Interview of TAdviser with the managing partner of Neoflex Oleg Baranov

Oleg Baranov: Recently growth of rates of consolidation of the banking sector is observed. The capital moves to large national banks, and to a lesser extent – to the private bank structures finding in upper lines of rating. Small and mid-sized banks in the majority keep not so many development projects, many try to minimize costs. Figuratively speaking if there was no life beyond limits top-200 banks, then topical issue today two-three years ago: and whether there is life beyond limits top-30? Though, of course, there are exceptions. Captive banks and credit institutions with the foreign capital and also some private banks feel well, irrespective of the sizes. The second noticeable trend: a number of large players expands own IT examination. If to say about perspectives, i.e. feeling that the banking market will be consolidated further.

Oleg Baranov: The market of bank automation, naturally, changes after bank. We observe several trends. If to speak about the large organizations, it, by the way, concerns not only the financial sector, but also other branches of the economy, the company is larger, the less it suits ready-made, "boxed" solutions. Successfully to compete, providing to clients a full range of services and the high level of service, such organizations are forced to do developments "under themselves". There are several approaches: some, after Sberbank, develop own IT commands, based on specially created IT daughters or internal IT service. For example, Alfa-Bank, Promsvyazbank, Tinkoff and some other go this way. However, such banks do not cease to use services of external IT of the companies. For example, we successfully work both with Sberbank, and with Alfa-Bank. As a rule, the organizations of this group create own examination on the most key IT systems, and on the others use external resources.

The second model - creation of custom solutions with involvement of IT integrators. So the VTB Group works, for example. The model assumes involvement of the companies having the best experience and commands in certain directions. For example, Neoflex works with banks of VTB Group in the following directions: application integration, credit pipeline and risks, development of systems of remote banking.

The community of approaches is that in both cases banks buy generally platform solutions, and the application software is created to order.

Oleg Baranov: It is easy to consider any situation in extreme points. Let's provide that in the Russian banking market there will be only five players. What then will be with vendor whose business model was expected sale of "box" to 500 clients? Obviously, this vendor will have to or be rebuilt considerably, or leave the market. One of reset options - an output of the products to international market, however is a difficult task – there the competitive situation and us there, to put it mildly, not especially wait. As far as will the traditional business model model of the domestic developer of banking software be effective during the work only in the Russian banking market? - The question remains open.

Oleg Baranov: In the market there are several types of players. The main of them - suppliers of system or platform software, mainly foreign companies and their partners; domestic developers of application banking software; integrators the implementing "others" systems and developers of the custom software. For the Russian vendors the situation as we already discussed, changes quite significantly. They are faced by a task to make a box of such level that it was purchased by banks from top-10 or to enter international market. If to speak about integrators and developers, then they have other problem. They face the escalating competition and the growing requirements of the large organizations, first of all – state. For example, at cooperation with such customers often it is required to begin works before agreement signature and their message without advancing that requires essential financial provisions.

Oleg Baranov: Actually indeed. And, if the system integrator is not capable to credit the customer at the initial stage of the project, he can lose a market share. There are important how financial opportunities of the company are sufficient to sustain such loading. It, by the way, can become the driver of integration of system integrators.

Oleg Baranov: The last 3 - 5 years became relevant for banks three technology directions. First, the direction of accumulation, processing and analysis of Big Data for increase in efficiency of work with clients, in particular different adoptions of solutions, for example, credit. Earlier at issuance of credit banks generally analyzed customer information which already is in information systems of bank: a status of its accounts, existence of delays under agreements, etc. In addition information requested in bureau of credit histories was studied. Today banks try to analyze a customer behavior in the outside world. For example, the client's expenses on telephone communication given about activities on social networks and so on are studied.

Oleg Baranov: In the market there are very many different services. For example, mobile operators give an opportunity to obtain by the specific phone number the depersonalized data on expense structure on communication. This information allows to understand the total amount of costs, a share of costs in roaming, the region of use, etc. Data analysis of mobile operators – only one example of use by banks of Big Data. Other rich source of information – social networks. There are specialized companies - the intermediaries offering services in collecting and the analysis of similar information. Using such services, it is possible to receive additional data for the analysis of quality of the borrower and also for check of reliability of the data provided by the potential client.

Oleg Baranov: The second interesting subject – microservice architecture. The architectural style of microservices is approach at which the uniform application is created as a set of the small services focused on accomplishment of specific business function. First of all, in banks it found application for development of front office solutions. It is new approach to creation of information systems which gives several important advantages in comparison with traditional. First, higher speed of removal on the market of new products and functionality (time to market) is provided. Today the cycle of release of new release of systems in most large banks makes about a quarter. In practice it means what from the idea moment about introduction of this or that change to its actual embodiment passes more, than three months. The independent, loosely coupled components implemented in microservice architecture allow to create and put into operation new functionality small iterations. Besides, this architecture allows to create difficult, reliable solutions. It is simpler to test separate microservices. Failure of work of separate microservice does not lead to failure of work of all solution, it is easier to localize and eliminate it.

The third interesting direction of development - Internet of Things (IoT). I will give car insurance as an example. Using IoT technologies the insurance company can analyze style of driving of the insured person on the basis of the data arriving from the special telematic sensors installed on his car and depending on the received results to offer it so-called "smart" insurance products. So cheaper insurance will be offered the person who goes accurately, and the company will suggest to pay "racer" more or will even refuse prolongation of an insurance for the next period. Neoflex works the last years with the organizations from the non-financial sector of economy more and more. These are such industries as, agriculture, logistics, retail. There IoT is especially popular. Any modern equipment (machines, refrigerators, combines, etc.) is equipped with the sensors capable to transfer various data – about location if this vehicle, temperature condition if it is the refrigeration unit and so on. Already today using this information a large number of business challenges is solved. For example, in logistics, knowing with what speed in what direction lorries move, it is possible to optimize loading of warehouses, work of loaders, to ensure safety of loads in way. And it is possible to analyze these data as in real time, and accumulating information for a certain period.

Oleg Baranov: From the moment of foundation of the company in 2005 we were engaged in integration of different banking applications, reporting systems and analysts, front office solutions, for example, in credit pipelines and we are going to continue this business. As for the new directions of development, it is three technology directions about which we just said: Big Data, the front office systems in microservice architecture and, of course, Internet of Things.

Oleg Baranov: In the new directions we generally do solutions based on the free software. There were whole new classes of systems. It and software of creation and management of microservice architecture: Docker, Kubernetes, OpenShift, and big stack of products of the BigData family: Apache Hadoop, Apache Spark, etc. Generally we create application solutions for specific customers. Besides, we create so-called "accelerators", i.e. program components of our own development which we use when implementing client projects or as components of our traditional systems, such as Neoflex Reporting. These practices allow us to be more competitive. I can give Neoflex Datagram as an example is the specialized tools intended for work with Big Data, facilitating automatic code generation in the Scala language for execution on Apache Spark. Tools allow to conduct development at higher level that in turn reduces requirements to qualification of programmers, and, therefore, and the cost of solutions for the customer.

Oleg Baranov: Everything depends on the customer. Many global vendors, including IBM, Oracle, Red Hat and some other, release own products based based on the open source software. What speaks about quality and a maturity of opensource community. The key difference is that global vendors offer support of the software.

We always proceed from the interests of the customer and we offer a stack of technologies and products based on which it is possible to solve its business challenges successfully. If the customer wants to use software of this or that global vendor, it will need to purchase the corresponding licenses and support. Other option – to entrust our company development and support of the solution on the basis of the free software that cheaper and practically will not differ neither in functionality, nor in quality.

Oleg Baranov: Historically our company always worked generally with large financial institutions. About 70% of clients were always included into TOP 100 of the Russian banks, the remained 30% are mid-sized banks, generally top-200 and also financial institutions of other types: depositaries, investment and factoring companies, etc. Today we still are more focused on big customers because exactly they have a need for our services. From new in strategy – business diversification which is performed in two directions: we try to work more and more with the international customers and with clients from non-financial branches of the economy. For example, at present, directly this week, our employees execute projects in Vietnam, Greece, Indonesia, France, the Republic of South Africa.

Oleg Baranov: We work with the international organizations from the moment of foundation of the company. Not many know the interesting fact - in 2005, and it is foundation year of Neoflex, from chetry first customers with whom we worked, two were the foreign organizations. These are the French banks BNP Paribas and Rusfinance (Sosiete Generale group). In 12 years of development by our clients there were more than 20 international banks working century Russia. Among them Banca Intesa, BNP Paribas Cetelem, ING Wholesale Banking, HSBC Bank OTP Bank Raiffeisen Bank UniCredit Bank, Rosbank and others. Besides, we traditionally worked with foreign partners – software makers, these are such widely known vendors as IBM, SAP and Oracle and also producers of specialized financial software: GoldenSource, FICO, Finastra (former name Misys) and others. So, work with the international organizations is not new to us at all.

In recent years, in process of development of the company, our clients and partners even more often began to offer Neoflex projects outside Russia. Cases are absolutely different, but they gradually led us to understanding that our knowledge and experience are demanded abroad.

Some projects turned out to be consequence of the fact that our international customers invited us to work in the branches located in other countries. Others appeared by the invitation of vendors whose solutions we successfully implemented in Russia. And, at last, the third case - our compatriots with whom we worked many years here passed to work into the international organizations and involved us in those directions in which we earlier well proved. If to say about what we do abroad, then it is very broad spectrum. This implementation of analytical solutions for automation of regulatory requirements of Basel II/III, FRTB, SA-CCR, IFRS9, application integration based on ESB, implementation of specialized financial software and, of course, custom development. Undoubtedly, one of competitive advantages was also the fact that after devaluation of ruble 2 years ago our prices became significantly more attractive to foreign customers.

Oleg Baranov: Yes, of course, we offer foreign customers a full range of our examination, except for, perhaps, such solutions as Neoflex Reporting is the system automating preparation of the reporting for our Russian central bank. It, naturally, is demanded only in the domestic market.

Oleg Baranov: We work at domestic market in the non-bank sphere several years. There are successfully implemented projects in the logistic, agrarian companies, large retail chain stores. As an example, I can provide the project on workflow automation with factoring platforms executed for X5 Retail Group. It is that case when in the industry, new at that time for us, the combination of our financial and technology examination was demanded. Other example - "The First Forwarding Company" (FFC). We were invited in this logistic company according to the recommendation of IBM as the checked partner having the highest level of competences according to BPM platforms. So our movement in other industries as well as on other territorial markets, there are in many respects through the interest of customers and partners in our examination and positive recommendations.

Oleg Baranov: So far it is a little, about 10-15%. But, the fact that this share grows pleases. In general strategic installation is made on that the share of a non-bank segment of economy grew in business of the company in the Russian market, and in the bank direction income from activity in international markets increased. In three – five-year perspective, according to our strategy, 30-50% of revenue will be provided outside the Russian banking sector.

Oleg Baranov: There is a lot of projects. Let's begin with the banking market, classical for us. VTB 24 - our biggest bank customer in the 2016th year. For it we made and many years we support the central integration bus (USBS, the Universal layer of bank services) which provides interaction of all main information systems of bank. Last year the client set one more serious problem for us – told development and support of the credit pipeline. Since last summer we perform this function as the general contractor. I want to return to the cooperation with PEK which is already mentioned above. In March of this year we gained the diploma from IBM company for the first successful experience of use of the BPM platform in logistics in the territory of Russia and the CIS countries. With PEK company we continue cooperation, we implement a number of new projects about which successful completion at the end of the current year, I hope, we will tell. One more interesting project implemented last year - the leasing credit pipeline for bank "PSA Finance Rus". The solution was created based on our Neoflex Front Office system which long ago is successfully working in a number of the Russian banks, however leasing functionality we made in this project for the first time. And still it would be desirable to mention one project is a development of the analytical Misys Fusion Risk system in Alfa-Bank for control automation by risks and analysts. In the 2016th we were connected to the works connected with credit risk management (determination of defaults and the internal ratings of corporate borrowers) and also with forecasting of liquidity indicators according to requirements Basel III.

Oleg Baranov: Because we go to the new industries and on new territories, we invested in a number of the directions of business, the staff of the company grew by 20%.

Oleg Baranov: I am very happy that I was trained in Institute of Directors. By the first education I am a specialist in information technology fields, second higher education – economic. And here to manage business I earlier systemically did not study. A few years ago I realized this problem, Neoflex is the company quite big, about 400 people. As a result I selected the educational institution focused on the best practices in the field of corporate management. In IoD there is a rate allowing to be trained without separation from the main production. In process of passing of a rate, I implemented in the company those practicians who to me seemed relevant to our situation and business tasks, and both in the field of corporate management, and in the field of strategy, improvement of financial accounting, operational management, etc. I will notice also that, except work in Neoflex company, I am included into Boards of Directors of a number of financial institutions - banks and insurance companies in the status of the independent director. New knowledge was useful also in this activity. By the way, in April I became the 11th Russian who received the top international skills of the director – IoD Chartered Director.