Halva: Russia’s biggest Buy-now and pay-later system

  • Sergey Khotimskiy, First Deputy Chairman of the Management Board at Sovcombank

  • 12.07.2021 05:57 pm

An Interview With Sergey Khotimskiy, First Deputy Chairman of the Management Board, Sovcombank.

Financial IT: Please tell us a little about Sovcombank’s history. Please also explain what is its current business (retail banking, corporate banking, investment banking etc.) and what is its key competitive advantage?

SK: Sovcombank is one of the largest privately-owned banks in Russia by total assets, with a branch network of 2,413 offices, supported by 17,500 people employees, reporting ₽187 billion total equity.

We’ve grown significantly since 1990, but we remain within a market sweet spot where we are not too big to identify very profitable niches. Most of the Russian market is controlled by state-owned banks, creating an opportunity for our rapid expansion while protecting our particular share of the market. Despite this agility, Sovcombank has grown significantly – we’re designated a systemically important financial institution in Russia and we have the scale to invest in IT, new businesses, and ambitious new products. We also have one of the highest credit ratings and a unique shareholding structure for Russia. Many of our shareholders are also managers of the bank and have been for as many as twenty years, which fosters an alignment of interests that has been vital for Sovcombank’s growth and success.

Finally, an important differentiator is our disruptive product Halva, Russia’s biggest Buy-now/pay-later system, which we launched back in 2017.

Currently, Sovcombank’s financial group business model is based on three key pillars: retail banking, corporate banking and treasury segments contributing equally to the Group’s bottom line. The Group’s three operating segments complement each other to generate strong synergies and provide important diversification to the Group’s income streams. This diversification enables us to evaluate broader opportunities in complementary markets through the economic cycles in Russia and adjust our business model accordingly to take advantage of such opportunities.

Another key differentiator is that we now have more than 25% of all retail shops in Russia within the Halva partner system. Halva has shown significant growth in assets and net interest income in the retail business over three consecutive reporting periods, with huge potential for further expansion due to rising demand among customers for a buy-now/pay-later product.

Financial IT:  Please explain what is the Halva card. What is the market, and Halva’s share of it?  What are the main trends?

SK: Halva enables customers to make purchases in interest-free instalments in stores from the Bank’s partner network, which includes more than 25% of all retail shops in Russia. Stores pay interest for the buyer to the Bank, generating value for all three sides of the partnership: customers buy goods by using interest-free instalments, stores attract a new loyal buyer, and the Bank effectively distributes risks and receives a reliable source of income in the face of the retailer.

With 220 thousand shops and more than 7 million cardholders, Halva is by far Russia’s biggest loyalty coalition at 55% of the market share. Halva has shown significant growth in assets and net interest income in the retail business over three consecutive reporting periods, with huge potential for further expansion due to rising demand among customers for a buy-now/pay-later product. We have the capacity of meet this demand.

Right now, Halva operates within a relatively niche market – instalment cards account for approximately 6 percent of the total banking cards market - but we expect that to expand significantly. Customers are increasingly pulling away from conventional credit cards because they simply do not want to pay the interest. As the biggest player in the instalment card market segment, we’re ensuring Halva – and Sovcombank – continue to lead the market ahead of surging future growth.

Financial IT:  Please discuss the technology that supports the Halva card. Was it developed within Sovcombank or in partnership with outside firms?

SK: Halva is a good example of a partnership enabling a quick start. We launched the product with our colleagues with a franchise from MTBank, who achieved outstanding results in the market of Belarus. By leveraging their expertise, we launched a product that was absolutely new to us and new to the market in just 3 and a half months.

Financial IT:  How does Halva and the technology that supports it reinforce Sovcombank’s competitive position?

SK: More than 220,000 stores participating in the Halva programme – this means that every fifth store in Russia pays us commission on every purchase made by Halva cardholders. This is an enormous competitive advantage that is impossible or very difficult to replicate even by biggest state-owned banks. For example, Sberbank’s “Spasibo” loyalty program partners with only 75,000 stores. Halva is also a magnet for customers, attracting several million to Sovcombank over the past couple of years, which enables us to develop our entire retail portfolio.

Installment cards today are the best mechanism on the market to increase the average check and the frequency of customer purchases, so the benefits to stores are obvious, and customers also benefit. They are increasingly unwilling to pay interest on credit cards, and in some cases, customers have used the card as a way to access additional lending at a zero-interest rate in case of emergency. Supported by the growing volume of online transactions, the Halva Card has also scored over POS lending , which is mainly limited to offline purchases and is tied to a pre-specified credit limit. Halva Card holders get credit limits for the purchase of any goods from a broad selection of retailers instead of a limit for a given refrigerator or a TV set, for example, an advantage our customers appreciate.

Partners are also interested in developing and increasing value of their own loyalty programs and promoting their own mobile apps, and we support this by showing the bonus balance of their programs in our Halva mobile application and offering to download their applications. Many of us do not even know how many points we have accumulated on the bonus card of a particular store. Customers visit the Halva application on average 7-8 times a month and every time, they’re shown how many points are on the partners ' cards account, plus reminders if points are about to expire. There is also an opportunity to issue a bonus card of some partners directly in our mobile application, so with a single click, customers can start receiving bonuses.

Partners are interested in the growth of the average check, and we make our customers the most profitable purchase from a partner with a Halva card, providing installments or cash back.

In 2020 Sovcombank acquired its main competitor – Sovest installment card was merged with Halva. At that time, more than 95% of Sovest partners became or have already been existing partners, and we are in the process of signing on many of the remaining retailers. Combining projects will strengthen the effect of cooperation for each of the partners, bringing in more customers, increasing their access to stores, and allowing customers to save more effectively on their daily purchases. Retailers will be able to reduce their costs of administering loyalty programs and increase trade turnover by serving customers who are members of both projects.

Financial IT: What are the main challenges in the buy-first-pay-later online retail market in Russia?

SK: Currently, Halva and the corresponding mobile application represent the direction of the market, and so ready-made solutions to support our expansion and development of the service do not exist. Halva’s development is significantly influenced by the accumulation of real client experience and expertise, which means it makes more sense for us to organize the work of product teams for our own development.

Fortunately, this gives Sovcombank an advantage over market peers who either use vendor solutions en masse or solely develop solutions in-house, both of which require more resources and time and do not allow them to reuse investments made by others.

Financial IT:  Taking a two year view, how do you think that the Halva business will change?

SK: We believe that a unique ecosystem has been created around Halva in terms of the number of partners and the benefits they provide, and over the next couple of years, we are focused on further developing this ecosystem. Much of this work will be executed by Sovcombank Technologies, a subsidiary created by the Bank. The company will explore innovations including biometrics, chatbots, conversational artificial intelligence and its application in the financial sphere, as well as piloting other technologies potentially beneficial to the massive population that already participates in and relies on the Halva ecosystem.


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