For many investors scarred by the Russian market meltdowns of 1998 or 2008, the memories are too painful and the political risks too high to get excited about Russian stocks.
Still, there are nimble companies that are investing in technology and have been expanding their digital footprint despite the geopolitical risk, big state-owned competitors and a myriad of other risks that go along with operating a business in Russia.
Listed in London, Tinkoff Bank (London International: TCS Group Holding PLC) has been growing steadily over the past 12 years, capturing second place in Russia's credit-card market with 12% share behind the state-owned Sberbank (MCX: SBER). Tinkoff Bank's services range from digital financial services, online insurance, virtual mobile services and venturing into travel, ticketing and digital content.
Over the last few years, Tinkoff has been increasingly competing with Russia's tech giants like Yandex and Mail.ru rather than traditional banks.
"It's been an evolution," CEO Oliver Hughes said in an interview with Real Money in New York. He who describes Tinkoff Bank as a "tech company with a banking license."
"Five years ago, if you looked at our P&L, it was 100% credit cards. It was our bread and butter," he said. "Now we compete more and more with Yandex (YNDX) and Mail.ru (London Stock Exchange: MAIL), the Chinese and American names in the financial services."
Currently, Tinkoff is opening 18,000 new accounts per day, aiming to reach a total of 10 million customers by the end of the year. Yet the company projected its net loan portfolio growth to slow this year to 25% from 36.3% in 2017, according to company data.
As the credit-line growth is slowing down, the company is doubling down on virtual mobile services and is growing its team.
Sberbank: the Elephant in the Room
Tinkoff's biggest competitor is Sberbank, Russia's state-owned lender.
How do you do you compete with a state-owned bank? By staying tech-driven.
"The big banks focus on big cities and they depend on branch-based distribution, so they can't reach other areas," Hughes said. "We don't have the size and scale of Sberbank, but we have the edge because we're focused. They are not as quick, their time to market is a big slower."
In 2013, the Tinkoff team had a realization that the tech platform they owned was underutilized. Now, it's tech-driven growth first.
"In our head office we have 2,500 employees, 1,700 developers, designers, testers," Hughes said. "In the future, if you're going to survive as a financial-services provider, you have to become a tech company. You can't be a balance-sheet company."
Hughes said Tinkoff is hiring 100 people per month, mostly developers, and writes all of its software in-house.
The news headlines are not doing any favors for Russian companies.
"The level of innovation, system design and product design in a whole plethora of IT companies, including fintech, is on par with the rest of the world," said Hughes, who was in the U.S. on a roadshow to meet with investors. "It's just because of the geopolitical situation, people don't really focus on this at the moment."
The company's revenue was 19 billion rubles ($303 million) last year, compared to 14 billion rubles ($222 million) generated by Mail.ru. Tinkoff is projecting to generate 24 billion rubles ($381 million) in revenue this year.
Hughes sees continued growth in Russia alone over the next three to four years "without going anywhere else."
Part of the rationale for this growth is Russia's fast-growing Internet user base.
In Russia, 60% of the population are smartphone owners. In terms of Internet users, the country holds the top spot in Europe and sixth in the world, according to McKinsey Digital report last year. At the same time, the e-commerce market and mobile payment systems are in the early stages of development.
To be sure, Tinkoff's credit-line business is still 70% of the business, and it's far from being an entirely a tech or non-credit services-focused company.
For Tinkoff's critics, the nimble offline model has its limitations in an emerging market like Russia.
"I don't like the fintech business model. There is a systemic error, this idea that a machine is smarter than a computer," said Pavel Vrublevsky, CEO of ChronoPay, an Amsterdam-based online payments provider that operates in Russia, noting there is a limit to a tech-driven competitive advantage. "A grandma at Sberbank is still smarter than a computer when it comes to money."
As for geopolitical risk and sanctions, Hughes shrugs them off.
"The sanctions had zero impact," he says. "Investors don't like unpredictability, but it's over our heads."
If Russian history is any indication, the key to success is to not how fast and how big you can get, but how long you can fly relatively under the radar while churning out solid revenue.