Interview of TAdviser with the Head of the Moscow Department of Information Technology of VTB bank Sergey Baranov

Sergey Baranov: In VTB large-scale IT strategy till 2019 is developed, within it we defined target architecture of the united bank. We should come to it by the beginning of 2020.

In the context of consolidation of two IT of landscapes our focus will be first of all on systems with duplicative each other functionality.

IT infrastructure both in VTB, and in VTB 24 is perfectly developed and constructed on the most modern solutions, including – on private clouds which in the course of consolidation of banks will be united in one big private cloud. Further it will be used by all divisions of the united bank.

The cloud will be used for issue of server resources based on x86 and RISC processors of IBM, for the system of billing and further we are going to develop PaaS by certain types of business. First of all, it will be retail and transaction business.

Now VTB and VTB24 have separate DPCs. Strategy for DPCs as we will use them within the united bank, at the moment forms, and I think that in 1 half-year 2018 it will be ready.

Sergey Baranov: ITSM is rather an exception. Such system is used in customer support department, and at the time of accession it is important to us to have a uniform ITSM system therefore exactly here we went in such way.

Sergey Baranov: In the united bank in IT division more than 2500 people taking into account a branch network will work. At the time of accession we do not plan significant reductions, however at any accession the effect of synergy is calculated in 10-15% of the total number of structure. I think, to this digit on optimization we will go by 2020.

Optimization will happen generally due to reorganization of a branch network, increase in efficiency of organizational structure and an output of some functions to outsourcing.

Sergey Baranov: Initially, I think that IT will be to the united bank more expensive as are required investments into development of services and transformation to target architecture. But based on strategy 2019 accomplishment I calculate that we will smoothly pass into an expense reduction phase due to standardization of services, unification of processes and an architectural landscape.

Sergey Baranov: In 2017 we began to look at budgeting in a new way. It occurred after formation of IT strategy 2019 which responds the business strategy of VTB to the requests. We broke expenses on two conceptually different directions. One of them can just be carried to operating expenses, so-called Run The Bank, and the second – Change The Bank the fact that we invest in development of our systems, in development of the innovation approaches and delivery of fast result for business. We are aimed at expense reduction in the first direction and growth on the second.

Sergey Baranov: We have no plans to turn into the IT company. The main thing for us is a banking business. Registration of "M-bank" shows in the register of the Russian software to professional community that we have a mature, scalable product developed in VTB Group by our employees. After accession of VTB 24 to VTB the same core banking system will be used in the united bank and to be the key platform for implementation of our strategy.

Sergey Baranov: Yes, we developed one more solution – analytical base on transaction products of VTB Group based on the open source. In particular, software from Apache line and also Hadoop and PostgreSQL is used. The solution is used for the analysis of transactions of our clients and providing the most advantageous conditions to them. It is advanced analytics. We consider this product the innovation too and we want to register in the register.

Sergey Baranov: The trend which I observe in the market now, unfortunately, is not too favorable for developer companies of core ABS, including because the niche of the banks buying the core banking system is narrowed. We already faced several cases when the companies were ruined or the whole development teams left. Therefore we consider important on critical sections of work of bank to have ready-made solutions which are supported by internal forces.

From the point of view of implementation of IT strategy we see the obvious fact already now: to be competitive in the banking market, all frontal solutions should be in internal competence of bank because work with the client is our priority.

Sergey Baranov: Estimated, now about 20-30% are the systems of internal development. Further we are going to approach in a balanced way it, placing emphasis on the frontal systems, but at the same time we will study what else systems we could transfer to own development.

Rather home insourcing company, it is impossible to tell that we completely refused such approach. We consider the different possibilities of formation of labor power for strategy implementation 2019 and we do not exclude, including, and creation of separate company in strategic perspective.

Sergey Baranov: I very much am positive to IT outsourcing use. Within implementation of different strategy we need to increase dynamically the resources helping to implement projects, and IT outsourcing allows to do it. We will increase also own competences, but it is long process which includes search of professionals in the market, building of commands. Sometimes more simply and it is economically more reasonable to use services of the outsourcing companies. We actively use such services, and we have partners in the market – about 15-20 companies specializing in IT outsourcing. Among the processes transferred to outsourcing - development, call center, in certain cases also the second and third support lines of applications.

In our plans – development together with partners of projects using Agile. We are going to expand quantity of commands and tasks using Agile and to fill commands with resources from these companies: it will be developers, testers, SCRUM master.

Sergey Baranov: The main directions include: reliability augmentation of IT systems, fast output of products to the market, minimization of a share of manual work, increase in investment soundness and large-scale transition to digital channels.

Within strategy we already created target architecture which we are going to construct, and defined approaches which we will use. Here and methodology at the choice of the proprietary software against the free software at design of application solutions, creation of Competence Center on development using the free software – first of all, PostgreSQL, Hadoop and software of Apache, rationalization of an IT landscape and use of the innovative solutions, such as, for example, Kafka for creation of data buses between frontal and back-end solutions.

Also we developed technology policy by which principles we should build the united bank.

According to the results of IT strategy implementation we are going to come to 2-speed IT. Such approach means that some systems are improved standard waterfall by method and by forces of standard commands, and the second speed – using Agile if is more specific - SCRUM.

At the expense of 2-speed model we give to business the choice. The first option - they want to display a product by a traditional method, predeterminating technical specifications and having confidence that project cost will be such, and the term of implementation is set final. The second option assumes that business wants to work with us in SCRUM when from business is responsible for the product significantly involved in the project when the purposes and project tasks are specified within sprints and it is possible to come quicker to the intermediate purposes.

Also we have a direction of digital transformation within which the innovation pilot projects which afterwards it is going to include in the existing technology policy are implemented, thereby accelerating use of the innovative technologies in standard solutions of bank. For example, piloting of the biometrics assuming identification of clients on a voice and on the person. This pilot is already complete, we drew from him useful conclusions which further we are going to apply already in larger project.

Sergey Baranov: This technology at us is implemented in the big project "Biometric Identification of Clients and Work with Clients". We are going to do double identification to pilot technology on the most risky transactions: at first there is a standard identification, and then the client can connect also biometrics. The beginning of this large-scale biometric project should start in the second half of the next year.

Sergey Baranov: Generally she assumes evolutionary development, but there are critical changes in the concept of IT architecture: as opposed to the normal service-oriented architecture, we are going to put a possibility of use of microservice architecture which it is possible to call key in terms of scalability and speed of an output of products to the market. Also implementation of 2-speed IT and also piloting of digital solutions is critical.

Sergey Baranov: At us these competences in group already develop and there are some solutions which are implemented on microservice architecture. In VTB there is a group of architects who already have an experience of implementation of microservice architecture. We, of course, monitor trends in international market which say now about what most the companies, especially digital, is implemented by all on microservice architecture as it is a key factor of delivery of result as fast as possible.

Sergey Baranov: I do not consider that we have projects where Agile can be inapplicable. In my opinion, and Agile and waterfall are applicable everywhere because Agile, exaggerating, are sprints of waterfall. In sprint the task on all sprint is set, and it does not change till its end. In fact, it is small waterfall, and Agile consists of like those. Therefore, it is applicable both, and everything depends only on how business wants to manage the budget and terms.

As for calculation of efficiency, we develop methodology of calculation of the feasibility statement together with financial department where all target indicators necessary for making decision on as far as the project is reasonable both on costly, and on revenues and that we are ready to start it are considered.

Sergey Baranov: We always use the balanced approach. We expect TSO five years, and we consider all expenses which are connected both with Open Source, and with the proprietary software for this period. Concerning the last it is quite obvious: these are licenses, support from vendor. And when using Open Source there are such factors as internal competence center that means staff expenses, and they get to TSO, and equipment expenses too. Sometimes, from the point of view of Competence Centers, development on Open Source is more expensive, then we make the decision for benefit of the proprietary software.

What really would facilitate life in the market of services in support, is an increase in number of offers from service companies on support of solutions on Open Source. Now, if it is necessary to make the solution on Apache or Kafka and to get expanded support further out of the company, we face very limited offer in the market.

Concerning where in VTB solutions on Open Source are now used, - now we implement the large-scale project according to the new version of RBS for legal persons. Its keyword parameter is implementation almost completely on Open Source: PostgreSQL, Hadoop, Apache are used. A system is in development, we pilot it on a focal customer group. If the pilot is successful, we will unroll a system in bigger scale. The current used system – from BSS company, "RBS BS-Client".

At software with the open course – Red Hat – at us also works storage of corporate data. All key reporting under VTB becomes on a system where Red Hat OS is used, and with her developers we sign the contract for support.

Sergey Baranov: We rationally see these things. It is a question of efficiency.

Sergey Baranov: Within strategy 2019 it is our strategic partner, but is as well others. In such big bank as VTB the number of the high-loaded solutions requiring the best products in certain niches, rather big therefore we should use all possible solutions in each direction.

Sergey Baranov: Perhaps, there are practically no such areas about which I could tell that I would never apply Open Source there. The exception is made, probably, by the key systems which work on transactions and payments. Here, perhaps, we will not be able to apply Open Source because should stop very seriously those risks which can arise.

Sergey Baranov: Interesting technology, interesting solutions which are proposed based on a blockchain. We constantly trace who and for what in the market uses a blockchain, we participate in work of different legislature on use of this technology, and in VTB Group is pilot projects on a blockchain. We see perspectives of use of a blockchain in the different areas profile for banking activity, such as factoring, for example, or guarantees. There is a question as far as this technology will be stable and steady in terms of scaling.

Sergey Baranov: We, for example, have Foresight projects where the technology of a blockchain is involved. They are implemented within digital transformation, and results of these projects will be implemented in the industrial strategy of IT 2019. We are going to sum up the results of some of them this year.

We see the most interesting projects:

• digital transactions: a research of technologies of the distributed registers for creation of systems and services of legally significant contracting on the basis of, in particular, mechanisms of smart contracts. An example of this approach is the draft of the Digital Bank guarantee which VTB keeps within Association of financial technologies.
• digital rated services: a research of technologies of creation of settlement services for ensuring effective transactions between partners, including the analysis of applicability of blockchain technologies.