Tinkoff: How To Build An Online Business In Russia

Serial entrepreneur Oleg Tinkov has made a name (and fortune) for himself by taking Western ideas and adapting them to the Russian market. So far, he has successfully accomplished it four times, with consumer electronics, restaurants, beer and frozen food.

Now, the charismatic businessman wants to tap into Russia’s growing online market, through an online-only bank and mobile display advertising venture. Both Tinkoff Credit Systems (TCS) and Tinkoff Digital (TD) – which use a different spelling of his name – are young companies, but the rapid growth they see serves as a testament to the power of this developing economy.

What makes Tinkov’s latest projects different is the technology. Both businesses rely heavily on IT and liberally collect user data in a country where attitudes towards data protection are still apathetic.

Wild Capitalism

The number of Internet users in Russia is expected to reach 85.2 million by 2016. It is the biggest online audience in Europe, already being served by homegrown giants such as Yandex, Mail.ru and Ozon.ru, but with large chunks of market still ripe for the taking.

Tinkov is a true patriot. Born in Siberia, he worked as a miner, before realising that his business skills could offer a far more comfortable lifestyle. “I like to use the opportunities we have in Russia,” says the entrepreneur. “There’s no competition, and loads of cash.” He is full of praise for Russian engineering and scientific tradition, and has chosen to base his new businesses on technological innovation.

TCS, launched in 2007, is Russia’s only bank specialising in credit cards. It has zero branches, but provides services to 2.5 million customers. What makes it unique is the approach to information – three quarters of TCS employees work in analytics and IT, developing algorithms and crunching numbers.

The Russian financial services market is notoriously difficult, with very low credit card penetration and small banks. But it also has growing Internet penetration and a vibrant online culture. This inspired Tinkov to create a bank with no physical infrastructure, which would target mass market across the country.

Goldman Sachs is one of the chief backers of TCS. The online bank started operations in 2007; a year when launching any consumer credit service was considered madness. However, Tinkov was willing to sink a large chunk of his own money into the project. It was this confidence, and his track record, that appealed to the US investors.

Over the coming months, TCS might have its IPO in London, but CEO Oliver Hughes says that there’s plenty of work left to do in Russia before the company can consider a European expansion.

Getting Digital

Tinkov’s sixth venture, Tinkoff Digital (TD), is only four months old, but its ambition, according to CEO Anna Znamenskaya, is to become “the leading high-tech player on Russia’s advertising market”.

Tinkov explains that he saw an opportunity in display advertising, since the Russian market isn’t dominated by one large player. Search advertising in the world’s biggest country is already divided between Yandex and Google.

The mobile Internet audience in Russia currently stands at around 15 million; about half of mobile users own smartphones, and ten percent own tablets.

In 2011, spend on Internet advertising across the country totalled $1.5 billion. In 2015, it is projected to increase to $4 billion. Despite this, the market is spread between many smaller players, and is described by TD as ‘young’ and ‘raw’.

Another important feature of the local market is the dominance of Android. Over half of Russian smartphone owners are using Google’s operating system. Why is this important? Znamenskaya says that Android offers much more data to advertisers than Apple’s iOS. And TD is all about data.

The company aspires to create a complete mobile advertising ecosystem that would introduce Real-Time-Bidding (RTB) to the Russian market. RTB offers Facebook-style targeted advertising, but with much deeper level of customisation. After processing terabytes of user data, TD will employ sophisticated machine learning algorithms to predict the value of each page impression for every advert.

Where does the bidding come in? Well, once a certain user profile enters the system, advertisers are invited to bid for a chance to show their messages. The more valuable the user, the  more expensive the bid. The whole process is usually over in about 120 miliseconds, and essentially allows advertisers to tailor advertisements on-the-fly.

TD wants to assemble as much data about mobile device users as technically (and legally) possible, and apply Big Data analytics to mine it for marketing insights. Every interest, every possible need and desire will be processed, catalogued and exploited.

“In reality, this is not personal data. Of course Google knows what you search for, it knows who your friends are. But it doesn’t know you as a person with a name and a surname, you are just an ID number,” Tinkov told TechWeekEurope. “I don’t see it as a big problem. To me, it’s a positive thing that the Big Brother starts to understand who we are, and only shows us advertising that we’re supposed to see.”

“I would rather see targeted advertising than female hygiene products in my browser. I don’t care about Nissan, I would rather see ads for BMW or Rolls Royce. Besides, if you care that much about your privacy, you could always delete the cookies,” he added.

Sure, TD is not really breaking new ground. But it is a company that has combined several big ideas into a unique structure, which could use the current digital shift to make yet another Tinkov venture a success.

Euro Story: each week, we publish a selected story from across NetMediaEurope’s network of European sites. This week’s story by Max Smolaks is from TechWeekEurope UK .

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