Presentation about Life Finance Hierarchy as a new approach which defines the future of banking and rise of New Life Finance Providers. Presented by Sergey Kozlov on BANK 3.0 Discussion Panel, 2nd International Banking Conference & Exhibition from 3-7 June 2013 in Kiev, Ukraine.

1. LIFE FINANCE
HIERARCHY:
NEW APPROACH
@Kozlov_Sergey
Nadra Bank Board Member
Director of Retail Business
PhD in Economics
June 3, 2013

2. MOVIE: ASSAULT ON WALL STREET
A security guard for an armored truck,
Jim is a blue-collar New Yorker who
works hard to earn a living. His wages
support himself and his wife Rosie, who is
on the upswing recovering from a near-
fatal illness. Yet things start to fall apart
after Rosie's health insurance stops
covering her treatment and Jim's life
savings are lost via a disastrous
investment his stockbroker had advised
him to make. As a row of professional and
personal dominoes falls, Jim is confronted
by the realization that, after being
abused and exploited by financial
institutions for far too long, he has only
one choice: to strike back.
http://youtu.be/8Y-NqShTj5w

3. FINANCIAL CRISIS: BANKING VS. CASH
1. Raise your hand who wants to
lose all your life savings due to
some financial institution?
3. Raise your hand who do care whether
it was remote (mobile) or branch banking
when you have real threat of loosing all
your life savings?
“This is not a game for me. This is my LIFE!”
Jim “ASSAULT ON WALL STREET”
2. Raise your hand who prefer banking
vs. cash in circumstances of severe
financial crisis?

4. 20 YEARS AND 3 CHANCES TO LOSE ALL LIFE SAVINGS
Date Consequences of Financial Crisis in Ukraine and Russia
1990-
1992
- Fall of Soviet Union to 15 independent states including Ukraine and Russia
- Frozen savings in Sberbank of USSR
- Hyperinflation of more then 1000 times
Result: total loss of life savings by majority of former USSR
population
1997-
1998
- Collapse on stock exchanges
- Local currencies devaluation (2-3 times for Hryvnia and Ruble)
- States defaults
- Massive bank bankruptcies in Russia
Result: partial loss of life savings due to devaluation and deposits
lost in banks which went bankrupt
2008-
2009
- Collapse on stock exchanges
- Hryvnia devaluation from 5 to 8 hryvnias per dollar
- Banks bankruptcies with deposits compensated by Deposit Insurance
systems
Result: partial loss of life savings due to devaluation and delays in
deposit repayments

5. LIFE FINANCE HIERARCHY
Life
Finance
Remote Banking
Branch Banking
Money Exchange
Natural Exchange
Experience
Service
Utility
Survival
Personal Data
Channel
Location
Transaction
Need Focus
Food
Incomepercapita
FinanceComplexity

6. LIFE FINANCE DEFINITION
Life Finance (personal finance) refers to the financial decisions
which an individual or a family unit is required to make to obtain,
budget, save, and spend monetary resources over time, taking into
account various financial risks and future life events. When
planning Life Finances the individual would consider the suitability
to his or her needs of a range of banking products (checking,
savings accounts, credit cards and consumer loans) or investment
(stock market, bonds, mutual funds) and insurance (life insurance,
health insurance, disability insurance) products or participation and
monitoring of individual- or employer-sponsored retirement plans,
social security benefits, and income tax management.
Source: http://en.wikipedia.org/wiki/Personal_finance

7. LIFE FINANCE HIERARCHY PRINCIPALS
5 levels of Life Finance are ranked, according to the
order in which they influence human financial
behavior, in hierarchical fashion.
So long as lower levels are not covered, they exist as
a driving or motivating force for financial behavior.
Jump from Natural Exchange or Money Exchange
levels to Life Finance is not possible unless there is
a relevant shift in per capita income level.

8. LIFE FINANCE HIERARCHY BY COUNTRIES
Level
GDP per capita
(current US$)*
Countries
Remote
Banking
> 30 000
30 countries: Norway, Switzerland, USA,
Japan, Germany, France, UK
Branch
Banking
> 10 000 and
< 30 000
33 countries: Greece, Estonia, Lithuania,
Latvia, Poland, Russia, Brazil, Kazakhstan
Money
Exchange
> 1 000 and
< 10 000
85 countries: Azerbaijan, Belarus,
Turkmenistan, China, Ukraine, Armenia,
Georgia, Moldova, Uzbekistan, India,
Kyrgyzstan
Natural
Exchange
< 1 000
31 country: Tajikistan, Cambodia, Nepal,
Bangladesh, Rwanda
* World Bank national accounts data, and OECD National Accounts data files for 2011

9. The more you know about financial institutions and
banks the less TRUST you have
Country TRUST Level
Rwanda 91% Natural Exchange
Cambodia 87% Natural Exchange
Nepal 81% Natural Exchange
Bangladesh 81% Natural Exchange
Norway 73% Remote Banking
China 72% Money Exchange
India 70% Money Exchange
Uzbekistan 66% Money Exchange
Tajikistan 66% Natural Exchange
Japan 63% Remote Banking
Georgia 62% Money Exchange
Kazakhstan 57% Branch Banking
Estonia 55% Branch Banking
Armenia 54% Money Exchange
Kyrgyzstan 52% Money Exchange
Country TRUST Level
Azerbaijan 50% Money Exchange
Poland 50% Branch Banking
Switzerland 47% Remote Banking
Belarus 47% Money Exchange
Brazil 45% Branch Banking
Germany 38% Remote Banking
USA 37% Remote Banking
Moldova 37% Money Exchange
Russia 33% Branch Banking
France 32% Remote Banking
Latvia 32% Branch Banking
Lithuania 29% Branch Banking
Ukraine 28% Money Exchange
UK 27% Remote Banking
Greece 13% Branch Banking
Source: GALLUP World 2012 http://www.gallup.com/poll/162602/european-countries-lead-world-distrust-banks.aspx#2

10. M-PESA CASE: FROM NATURAL EXCHANGE
TO MONEY EXCHANGE
U
T
I
L
I
T
Y

11. A CENTURY AGO: FROM MONEY EXCHANGE
TO BRANCH BANKING
S
E
R
V
I
C
E

12. 15 YEARS FROM NOW: FROM BRANCH BANKING
TO REMOTE BANKING
E X P E R I E N C E

13. THE FUTURE IS HERE: FROM REMOTE BANKING
TO LIFE FINANCE
Personal

14. VALUE CHAIN: EVOLUTION OR REVOLUTION?
Level Value Extractor Commodity
Life Finance Life Finance Providers
(Internet Start-ups,
Social Networks,
Telecoms, etc.)
Banking Services
Remote Banking Banks Non-cash Money
Branch Banking Banks Physical Money
(cash, gold, etc.)
Money Exchange Merchant Goods
Natural Exchange Seller and Buyer Item
Loss of TRUST in existing financial institutions and banks
leads to raise of new Life Finance Providers

15. UKRAINE: INTERNET AND MOBILE REVOLUTION
Technology drives the speed of change
but does not determine the system
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Internet Users, % of population
Ukraine USA

16. TECHNOLOGY DOES NOT REPLACE THE TRUST
M2 to M1 Money Supply Ratio
0%
100%
200%
300%
400%
500%
600%
2005 2006 2007 2008 2009 2010 2011
Ukraine + Foreign Currency Cash Ukraine USA

17. BACK FROM BRANCH BANKING TO MONEY EXCHANGE
12000
13000
14000
15000
16000
17000
18000
19000
20000
21000
2005 2006 2007 2008 2009 2010 2011 2012
Ukraine: Decreasing Number of Branches

18. UKRAINE: SELL BRANCH BANKING
BEFORE YOU SELL REMOTE BANKING
BACK TO CASH: Due to 2008-2009 economic crisis decrease
in the number of branches connected with the switching of
customers from Branch Banking to Money Exchange rather
then development of Remote Banking.
TARGETING BRANCH BANKING: According to proposed Life
Finance Hierarchy Ukraine is on Money Exchange level.
Further advance to Branch Banking will lead to increase in the
number of branches.
MIXED APPROACH: The key challenge for Ukrainian Banking
System today is to restore TRUST and confidence. Branches
play key role in this process as well as in the process of
advancing customers further from Branch Banking to Remote
Banking levels.

19. @Kozlov_Sergey
@Kozlov_Sergey
Nadra Bank Board Member
Director of Retail Business
PhD in Economics
THANK YOU! QUESTIONS?
www.facebook.com/
sergey.a.kozlov
ua.linkedin.com/in/
kozlovsergey

20. P.S. WHO IS THIS MAN?

21. P.S. LEV GUMILEV: ANCIENT RUS’ AND GREAT VALLEY
Aberration of
Proximity -
significant
exaggeration of
recent events in
comparison with
earlier