Interview of Chairman of Converse Bank Board, Tigran Davtyan, with ArmInfo news agency
by Emmanuil Mkrtchyan
Mr Davtyan, it is no secret that the situation in the economy has been worsening and the demand for credit resources falling. This affects the banking system for which it becomes more and more difficult to place the funds attracted from the market. Banks have been always looking for the new effective banking products with a low level of risk. Banks need products which will be able to balance the situation when the growing rates of the interest costs prevail over the interest income. As a result, today the banking system is very much liquid. How does Converse Bank fight such a situation?
I would like to divide my answer at three parts. First, you are absolutely right saying about liquidity of the banking system. And if we compare the current liquidity with that 10-15 years ago, the situation will be absolutely different. Then, the bank’s clients needed resources very much, though they were more expensive than the current ones. At present, the banks have been waiting for clients especially those which use credit resources, the borrowers. As you said, the healthy demand for the credit resources has fallen much because of the economic situation in the country, and supply exceeds the demand. As a result, interest rates have been reduced more and more. As a rule, first, interest rates for the placed funds are reduced. As for the attracted funds, despite extra liquidity, the interest rates are not immediately reduced so that to avoid losing of clients, as today any client is very much dear at this competitive banking market. The marginality and the rate of return decrease, and the banks are becoming not so much attractive for investors.
Now, let’s look at the problem from the other side, and it will become clear that today we have found ourselves in a unique vicious circle, where the economy has driven us to. We have come across a phenomenon the peculiarity of which is not only in absence of the new customers in the person of the borrowers, but also in the economic passiveness of the established customers. Enterprises and companies do not want to increase the volume of production and services and are rather conservative. As for the real sector, here the expecting mood prevails, and the available resources are not invested for business extension but are kept in the banking accounts.
Sometimes we hear that the war of the banks for a customer is becoming more and more severe. Is it really so?
Some actors of the banking market create special structures, the key function of which is to trace good customers of their competitors and gain them over through damping. So, the competition is severe and the banks are forced to look for the ways for introduction of new financial products, which bring chiefly the non-interest income.
What products Converse Bank is ready to offer today?
As we are marketed as a young and dynamically developing bank, we have started actively developing technological products. We have brought in a new more technologically developed Internet-banking, and offer new card products, including such an interesting product as a virtual card – Visa Virtual Account, when a customer gets CVV2 code and all the parameters of the card without a plastic card itself. This is convenient to those who buy much through Internet.
The product is oriented at younger customers, which use Internet-shops much, as a fee
For Visa Virtual Account is very much low. Another product of our bank Transfer card is also interesting, as a customer may directly get money from abroad. Another similar service, VPP - Visa Direct, has been functioning jointly with VISA payment system. A customer gets Visa card in Converse Bank and may immediately get money from any other Visa card from any continent. Moreover, soon VISA card holders of Armenia through the ATMs of Converse Bank will be able to immediately transfer money to another VISA card holder in Armenia and abroad.
In the money transfer sector, Converse Bank was the first in Armenia that made available the Armenian Converse Transfer money transfer system. Today we have been seriously dealing with extension of our partner-banks in Russia and the CIS countries. Later we shall enter the non-CIS states.
We also draw great attention at the e:commerce development. We give platform to our customers dealing with electronic commerce – create the so-called virtual POS-terminal.
We have been also intensively developing the mobile-banking and mobile-payment unparalleled in the country. I mean not only checking balance and getting information about the banking account, but its fully-fledged management with a help of the mobile telephone, as well as, making payments. We understand that smartphonization of the population has been taking place. Therefore, we try not to leg behind through offering of new technologies. With a help of smartphone, you can make payments and transfer money, not through the mobile operator but through you own mobile application using your own account. The bank will go on developing mobile technologies, the conception of which says, if you have a telephone with you, it means that you have a wallet with you too.
The products you are taking about are unique and prospective. But unfortunately, the situation is not so much simple at the market of the interest-free revenues. When analyzing the plastic cards market of Armenia, Arminfo experts have come to the conclusion that the quality of the market has started dropping. The Internet-banking sector is not more than 0,4% out of the volume of the plastic cards market. The retail sellers of goods and services abandon banking services. They do not want to take part in the acquiring – non-cash payment for goods and services, as there is no motivation in the conditions of sharp falling of the trade volumes and decrease of profits.
Actually, the mentioned market is still developing well, thanks the fact that banks find interesting solutions, and the national payment system ArCa upgraded its software last year, giving an opportunity to the banks to be more flexible and client-oriented. I think that despite the problems, that this segment of banking in Armenia has good prospects. However, here we have one serious problem – we do not have a culture of using banking plastic cards. Here because of setting limit for the cash operations at the legislative level, including the non-cash delivery of salary, the number of plastic cards have grown. But what has happened? A man takes the whole sum of his salary from ATM. As a result, 90% of operations with cards – are taking cash.
So, how to get progress in this sphere? Should you educate people?
Figuratively saying, we educate them. We introduce extra stimulation measures for the customers to use non-cash calculations more. Offer them “cash-back”. In certain days, we return up to 10% of the sum spent for purchasing goods and services to some of our customers. From time to time, together with VISA and MasterCard we organize various actions of loyalty and stimulation of the non-cash card operations. About 300 trade points in all over Armenia offer the card-holders of our bank up to 30% discount. So, it is not accidental, that according to the data of VISA International, Converse Bank is the first in the country by the non-cash payment.
However, I cannot but mention that not all our partners are honest. Sometimes, in the trade points they refuse taking plastic cards, saying the equipment is out of order. For instance, in one of the stores they told me that they are ready to offer the Converse Bank’s discount if I pay cash. Actually, people cannot trade in a civilized way, they often hide profit and try to avoid taxation.
When working with the banking cards, it is impossible not to show true volumes and to avoid taxation. There is another serious problem linked with tour operators. In all over the world, air tickets and travel packages are bought by the non-cash card payments, as they are expensive. But in Armenia the situation differs. On can buy an air ticket or a travel package by the card, but it will be by 10-20% more. So, it is better to use ATM. But if we seriously think about development of tourism, we do not have a right to act as backward people. We should look for the way out.
I used to meet in abroad the so-called automatic banking services points, offices, where there is almost no employee. Machines do everything, ATMs with different functions, terminals. Despite initial high expenses, these points raise effectiveness of banking much and reduce non-interest expenses, at the same time increasing non-interest incomes. As for Armenia, until recently we did not even have ATMs with the cash taking function.
You know, banks are not blamed for that. Earlier, our national payment system did not support many different functions, and only after upgrading of ArCa, gave such an opportunity to us. On the other hand, a human factor has become an obstacle for development of technological banking. People do not trust in machines, they used to work “face-to-face”. That time they do not worry about their money…Unfortunately, we shall not be able to replace people with equipment soon, and thanks to that raise effectiveness of work.
For instance, when I take money from ATM in abroad, my hands shake, as I think that something will happen with a card…
Unfortunately, such cases happen. And if you are in a civilized country, you will better use plastic cards when buying goods or services, but not taking cash. But we have an alternative – virtual area, Internet. This sphere has been intensively developing and many customers, if they do not deal with big volumes of cash, as a rule, use all the banking services through computer. Internet technologies will result in the situation, when we do not so much need bank offices. As I have already said, in Converse Bank we offer our customers the whole specter of services through the Internet-banking.
Is that system expensive for a legal person? Some banks demand big payment, which is much for small and even medium-sized enterprises.
This service is absolutely free of charge for all our customers –legal persons, if for a certain period of time a customer implements a certain number of deals. The system has a top level of protection and safety. I agree to those, who think that virtual banking is the future of the banking system and there is no need to visit a bank.
I would like to ask you about risk management. Banks are becoming more and more conservative in the hard economic situation. At the same time, technologies that can significantly reduce risks, should be developed. Do intuition and logic or jigs, fixtures and tools play a part here? Taking into consideration our Armenian reality, scoring does not always justify itself. There is professionalism of the credit officers, which contains a human factor with its risks and errors. What is the way out?
I am a supporter of the harsh policy when managing risks. Therefore, we have created a very much professional department for risk management in the bank, and have attracted young analysts. At least once a week, analysts give their recommendations on trends, the so-called global risks. The preliminary washout of credit applications takes place there. The next department monitors the given credits and reveals current problems and mistakes. This department also reveals the operational risks.
As for the microcrediting, expensive human resources must not be spent for that. Here scoring is perfect and works well. We use scoring when selling goods by installments. We give the system to a salesman, who can himself make contract with a customer or refuse making it. The bigger the credit, the harder to use scoring. As for the big consumer credits, here we need experience and intuition.
Last year, when analyzing the credit delivery system in one of big banks I saw an interesting way of revealing the level of a potential client’s creditworthiness, based not on his income, but on the way how he spend money and pays utility bills. What do you think about it?
You know, this is not a new system. It is often used in major part of credit organizations. Credit specialists assess the level and the quality of the life of a potential client. It is often used when giving agriculture credits, when it is impossible to reveal the registered incomes, but a man pays utility bill, for the irrigation water, taxes in time. In that case, irrespective of his official incomes, he can easily get credit.
What can you say about the programme for opening of the Post Bank?
As you know, we have opened two offices as a pilot project, which were working as post bank in a testing regime. We needed test to understand the effectiveness and the risk level when combining the post and banking services. First, we offered the separated option which turned to be ineffective – too high expenses. Then we offered banking services through post-offices. This option is good and the final product reaches the customer, but the line will be limited. I mean micro credit products, especially for rural population, deposits and currency exchange, and some money transfer systems, which will not hinder the ones which “Haypost” uses. We are also going to offer card products. I think that the scheme will be effective and a consumer will like it.