MTS targets ‘unbanked’ Russian market

By Elliott Holley

Russian telecoms operator MTS is planning to provide banking services to customers that lack a traditional bank account, following an agreement to purchase a 25.09 per cent stake in MTS Bank.

Under the deal, MTS will expand its stake in MTS Bank, while Sistema, the public financial corporation that holds a majority share in both MTS and MTS Bank, will reduce its holdings in MTS Bank from 87.1 per cent to 65.3 per cent. The aim is to capitalise on the growth opportunities presented by Russia’s 140 million population, which is rapidly adopting mobile and internet technology.

Russia currently has more than 232 million mobile users, although not all of these use their mobiles to make payments. Russian credit card penetration currently stands at around 15 per cent, and is expected to grow by 50 per cent this year.

“MTS is extending its brand in financial services to take advantage of forecasted double-digit growth in the market for financial products and services in Russia, which remains one of the largest ‘unbanked’ markets in the world,” said Andrei Dubovskov, president and chief executive of MTS. “The acquisition of a stake in the MTS Bank will permit MTS a greater voice in MTS Bank operations, while the Bank will benefit from additional resources to enhance its retail operations.”

MTS already has some experience of financial services. In 2010, the firm launched an Easy Payment service, which allows customers to make payments using money in their mobile accounts using SMS, mobile apps or the MTS website. In April 2011, MTS partnered with MTS Bank (known at the time as the Moscow Bank for Reconstruction and Development) to launch MTS Dengi, a project aimed at providing Russian customers with payment tools including credit cards, NFC-enabled SIM cards and PoS credit.

Meanwhile earlier this month, Russian entrepreneur Oleg Tinkov set out his own plans to capitalise on Russia’s growing adoption of internet and mobile banking technology. Tinkov is the inspiration behind Tinkov Credit Systems, an online bank that currently has 2.5 million Russian customers for its credit card business.

Mobile payment services have achieved a strong track record in other emerging markets in recent years, especially in markets where adoption of mobile phones has outpaced traditional bank accounts. Kenya’s M-Pesa, a mobile payment channel that lets users send and receive money without a formal bank account, was credited with an estimated 15 million customers by May 2012.

The MTS share purchase agreement remains subject to final approval by the boards of directors at Sistema and MTS Bank as well as MTS Bank shareholders.