Lev Frenkel, R-Style Softlab: Sales of banking software grow in a segment of top banks with state participation

Lev Frenkel: On the one hand, the modern world erases borders between banks with narrow classical specializations, there are more and more universal credit institutions, and with another — the market is accurately segmented.

Now the Russian financial credit institutions can be separated into three groups conditionally. The first big group — the banks leaving the market. Generally it is representatives of a segment of SMB, but among them there are also banks, large, successful in the past, which became "victims" of improvement of a financial system. Disappearance of a considerable part of banks from the market is, perhaps, the most important, negative trend of the last several years. Here, as you understand, about perspective IT projects the speech does not go.

The second group is the banks "surviving" under pressure of the regulator, sanctions and not the best situation in economy of Russia. Representatives of this group most often have no certain IT development strategy, budgets on automation are extremely compressed. Respectively, banks of this group are consumers of the standard, low budget IT services supporting business processes of bank — in it their main task. IT for such banks — it is exclusive expenses which need to be minimized.

Also there is the third group — large banks, as a rule, with state participation. They actively develop, often bear on themselves social loading, accept clients of the sanified banks, receive financial injections of the state. These credit institutions set trends in the modern market of banking software, are a center of the main objectives, ideas and IT budgets.

Lev Frenkel: 15 years ago the bulk of client projects of the company fell on a segment of SMB. But we for a long time understood where wind blows, and reoriented the business. We actively work with all three groups, including a top segment. We support all old clients, we forget nobody, we solve problems of any level of complexity, but the trend of development of the company is connected, naturally, with the third bank group as they are technology leaders of the industry, define a vector of its development.

Lev Frenkel: There was a time when banking business and its automation developed independently, and it was justified — automation was performed for the purpose of accounting, accounting, data storage, integration of systems. However in the current conditions providing new banking services is inseparably linked with new IT solutions — without them implementation of new services is simply impossible.

The IT in banking sector develops on a spiral. "Zoo" of software of different suppliers is gradually succeeded by platform solutions. Besides, transition from classical business applications to microservice architecture was outlined, the digital economy, artificial intelligence actively develop.

During the work with large banks the new culture of project implementation by joint commands gradually forms, the edge between IT department of bank customer and the IT company the contractor is erased. On an input in the project we have a drawing product or the platform, and at the exit the joint solution according to which rights and competences often are on the party of bank.

Lev Frenkel: Our business naturally depends on a status and development of the banking market in general. Now there is an active digital transformation, banks conduct search of adequate offers on products, tools, technologies which will allow them to carry out the new tasks. And software developers become participants of creation of new digital bank platforms. In such "turbulent" market either suppliers of unique services, or universal vendors well feel. The first find the niche and hold it, the second aim to diversify the products, to provide them in different segments of the banking market, in other branches of the economy and thus to maneuvre in the changing situation.

Lev Frenkel: We aim to be the universal company.

Lev Frenkel: Yes, there is a gradual merging of IT and banking business. Time will show whether there will be this process of regeneration of banks in the IT company total.

Lev Frenkel: On the one hand, when the bank becomes the IT company, the need for the external supplier of IT solutions significantly decreases. But on the other hand, the history of Sberbank is indicative: despite creation of IT giant "SberTech", bank continues to remain the consumer of a set of solutions of the external IT companies.

Lev Frenkel: In my opinion, it is told most often "for effect". Though similar examples in the market for certain are, IT, really, consumes many resources. In many respects it is promoted by the regulator when sets the new tasks requiring automation for banks. For example, will enter the Bank of Russia and for financial institutions the open standard of the XBRL reporting and will demand that banks provided to it not only accounting, but also all primary data under agreements and business operations. It is clear, that this initiative will involve from banks essential costs for preparation and storage of the additional arrays of information comparable on volume from the core banking system.

And absolutely other situation when the bank by means of IT solution gains an access to the new market. In this case the share of expenses on automation in comparison with the gained income, as a rule, is small.

Lev Frenkel: As it was already mentioned above, our company is a universal supplier of bank solutions. As soon as in the market new requirement forms, we aim to propose the solution. Also it is not only about the classical systems (the core banking system, RBS, the Front or the Data warehouse), but also about essentially new tasks: interaction with the electronic government, use of biometrics, chat-bots, the analysis of Big Data, marketplaces, microservice architecture. And on each of the directions of developments for banks our company aims to deliver the best IT solutions, to compete with other leading suppliers.

After the Asseco international financial group joined number of our shareholders, we got access to the European approved technologies and IT solutions. Thus, remaining the Russian company, we use practices of our western colleagues, we introduce the fresh ideas and approaches to automation on the Russian market. In my opinion, the Russian application software is not inferior to the western analogs, and often and exceeds them.

Lev Frenkel: As a part of the core banking system RS-Bank the software package intended for work in financial markets most actively develops. A system consists of two applications RS-Securities and RS-Dealing. This our flagman solution on the ABS direction. Now we keep the complex project on automation of transactions in financial markets in one of the largest banks of the country. Within this project online integration with the exchange and off-exchange transactions with securities, currencies, derivative tools, precious metals, interbank credits, bills of exchange and own bonds, the reporting on IFRS 9, integration with a set of the systems of bank is implemented. It is the project, unique on complexity level, providing about two hundred flows of integration and several hundred report forms.

We use flexible approach at implementation of this software package for banks of different volume and activity in financial markets — from the boxed solution to the custom project of any level of complexity.

Lev Frenkel: From RS-Bank one more solution — RS-Connect, more precisely — the whole line of software products on automation of interaction with the state information systems (SIS) was selected. It represents a set of connectors, but there is also a common part — a core, reference books. Earlier these functions were assigned to the built-in modules in both of our core banking systems, at some point we came to understanding that it is necessary to develop the independent single system capable to interact also with other core banking systems. At the moment the line contains already more than 20 connectors, we keep complex projects in large Russian banks.

Lev Frenkel: In the market there are several similar solutions. Unfortunately, we often face dumping at sale of similar software products, but as practice shows, often low price is not a guarantee of good service. Despite difficulties, we successfully work with a large number of clients, we provide interaction with FTS, GIS GMP, GIS of housing and public utilities, FSSP, RPF and other departments.

Lev Frenkel: We execute several interesting projects on development and deployment of frontal solutions. In one of the largest Russian banks we create single frontal solution for all retail of bank. This project is calculated on several years, our company — the prime vendor. Within the project integration with a set of information systems of bank is performed. The solution is implemented in microservice architecture.

Now we completed the first phase, trial operation of the first release began. Over time the bank is going to connect to our solution suppliers of different services — the modern, correct idea which we implement. This solution allowed us to expand a product line of the company and even to enter the new market.

Lev Frenkel: Many large banks have subsidiary insurance companies, and our client did not become an exception. We implement the frontal solution in these companies, the first project comes to the end in June. Thus, we for the first time in the history of the company enter insurance market. At some insurance companies, in our opinion, frontal solutions became outdated and require upgrade therefore we consider this segment of the market for ourselves perspective.

Lev Frenkel: Last year we implemented chat-bot RS-Bot in bank of TOP 100. This solution provides to clients of bank information and payment services on different channels — messengers social networks the website of bank. The chat-bot communicates with the client in Russian, has capability to self-training during operation. Robot is able to sort the client's phrases, to competently build answers, providing necessary information and even performing the operations which are not requiring strict authorizations. This direction develops actively, observed great demand from banks today.

Lev Frenkel: We actively develop RS-DataHouse data warehouse. For large banks on the basis of the data warehouse we build the reporting for the Central Bank, we solve different problems of the management reporting, IFRS, budgeting and many others. This direction is demanded not only in Russia, but also in the CIS countries where we execute several implementation projects at present.

Lev Frenkel: We support a trend on distribution of microservice architecture, we consider that behind it the future. Now from large banks requests to the choice and creation of architecture of banking systems constantly change — the big flexibility, the highest output speed of new products on the market, a possibility of independent development or completion of systems, independence of a stack of technologies of specific vendor is required. The microservice architecture is also designed to solve all these tasks.

And, of course, banks think of reduction of direct costs. A good example in this context — the push-server which comes to replacement to classical notifications of clients by means of the SMS. In case of large bank it saves very big money as push-servers rather inexpensive.

Lev Frenkel: The role of artificial intelligence grows in the modern world. There are more and more ideas of its use, and, above all — opportunities. Earlier computing powers did not allow to process huge amounts of data online. Now possibilities of calculations reached such level when AI can be built in any area of life activity of the person. In all large banks there are already AI specialists or even the whole divisions. The most mass, key directions of use of this modern technology are customer service in call centers, replacement of the person with the robot at communications with clients. The main objective — cost reduction for bank. Also reduction of quantity of errors and also an opportunity for work of call center in mode 24x7 is important. Implementing chat-bots, banks think not only about communication with clients — there are many tasks connected with informing employees in large bank.

One more important direction of use of AI — processing of large volumes of data with which it is simple to person not to cope. For example, maintaining the client from the first contact with bank to the offer to it all banking products. On the basis of Big Data the analysis of a behavioral model of the client, his requirements, financial opportunities, geolocations becomes, timely relevant service offering and products of bank forms. For example, once the potential client comes into car showroom — the bank sends information on profitable car loans on the mobile phone of the client.

Lev Frenkel: Yes, such opportunities are already built in by banks canals of customer interaction. The efficiency of such offers, however, is up to the end not studied and not proved, but banks pay it much attention. One more opportunity — the analysis of the customer base (there are more and more information systems from where it is possible to learn a lot of things about the potential client or the partner).

Lev Frenkel: As accounting and the reporting changed since January first, in many respects for banks and software developers it is already passable way. At creation of the reporting under IFRS 9 in large bank to the forefront there is a problem of receiving qualitative, i.e. reliable initial data. It is the labor-consuming task solved by means of specialized quality control systems of data which are built in business processes of bank.

The following important task is adaptation of the existing accounting and the principle of creation of the reporting under requirements of IFRS 9. Banks were forced to change the methodology of accounting and to do big completions in software. In 2018 we spent thousands of man-days for completion of the software products to implement requirements of new standards.

Today the Bank of Russia did not check in details banks for compliance of IFRS yet. Banks already keep account according to new standards, but, in my opinion, the whole current year will go process of grinding in, refining, obtaining recommendations from the Central Bank about accounting. Banks will quickly make changes — as independently, and by means of the suppliers of IT solutions.

Lev Frenkel: The RBS systems evolve in several directions today. First, banks aim to transfer all the services and products to online. That the person came to departments only in force majeur circumstances, and solved all the requirements on interaction with bank far off. The list of channels of remote interaction at the same time constantly extends — messengers, social networks were added. Other obvious trend — promptly grows a share of users of mobile applications, they occupy a powerful part among all remote channels. With respect thereto many banks began to put into practice the concept of mobile only when development of remote services is conducted first of all in mobile applications.

And one more fact: banking applications began to turn from specialized bank into "style-application life". So bank IT systems become providers not only financial, but also various non-financial services, channels of obtaining information. And, naturally, service becomes omnichannel. Many clients want, having begun transaction via one channel, to continue it through another, and to complete in the third — entered the request for a product on the Internet, and it should be available in mobile application.

Lev Frenkel: I consider this direction modern and perspective. Federal law No. 482-FZ which obliges large banks to collect biometric data in case of interest of clients is adopted. Not all banks consider that behind biometrics the future, but the regulator obliges therefore all had to solve a problem of collecting of biometric data.

Lev Frenkel: Use of biometric data, of course, opens new opportunities for banks. First, use of a Single biometric system allows to attract clients remotely. Now even banks without the developed branch network can get access to the broad customer base and compete in regions if they have services in remote identification and biometric data. At the same time attraction costs of clients tend to zero — it is not necessary to open offices, to gather in them personnel — everything becomes online. That such opportunities to use, banks need to develop actively digital channels, to display in them various services. And to attract the IT companies which will finish IT systems, to propose new solutions. I think, this direction will be obligatory to develop.

Lev Frenkel: In 2018 we participated in several projects on collecting of biometric data and we keep projects on embedding of such solutions in different RBS system. We are partners of Rostelecom which selected our company for delivery of connectors to EBS across Russia. We hope that this year in this direction there will be this boom.

Lev Frenkel: The problem of import substitution has several parties. Import substitution of the application software is really modern for banks as, at least, will allow to reduce sanctions risks. Besides, it also is financially effective, and on functionality, quality of application solutions we are capable to compete with the western developments at the highest level. On the other hand, import substitution bears in itself big operational and financial risks for banks if to speak about replacement of the system software — DBMS, OS. Now in banks the solutions checked for years work, and on change the weak domestic systems or products on the basis of the free code are offered them. And it in any way not for the benefit of banks as attracts additional costs and multiplication of risks. For a start it would make sense to replace fans of extremes in import substitution to domestic cars and to look whether it will want to importozameshchatsya by it further. Important and the fact that, despite several waves of sanctions, neither Oracle, nor Microsoft "blocked oxygen" and are not capable to block it at once. Therefore, in my opinion, the subject of import substitution is a little overheated.

Lev Frenkel: Trend number one is set by requirements of the regulator as it is banal will sound. In Europe regulators something new is rare think out and inform on innovations in advance, and our changes are generated nearly in the mode of non-feet. In 2019 in addition to biometrics also the system of fast payments and the analysis of vulnerability of payment services are introduced. Other trends — digital bank department and everything that is connected with it — the frontal systems, chat-bots, interaction online with all GIS. By the way, it is possible to note that it gives also increase in efficiency of society in general, new opportunities which earlier people did not have. For example, payment of utilities can be made now in any bank as all of them are integrated with GIS of housing and public utilities. Actively the geography and a range of the services provided by banks extends, marketplaces are implemented, banks aim to create own ecosystems allowing banks to render not only financial services.

Lev Frenkel: We are presented at the market of the CIS practically in each country. Kazakhstan, Kyrgyzstan, Belarus, Uzbekistan — the countries where we implemented most of all projects. There are projects in Armenia, Georgia, Azerbaijan, Tajikistan. The market of the CIS lags behind Russian both on the level of development, and on solvable tasks, but enters a stage of active growth.

The demand of our core banking systems is caused by the fact that banks aim to replace the local solutions which by this moment already became outdated and constrain their development. In process of enlargement financial institutions need the centralized solutions. For example, at the beginning of a year together with Asseco Georgia we completed implementation of the core banking system in the Georgian bank Liberty. In the CIS we actively interact with Asseco in this connection jointly opened representative office of Asseco Central Asia in Uzbekistan.

In addition to increase in demand for the core banking system in the former Soviet Union the boom of use of the RBS systems began. Besides, it is traditionally implemented many projects connected with the reporting under IFRS and the management reporting therefore our storage is used in many banks. In recent years in the market of the CIS recession was observed, IT budgets were cut strongly down. In 2019 we see activation of clients, the funnel of preseyl grows.