TCS Group - Tinkoff Business Strategy Day

Tinkoff Business yesterday hosted a strategy session, the second of a series of scheduled deep dives into the key verticals within TCS's digital ecosystem.> Financial targets. TCS aims to increase its active SME customer base from 0.3 mln now to 0.5 mln in 2023 (we forecast about 0.6 mln) and 1 mln+ in the "medium term." It is aiming for a 2021E-23E revenue CAGR of more than 30% (we have 28%). Average revenue per customer should be "stable to improving," as TCS works with higher-revenue generating mid-sized corporates.> Customer segmentation. About 80% of the current active customer base consists of individual entrepreneurs (IEs, 255k), and there are about 45k small-sized businesses and 10k medium-sized businesses. Two-thirds of the active customers are in retail, services or IT, and the average age of IE customers is 36 - attractive segments and demographics in which to be. > Features. Tinkoff Business offers a wide range of online products and services, including payments and acquiring (to be discussed at a later strategy session), proprietary software, customer loyalty programs, accounting and marketing tools and lending services. With abundant internal data, SME lending is being scaled up, aiming for "tens of billions" of rubles in loans, with no fixed timeline (R4 bln at 1Q21).> Growth prospects. The SME market is small and ripe for growth - Russia's 6 mln SMEs contribute only about 20% of GDP and employment and account for 13% of corporate loans. TCS's share in IE current accounts has been growing but is still only 6.4%, and it has just 0.4% of total corporate current accounts. Only 10% of retail SME customers use Tinkoff's online acquiring. Tinkoff's SME net revenues in 2020 were just 1% of the expected 2023 TAM (R1 trln). > Monetization. Revenues are split 75% fees (subscriptions, transactions and payments, FX) and 25% interest income (cash balances, lending). The mid-sized segment is seen as the main revenue growth driver, given both the current low base and its higher revenues per customer.> How it fits into the ecosystem. Tinkoff Business is integrated into Tinkoff's ecosystem from several angles, led by Tinkoff Black as a key acquisition and cross-sell tool. It is closely interlinked to the acquiring business and increasingly to consumer finance through BNPL and POS loans. Recent plans include investment services for SME customers. > Competition. There are half a dozen dominant SME banking providers, including Sber (39% IE current account share), Alfa (11%) and VTB (9%), and specialized SME players Tochka and Modulbank. TCS sees its competitive advantages as similar to those elsewhere in the ecosystem: best in class online service, technology and fastest time to market.