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A. Voylukov. Priorities of digital transforma

Alexey Voylukov, Vice-President, Association of banks of Russia



Today the banking sector all over the world is going through drastic changes aimed at the digitalization of processes. The trend has already closed thousands of bank offices worldwide. Online banking is also flourishing.

The Russian banking sector is also an active follower of the trend. According to Deloitte Digital Russia is among top five countries – leaders of digital banking in ЕМЕА (Europe, Middle East and Africa). Since the start of the year the number of banks’ branches in Russia has been reduces by more than 1200 offices (in 01.01.2019–01.09.2019). At the same time we can see more banks with development strategies which don’t imply physical presence. It is happening due to rapid development of the branchless banking. Judging by the polls of the Association of banks of Russia more than half (55.6%) of the managers of credit organizations in the survey agree that in a while digital banking will totally supersede the traditional one. According to KPMG 86% of respondents from Russian banks and financial institutes already have a program of digital transformation. Large Russian banks stick to the transformation into digital organizations with a wide range of financial products and services. They invest considerable amounts into fintech and actively use innovative pilot projects. Once a full-scale digital transformation is completed banks will be able to render for their clients a wide range of services within their own financial and even non-financial ecosystems. Some of such platforms are already being created on the basis of large banks giving them considerable competitive advantages. However, most Russian banks can’t afford such projects.

The lack of money for digitalization is partly made up for by the establishment of nationwide platforms with a set of technological services. The Bank of Russia includes the following major elements into the developing financial infrastructure which meets the challenges of digital era: instant payments system; Unified system of identification and authentication (USIA) including the one with biometrics; financial marketplace; distributed ledger platform (blockchain) which allows to speed up the document flow between financial organizations.

The formation of the nationwide financial infrastructure leads to partial equality of competitive opportunities for different groups of banks, to lower priority of the location of a bank, to the conditions for much lower expenses of business and better availability of financial services.

In order to improve remote access to the financial services for the customers a platform has been created with remote identification with the application of the Unified system of identification and authentication and the Unified biometrics system (UBS).

On June 30, 2018 in the Russian Federation the amendments were introduced to some laws and came into force. These amendments allow the state bodies, banks and other organizations if required by law to verify identity of individuals remotely basing of their personal

biometrics. Recently the banks were facing the challenge to equip their offices with the means to collect biometric patterns by the end of 2019. Once the necessary approvals are obtained in the regulating bodies we expect the launch of a cloud method of biometrics data cryptography of people (faces and voices) when passing it from banks to UBS.

Besides the work is being carried on to create the digital profiles (DP) of individuals and legal entities. The launch of digital profile will allow people to look through their personal information in the state information systems (SIS) and to provide these data to financial organizations which would result in a slide of hardcopies flow. This technological solution also enhances the possibilities for banks to develop online crediting and to reduce expenses.

In the context of ramping up digitalization with the aim to improve payment services there is an Instant payments system (IPS) – the crucial infrastructure project of federal importance. It was worked out by the Bank of Russia and aims to promote competitiveness, better payment services, wider financial access, lower price of payments for the population. IPS allows the individuals to transfer money 24/7 by mobile phone number to other individuals and their own accounts regardless of the bank of the remitter and the recipient of money. The system will be available via mobile apps of the banks linked to IPS from smartphone, tablet or computer. Today 18 banks are connected to the system.

Currently another project of the Bank of Russia is on the drawing boards – the e-commerce platform (Marketplace system). The target of the project is to create a system of retail distribution of financial products (services) and to register financial deals. The product line will include banking deposits, state and corporate bonds, units of investment funds (UIF), CMTPL (Compulsory Motor Third Party Liability) and mortgage loans. On the one hand it will allow the credit organizations which can’t afford their own platforms to promote their products on the basis of digital technologies. On the other hand the customers will get broader freedom of choice of financial services by the volume, quality and price.

The key connecting element of the digital infrastructure on the financial market are Open API providing the opportunity to exchange information between information systems of different organizations applying standard interface protocol. The creation and development of digital financial infrastructure will provide for effective services on the financial market including for small and medium enterprises leading to better access to financial services on the whole territory of Russia as well as the development of competitiveness in the financial sector.

In addition to the projects implemented with the support of the state and the Bank of Russia, financial organizations also work to introduce digital innovations themselves. The key digital transformation technologies in Russia are such technologies as the analysis of big data and the predictive analytics, artificial intelligence, robotics, machine learning and chat-bots, distributed ledger technologies, Open API, internet of things, virtual and augmented reality. Moreover according to KPMG in the nearest two years 72% of banks plan to develop AI technologies, 61% of the banks in the survey have already introduced and are testing robots, 45% of banks implement predictive analytics in some processes. Moreover among different activities the banks are already leading in applying chat-bots in the commercialization. New technologies allow the banks from different groups to reduce expenses and constantly improve services and their quality thus equaling market conditions.

Meanwhile the rivalry pushes more and more banks to develop services for individuals and entrepreneurs based on partner services turning them into ecosystems. The main feature of an ecosystem is that a customer can get access through one of its members to all the rest parties to such system via connected services, maybe even under special terms only within its frames. Techni

cal capacity of such ecosystem includes the system of customer identification, speed data exchange, united program interfaces and other services.

One of the drivers of digitalization in Russia is its largest bank - Sberbank. As far back as two years ago it introduced a strategy of switching to the principles of an ecosystem. Currently this ecosystem includes companies focused on different sectors such as e-commerce, medicine, telecommunications, identification, services for optimizing of business processes, etc.

Another outstanding example of digital banking in Russia is Tinkoff Bank naming itself “a techno company with banking license”. It offers banking and lifestyle online services and is constantly developing advanced technologies in its work (machine learning and AI are applied almost in all processes).

However one shouldn’t forget that the basic asset in the digital space is information and data protection – one of the cornerstones of digital economy. In order to ensure informational interaction and coordination for crime prevention in IT sector the Bank of Russia has created a Center for computer incident monitoring and response in credit and financial sphere (FinCERT of the Bank of Russia). Recognizing the need to consolidate efforts regarding the information protection the Association of banks of Russia has launched the platform of cyber threats data exchange. The platform provides its participants with automatic on-line verified and relevant information. The platform is based on REST API which computerizes protection means without human involvement. Credit organizations if necessary can be assisted by technical specialists who will help with protection means for a credit organization for the further use and integration with the platform. The advantages of the platform are: aggregation of more than 26 resources of threat data (FinCERT of the Bank of Russia, communications providers, BI.ZONE), upload of useful information for the banks protection and automation of the process of usage of this information. The services of the platform can be used both by large and small organizations without advanced protection means and qualified personnel.

On testing the platform in 2018 damage of no less than 3 bn. Rubles was prevented. Since 2019 the platform has been used commercially and its basic version is free for the members of the Association of the banks of Russia. Today 60 organizations are connected to the platform. It provides for the protection of 55% of the assets of the banking system, banks from 22 regions have been protected. The platform has taken part in the on-line training Cyber Polygon proving its effectiveness. After the connection to the platform the effectiveness of the competitors in cyber threats combating raised 7 times.

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