason for such success?

We took product quality and technological excellence very seriously. This is truly financial technology in the full sense of the word. We needed our software to work flawlessly. Our system was connected through a gateway to the supplier infrastructure and payment systems, so that after paying off his phone bill the client immediately could see this amount on his account with the operator and could continue to use his cell phone. Therefore, the technology side was critical. By providing such financial service, we earned our few cents from each payment, but due to the huge volume of cashflow, our revenue from these services became very significant.

In addition to payments, did you provide any other fintech services?

Yes, sure. We created our own credit broker. This is where my similar experience in Rolf turned out to be very useful. We built a software in which information about a client was entered and he could receive a loan to make a purchase in our store. Our broker was connected to the systems of partner banks, which, having received information from the questionnaire, immediately made credit decisions and provided an answer. So, within 15-20 minutes, the client could fill out a questionnaire and receive decisions from several banks, among which he could choose the one that suits him best. This service led to a large increase in sales, as customers now had access to credit directly at the point of sale. Somewhat later, we launched other services based on this credit broker. For example, we began helping clients to receive bank cards. A form was also filled out, the information was sent to the bank, and if approved, the person left the Svyaznoy store with a new bank card.

And the banks were not against interacting with the client through you?

That’s a fair point. But banks didn’t have as many branches. They understood that our stores were much more accessible and that it was convenient for customers. Moreover, with our help, many banks learned to sell their products and kept their finger on the pulse, since being inside our financial broker, they immediately saw the result online. If they saw that 1000 people filled out the form in a day and no one took their loan, then it’s obvious that something was wrong with their product. We have created an almost ideal competitive environment for them, and nothing helps to get better as well as having a strong competitor.

It’s hard to disagree with this. And what in turn have you learned from these banks?

Well, the most obvious consequence is that we have learned how to make credit sales. But if you think about it more broadly, we have learned to look at our business not as a chain of stores that sell hardware, but as a huge distribution network that can sell a wide variety of goods and services. If before the change of strategy we earned 90 percent of our margin from the sale of phones and mobile operators’ commissions, then in 3-4 years after the launch of the new strategy our margin broke down into four approximately equal baskets: phones, other goods and services related to them, commission from operators and finally financial services. I consider the launch of the fintech business in Svyaznoy a great success of our team, and I am glad that I had a hand in this, directly developing and helping to implement this strategy.

What happened next?

Then my interest in fintech was embodied in new projects that I took up after leaving Svyaznoy. I started my own consulting practice and worked with a couple of fintech startups. One of them was involved in cash loans and achieved good results in Russia. They were very interested in entering other markets, primarily in Europe and potentially in Latin America, and I helped them build a strategy for entering other markets. It was really interesting. That is when I learned a lot of interesting things about Latin America and Brazil in particular. After that there was another interesting project – a company called Revo, which I met at an early stage of its development. They just launched their service of payment by installments at a point of sale

Are you talking about BNPL products?

Yes exactly. They had an interesting product – without any bank cards, very simple approval process right at the checkout in the store using your phone and with a minimum number of questions. The whole process actually took around 5 minutes. They connected several retail chains to their product and started seeing considerable growth, which required financing. They asked me to help with this, knowing that I had made my name in the Russian business on attracting good funding throughout my career. I worked with this startup for about a year and a half and as a result, I closed a deal for them with the best investor in Russia – the American fund Baring Vostok. This is the investment fund that in the early stages put their money in Ozon, Yandex, Tinkoff Bank and other projects, which then became leaders not only in Russia but also on the international level. They agreed to put some capital into our small startup too and it gives me a reason to be a little proud, since a deal with such an investor is worth a lot. It’s like if Warren Buffett became an investor in your startup in America.

Amazing. Is this why the deal took so long?

Not only. The process with the fund itself took about six months. Before that I had to prepare the company for the process. I helped them set up proper financial and management reporting and create a strategic business plan. I also received a very decent credit rating for the company from the largest Russian rating agency, which was the first time such a rating was given to a microfinance company. The unique nature of that project was that we were essentially creating an industry from scratch. The company did not have a banking license, it was created in the format of a microfinance organization. Almost all such organizations in Russia were engaged in issuing payday loans with extremely high APRs. And the attitude towards them was very wary both on the part of people and on the part of the regulator – the Central Bank of Russia, which tried in every possible way to limit various abuses by such organizations. This regulatory aspect would be very important in our communications with the investor. Realizing this, I spent a lot of efforts to reduce the regulatory risk and worked very proactively with the Central Bank. I met with their heads of departments who were related to the regulation of microfinance organizations, reporting, and risks. And I convinced them that our product was completely different from what microfinance companies usually do. I proved it, brought them calculations, and showed them in details how this service worked. The beauty of this BNPL product was that in most cases it was completely free for the customer. Our company made money from the store itself which paid a commission from each installment plan issued. For them, it was a customer acquisition cost. And the client did not pay anything on top of the price tag – he simply paid the normal price of his purchase in installments over 3 or 6 months. It was very unusual for the Central Bank to see that a microfinance company shows revenue and does not take a penny from the client. We built the installment market from scratch and eventually reached an understanding with the regulator. Later on, various banks also entered the space. But our product was unique because you didn’t need a physical card, for which many people no longer had any space left in their wallet, and we would not then actively cross-sell other expensive products to you as it was customary with the banks. So the company found its good niche in the market.

Having such an interesting experience of launching fintech services and fundraising for fintech projects, you can obviously talk about the state of this industry. What is happening in this industry now, what trends can you note?

Firstly, it should be noted that the fintech industry has definitely gained recognition and become very visible. The capitalization of listed fintech companies is already approaching a trillion dollars. There are at least three hundred fintech unicorns on the market. And in my opinion this is far from being over. The market is far from saturation. Moreover, this is true for both developed and developing countries. And here, by the way, the situation is very unique, since it is not that obvious who is in a better position for the development of fintech solutions. Often, developed countries with old, cumbersome and huge banking structures or insurance companies simply cannot change them quickly, primarily due to technological risks. It is much more important for them not to collapse their IT system, which somehow copes with serving tens of millions of clients, than to introduce some new service with a new technological solution. Plus, there are established habits and patterns of behavior that are difficult to change. Well, really, how else can you explain the fact that in the 21st century in the United States people continue to use paper bank checks?

This is true. But in developing countries there is often simply no infrastructure

Yes, somewhere there is not, but Internet is already reaching African savannahs and Asian jungles. And the population of such countries will benefit from the introduction of even simple fintech products such as easy payment process or an electronic wallet. Did you know, for example, that in Brazil, half of the country’s adult population said they use NuBank – a digital bank that has no branches. I come from Russia and I can assure you that in terms of the quality of financial services this country is far ahead of any Western country. The first digital bank appeared there about 15 years ago. And opening an account, making a transfer to a friend, paying for services to a company or government is much easier and faster than, for example, using Zelle or a banking application in the US. And I haven’t even started talking about China, which launched payments and money transfers in their Wechat messenger more than 10 years ago.

​So, you believe that there are still a lot of opportunities in different markets?

Yes. Though right now the industry is going through a difficult time of growing up. As with many other industries, the investors have periods of fascination and then periods of disillusionment. The incredible boom and blind optimism for fintech startups that we have seen for several years is clearly ending. Last October, I was at fintech week in Boston, and all that investors and the projects themselves were talking about were lower business valuations and a more sober view of the economics of financial companies. It is no longer enough for investors that the company is growing; they need the company to grow profitably. And that is the right thing to do. Companies must now focus on several important issues. The first is cost management. It is necessary to change operating models, introduce new motivation and KPIs, and show investors the ability to grow in a sustainable manner. Secondly, focus on critical products or critical competencies. Now there is no need to rush in different directions to capture markets and provide additional services. You need to focus on your main product, do it right and show profit. Third, companies need to think more intelligently about alliances and mergers. Through smart M&A they can complement their competencies or product line, rather than trying to develop them from scratch. During crises, such M&A activity is usually more meaningful, and it is good for the industry. Well, there is no need to give up because valuations are down and investors have become more demanding. It is important to maintain an innovative culture and startup enthusiasm. This will allow continued innovation, which is the most important ability for the fintech industry.

Do you plan to participate in the fintech industry in the future?

Considering that this industry has been following me for 20 years, it’s unlikely that I will be able to hide from it for long. In fact, I see very interesting opportunities in the US. Having experience in launching fintech products and having enjoyed very advanced fintech services in Russia, as a consumer, I see opportunities at almost every step. I have some thoughts on what exactly I might do and hope to be able to share some news with you next time.

We’ll be looking forward to it. Good luck with that

Thank you