Digital transformation of Russian banks

Import substitution of information technologies in banks

Main article: Import substitution of information technologies in banks

2024

The Bank of Russia has identified the main tasks of the digital transformation of the financial sector for the coming years

Increasing the availability of financial services for the population and small and medium-sized businesses is one of the main activities of the Bank of Russia in achieving the strategic goal of the development of the financial market of the Russian Federation. Much attention will be paid to the digital transformation of the financial sector. This is stated in the project for the development of the industry until 2027, published on October 8, 2024.

One of the tasks is to increase the physical and assortment availability of financial services for the population and business through the development of online service channels while reducing the risks of digital inequality and strengthening cybersecurity. The development of digital services, including platform solutions and ecosystems, will contribute to the gradual transition of consumers to the active use of online channels of access to financial services. The Bank of Russia implements a set of measures to create the necessary conditions for expanding the infrastructure of the financial market, setting up regulation, improving financial literacy, ensuring the protection of consumer rights and cybersecurity, as well as implements a set of organizational, legal and technical measures to counter social engineering. As part of the digitalization of financial inclusion in the interests of the population and business, a number of initiatives are planned:

Development of products and services based on advanced Russian payment technologies

Work is underway to launch a bioequiring service - payment for purchases at service points and on the websites of trade and service enterprises (TSP) biometric using payer data. In addition, it is planned to develop financial and non-financial services, including payment with electronic certificates, as well as work to preserve the infrastructure for accepting cards "Mir" abroad and find alternative solutions for paying for goods and services by Russian citizens abroad.

Implementation of infrastructure projects: digital ruble

It is expected that the digital ruble will contribute to the development of payment infrastructure, create additional advantages for citizens and businesses, as well as accelerate the spread of new financial technologies. In particular, such a currency will automate control and settlement of contracts using smart contracts. This should improve the security of transactions and reduce the risks of non-payments for business.

Development of different methods of remote identification

The Bank of Russia will continue to work to increase the number of services available to citizens using biometrics. One of the most priority areas of activity will be the development and launch of high-frequency services available for receipt using a single biometric system (EBS).

Digital Profile Development

It is planned to increase the number of organizations and types of information contained in the digital profile, as well as expand the list of services provided by financial organizations using digital profiles of individuals and legal entities. It is expected that this will ensure an increase in the quality and availability of financial, government and other services, as well as their digital translation.

Development of open APIs

The introduction of open programming interfaces (APIs) will contribute to increasing the diversity, quality and accessibility of financial instruments. The emergence of new services will help to make more informed financial decisions, increase access to various financial services and increase financial inclusion in general.

Development of digital solutions in insurance

Reliable and high-quality data will allow the use of artificial intelligence and machine technologies in the work of insurers, as well as improve the decision-making system. The use of promising information processing methods will contribute to the emergence of new and improvement of existing insurance products.^[1]

Banks in Russia began to switch to domestic certification centers instead of Microsoft

In September 2024, Russian banks began to actively introduce domestic certification centers (CAs) in exchange for solutions from Microsoft. This step is related to the need to ensure the smooth operation of financial institutions in the context of possible restrictions on the part of foreign software suppliers. Read more here.

Central Bank named the main risks of digitalization of Russian banks

In early July 2024, the Central Bank of Russia outlined the key risks associated with the digitalization of the domestic banking sector. Deputy Chairman of the Central Bank of the Russian Federation Polyakova stressed that cyber threats remain the main challenge for the country's financial system in the context of the active introduction of digital technologies.

Among the main risks, there is also limited access to foreign software and hardware. Despite this, the banking sector demonstrates resistance to external shocks, high manufacturability and a significant supply of capital, Polyakova noted.

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CBR

Georgy Luntovsky, the president Association of Russian Banks and former first deputy chairman of the Central Bank, expressed concern that digitalization could lead to the loss of banks the status of the flagships of the economy. He noted the trend towards lagging the development of the banking sector from other industries and the release of bank employees as a result of digital transformation.

It is strange to talk about this, but today it is banks that are the socially and economically passive side that is undergoing expansion by IT companies, "Luntovsky emphasized.

An important challenge is also the lack of regulation of distributed accounting (blockchain) systems, which are projected to become the dominant technology in the economy of the future. In this regard, the regulator is faced with the task of directing the evolution of banks along the path of the development of symbiosis of traditional banking activities and financial technologies.

Despite the risks, Olga Polyakova noted that the strong point of the banking sector remains the high profitability of credit institutions, indicating the success of their business models. However, among the weaknesses, the dominance of the largest players and closed access to Western financial resources stand out.^[2][3]

2023: Russian financial sector spending on IT solutions grew by 13% over the year to exceed ₽896 billion

In October 2024, the holding's analytical agency T1 published a study on the digitalization of the financial sector. Russia According to the data presented, in 2023, financial companies' spending on information technology reached ₽896 billion, which is 13% higher than in 2022.

According to Forbes, the analysis is based on Rosstat data for 12,315 organizations working in the field of financial and insurance services. In terms of digital transformation, the financial sector was ahead of such industries as retail, metallurgy, science and the oil and gas industry.

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Managing Director of NOTA and Deputy General Director of T1 Holding Kirill Bulgakov explains the growth of investments by active import substitution of software products in the banking and insurance sectors, as well as the introduction of innovative technologies, including artificial intelligence.

Financial organizations pay special attention to information security - 93.1% of companies use specialized data protection tools. Cybersecurity spending accounted for ₽32,3 billion or 3.6% of total digitalization spending.

The financial sector has achieved significant success in import substitution of software. The level of implementation of domestic industry application software was 94.3%. Information security tools (51.5%), application software (54.1%) and organization process management systems (48.4%) demonstrate high indicators.

According to forecasts of analysts of the T1 holding, in 2024 the costs of financial sector companies for digitalization may increase by 10-20% and exceed ₽1 trillion. The growth will be due to the continuing policy of import substitution of systems by large players and the development of their own technological solutions.

The development of digitalization is also facilitated by the active introduction of biometric technologies, which stimulates financial organizations to increase the security of payment transactions and improve customer identity verification systems.^[4]

2021

Theory and practice of managing digital transformation in a large financial institution

Digital technology has radically transformed the banking business over the past 10 years. The paradigm of interaction between the client and the bank has changed, and digital channels (mobile bank, Internet bank, etc.) have not only become the main means of interaction between the client and the bank for daily tasks, but also for the design of such complex products as credit and mortgages. Read more here.

Level of automation of Russian banks: study "LANIT - Bi Pi Em" and TAdviser

LANIT - B.P. Em"" (part of the group) LANIT , an expert in the field of analysis, intelligent automation and corporate transformation, and business processes an analytical center TAdviser conducted a study of the level of automation. Russian banks The survey of representatives of 50 Russian from the banks top 100 list made it possible to determine the priority technologies and products for industry participants, the volume IT of investments in -projects, as well as the goals for digitalization for the coming year. Read more here. [1]

How the pandemic affected the tasks and priorities of digitalization of Russian banks

In the summer of 2021, TAdviser talked with large Russian banks and learned how their tasks and priorities in the field of digitalization changed during the pandemic and what difficulties they faced during this period.

Priorities and objectives

Raiffeisen Bank

Despite the revision of product plans, the direction of IT costs in Raiffeisen Bank in 2020 did not change much. According to Nikita Shvetsov, head of the bank's information technology directorate, it continued to introduce advanced engineering approaches to product work, develop infrastructure, create a single data warehouse and develop a team.

People are the main thing that we invest in and will continue to invest in. The bank's IT team has tripled in just a few years by 2020. The pandemic showed that this was the right step, - said Nikita Shvetsov in a conversation with TAdviser.

MTS Bank

In 2020, MTS Bank also continued to actively increase the internal capacity of the IT cluster: the staff of IT specialists doubled, many processes were automated, digital services for individuals and small businesses improved. In addition, the bank actively issued virtual cards. We are talking about cards such as MTS Cashback Digital and MTS Cashback Lite. In 2021, the bank also released a virtual MTS Cashback Mobile card linked to a mobile phone account.

Looking ahead, we see promising positive market trends in 2021, including accelerating the penetration of digital services. For example, now the bank is developing the MTS Bank Now bot, built on the MTS Bank smartbank API and chat bot technologies from TalkBank. At the initial stage, virtual card design, p2p transfers and a digital financial assistant will be available in it. By the end of 2021, the bot will learn to apply for loans, deposits, insurance and open accounts. It is planned that MTS Bank Now will work on all smartphones, even budget ones, and the user does not have to be a client of MTS Bank or a subscriber of MTS, - told TAdviser in MTS Bank.

SKB-bank

SKB-Bank in a pandemic did not change its IT priorities. As noted by Denis Kuznetsov, IT director of the bank, he continued to develop, as planned in 2019.

OTP Bank

OTP Bank's IT priorities have not changed either.

The most important thing was and remains the development of remote channels for the provision of banking services, increasing the speed and convenience of electronic services, such as payments, transfers, etc. New services, channels and features also appeared - for the future product line and IT landscape of the bank. The Central Bank also forms a strong market focus on digitalization - this is the expansion of the functionality of the SBP, the development of cybersecurity practices, and the digital ruble, - said Mikhail Bizhan, head of the bank's information technology division.

Otkritie Bank

In Otkritie Bank, the priorities of digitalization in 2020 have changed their vector compared to the previous one.

This is very noticeable in terms of the development of mobile technologies for servicing medium and small businesses. The range of services and information provided through the mobile bank to retail customers has also significantly expanded. An operational adjustment of banking products was carried out for new conditions (installments of payments, preferential services, credit holidays, refinancing, support for state programs, etc.), - told TAdviser at Otkritie Bank.

Moscow Credit Bank

According to the Chief information officer of the Moscow Credit Bank Alexei Karpunin, in 2019 and 2020 the bank sought to digitalize all its services as much as possible, in 2021 its key goal is to prioritize the quality of the client path.

To achieve these goals, we work in the direction of studying how certain changes in the code will affect the client experience, as well as analyze the client path, implement speech analytics in call centers and departments, with the help of which you can assess the quality of dialogs, script compliance, identify the reasons for long-term service. For a year now we have been using these technologies and see their effectiveness, - said Alexey Karpunin.

Promsvyazbank

During the pandemic, Promsvyazbank forced the introduction of new remote services for customers and organized remote workplaces for employees. An additional impetus, as noted in the bank, the COVID-19 pandemic gave the development of those of its services and technologies that qualitatively change the approach to working with retail customers, as well as small and medium-sized businesses.

Rosbank

In Rosbank, during a pandemic, they tried to translate all processes online.

In 2020, we were one of the first on the market to conduct a mortgage deal completely online. We also digitalized the car loan. In the IV quarter of last year, the first online auto deal was held. This was probably the last product in our line that we transferred online. The client did everything himself, without physical contact with the bank, - said Alexey Lola, member of the board, director of retail business at Rosbank, to TAdviser.

He also noted that the best online services are adapted by the existing client base of the bank, since if the client has an online/mobile bank, the identification procedure is as simple as possible for the client, and the regulatory base allows him to issue the product completely online in the RBS system without visiting the department.

The situation is a little more complicated for new clients, since the issue of face-to-face identification of a client by bank employees remains, and either a client visit to the department is required, or an employee goes to the client. At the same time, we already have services for new customers that allow you to get a product online by passing identification through the Unified Biometric System (EBS), but so far the low level of penetration of the EBS among Russian citizens makes this path more experimental than commercial, "said Alexey Lola.

In Rosbank, digital sales technologies are also actively introduced into "classic" channels, such as a network of branches and a contact center.

Such omnichannel processes, when bank employees start an application for a bank product, and the client completes it in his mobile application, signing documents, also made an important contribution to the popularization of digital services among customers and employees of the bank, "explained Alexey Lola to TAdviser.

Gazprombank

The same as that of Rosbank, Gazprombank had the priority of digitalization in a pandemic - as in 2019, and in 2020, it focused on maximizing the transfer of customer operations to remote service channels.

To date, 72% of active clients are connected to our mobile application and regularly perform operations without contacting branches. In 2020, we provided the opportunity to completely remotely issue a consumer and car loan, savings accounts, deposits, began to offer a digital Smart Card without a plastic carrier, - told TAdviser in Gazprombank.

"Дом.РФ"

In the bank "Дом.РФ," according to Oleg Komlik, director of the Digital division of the company, priority was also paid to payment and card services sold in the mobile bank. Another priority, like Rosbank, was services for remote mortgage transactions.

From the beginning of April 2020, we began to conduct electronic mortgage transactions - using an enhanced qualified electronic signature and electronic registration of transactions in Rosreestr, this helped support the demand for mortgage products and protect people from unnecessary interaction with the external environment, - said Oleg Komlik.

"Post Bank"

In the "Post Bank" in the pandemic, new services were introduced, for example, solutions for sending notifications through chat, voice chats, individual chat rooms.

Seeing the growth of cashless activity of our audience, we have introduced services that can help them analyze and control costs. A rubricator of expenses and income for convenient financial control has appeared, all loyalty tools in the application have been visualized, - Anastasia Maslennikova, member of the board, director of e-business development at Post Bank, told TAdviser.

A number of decisions in the "Post Bank" strengthened.

Cards began not only to be ordered online, but also to be issued without a plastic carrier. We implemented the integration of the application with a "digital profile" to simplify filling out applications for products, and the delivery of banking products to customers at home also appeared, - Anastasia Maslennikova told TAdviser.

Absolut Bank

At Absolut Bank in 2020, one of the priorities was the introduction/development of means of communication with clients. And in this regard, the company last year launched a WhatsApp channel to answer customer questions. In addition, all the necessary certificates (more than 20 types) have become available to customers directly in the Internet bank. The bank also launched a new product for its customers: cash-online credit. He also offered his partners and clients in the mortgage business a fully digital process for acquiring apartments using his mortgage. Another innovation is new services within the framework of the Turnkey Mortgage project, which allow customers to choose the object of interest on the bank's website itself, as well as apply for a mortgage and get a solution in 15 minutes.

At the same time, the speed of launching new products and services in digital format for our customers and partners has become a much more important factor in their success, "Absolut Bank noted.

Difficulties

Among the obstacles hindering digitalization, in a conversation with TAdviser, Rosbank Retail Business Director Alexei Lola noted the intensification of fraudsters. In his opinion, it was caused by the increased popularity of digital sales and service channels.

For the most part, fraudsters use social engineering methods, from which banks cannot always protect their customers. Most often this is due to the low financial literacy of the population and insufficient educational activities in this direction, - explained Alexey Lola.

According to Alexei Karpunin, the main problem of digitalization of the Moscow Credit Bank in the COVID-19 pandemic was changes in the IT staff market: accelerating salary equalization in Moscow and the regions, and increased staff turnover in the IT industry.

For MTS Bank, the main unscheduled activity was the transfer of employees to a remote mode of operation.

This has been practiced before, but for a limited number of employees, so the main challenge was preparing infrastructure for mass use. The bank coped with this task and promptly transferred about 80% of the head office employees to remote control in two weeks without losing the efficiency of the processes. In "normal life," the full implementation of remote work tools could take several months, - noted in MTS Bank.

The main challenge of SKB-Bank in a pandemic was the safe delivery of equipment home to isolated and sometimes sick specialists.

Yes, it was hard and scary, but we coped. Now we can provide more than 90% of employees with a remote work service, for which the solutions of world market leaders (VMWare) are used. Why is this solution chosen? - the answer is simple. They calculated the economics of the vendor solution regarding their own development, - Denis Kuznetsov explained to TAdviser.

Another difficulty for SKB-Bank was setting up remote access to bank systems from personal devices, on which hardware and platform configuration is absolutely unpredictable. The organization of the printing service also brought its difficulties.

Wherever the printer is, it must be in the loop of the bank. There is a solution, but not cheap. Nothing has changed regarding 2019. We coped with organizational measures - sending documents to personal mail. The inclusion of a printer in any way in the bank's network also helped, - Denis Kuznetsov informed TAdviser.

The key difficulty for OTP Bank in 2020, according to Mikhail Bizhan, head of the bank's information technology division, was uncertainty.

It was characteristic not only for digitalization, but also for many other areas of life and business. For example, in just a matter of days we found ourselves in a situation where all our plans, road maps, and tasks had to be postponed to quickly respond to new requests from our clients - this is refinancing loans, receiving a full set of familiar services online, and simple human support, - Mikhail Bizhan told TAdviser.

2020

BCG: Russian banks performed digitalization better than foreign banks and prepared for a pandemic

Russian banks turned out to be better prepared for the COVID-19 coronavirus pandemic than foreign ones. This conclusion was reached at the Boston Consulting Group (BCG) consulting company. The results of the study were released on April 21, 2020.

From the point of view of digitalization, Russian banks have approached the crisis caused by COVID-19 in a much better form than their many international colleagues,  "says Sergey Ishkov, Managing Director and Partner of BCG.

Digitalization of Russian banks is better than foreign ones, BCG experts say

According to him, the rapid transfer of business processes to digital format helped credit institutions in the Russian Federation in just a few years to ensure that most daily operations are performed by remote channels. This also made it possible to bring Russia into the world leaders in the development of non-cash payments.

According to BCG estimates, in 2019 Russia ranked first in the world in terms of penetration of contactless payments using Apple Pay, Samsung Wallet (formerly Samsung Pay), etc., and also ranked third in terms of penetration of fintech services.

Experts also calculated that over the past ten years, in dollar terms, the profit of the banking sector has grown 4.5 times (1.7 trillion rubles at the end of 2019), and the return on assets - 3.3 times (2.2%), despite the slow growth rate of the economy.

In order to survive in a crisis moment, BCG experts recommend that banks transfer a significant part of their employees to remote work and flexible hours in order to save on rent and digitalize internal processes after the pandemic. The transition to new methods of working on the basis agile and the introduction of advanced analytics business processes in (from assessing the risk of the borrower to retaining customers and cross-sales) will also help.

Those who started this work even before the crisis are likely to pass it much easier. And for those who have postponed changes for a long time, it's time to start implementing them before it's too late, "summed up Sergei Ishkov.[5]

Banks in Russia closed 3,200 branches in 2 years due to digitalization

On March 18, 2020, it became known that over the previous two years, Russian banks closed almost 3,200 branches, branches, additional offices and other divisions, or about 10% of the total. The main factors affecting the reduction of the network are digitalization, the development of services for remote banking and cost optimization.

According to Kommersant, by the end of 2019, banks in the Russian Federation had 30.4 thousand structural units left against 31.2 thousand a year earlier. By March 1, 2020, this number was reduced to 30.3 thousand.

Over the previous two years, Russian banks closed almost 3,200 branches, branches, additional offices and other divisions

As the publication in Raiffeisen Bank was told, by the end of March 2020 the bank will carry out a reorganization, which will affect 39 branches in cities with the largest retail network, in five more cities the service will be continued completely in digital format.

 Alfa-Bank in 2020 is also engaged in the transformation of the branch network and plans to link office services to a mobile application within two years.

We will open several pilot offices of a new generation, and at the end of the year we will begin to replicate the concept throughout the network, "said Andrei Sogrin, head of the bank's information policy department.

 Wkinkoff Bank believes that there is no such task that could not be implemented remotely or through representatives of the bank. The lack of branches allows you to optimize the effectiveness of the business model due to the lack of costs for them and additional staff, the bank told the publication.

There is a reverse trend: digital banks open offices. So, "Kiwi-Bank" in March 2020 opened the first branch in St. Petersburg and is preparing to open the second in Kazan. The bank explained this by the fact that it is sometimes more convenient for the client to come to the bank. Experts believe that online banks want to reach a new audience - for example, the elderly.^[6]

2017: Digital transformation of banks in Russia: TAdviser survey

Building a digital bank requires optimization of processes, a new organizational culture and flexible IT solutions that support the speed of product launch and personalization of the offer. 75% of TOP30 banks surveyed by TAdviser believe that the tasks of digitalization should be accumulated within a single platform.

Digital transformation - based on the use of digital technologies, the transformation of structures, forms and methods of production, a change in the target focus of activities, ensuring a significant change in the parameters and properties of the services/products produced, the creation of new services/products and the acquisition of new market opportunities.

Digitalization poses serious challenges to existing business models, including banks that are undergoing a transformation process around the world today. The market for mobile and contactless payments, R2R services, digital currencies, etc., is growing rapidly. Banks are exploring the possibilities of using blockchain technologies, big data, etc.

Customer centrism, personalization of the offer, mobility are the key components of the digital bank concept. To implement them effectively, you need to solve tasks focused on client experience, as well as on introducing innovations that support the loyalty of the client base. At the same time, the digital bank should develop at the speed of changes taking place around. To maintain an innovative rhythm, the bank needs the flexibility that Agile culture can provide - both in the development of solutions and in the architecture of building IT systems. New digital products of the bank are increasingly creating their own digital teams that combine the competencies of business, IT and marketing. Most large banks seek to focus digital expertise internally, historically having large IT departments and focusing on self-written solutions.

The larger they become, banks the more difficult it is for them to innovate. Accordingly, acceleration paths are needed, including through partnerships with startup teams. To this end, banks buy financial projects and support the development of fintech, investing in it, in order to improve their services and increase the level of customer satisfaction. At the same time, fintech companies serve as a factor for banks to change that require response - by translating business models into digital and mobile form or changing business culture to provide a better consumer experience. In this context, banks are transforming from a classical financial institution into digital organizations.

The digital bank offers most of its products and services digitally using digital channels. The infrastructure of such a bank is optimized for digital communications and is ready (together with corporate culture) for a rapid change of technologies.

The number of digital banks in the world is growing - and the largest dynamics are shown by organizations that do not have their own offices and ATMs at all. They are better able to take into account customer habits, offering special conditions unusual for the banking market, as well as additional non-financial services.

Despite the growing pace of digitalization, there are still few fully digital banks on the Russian market. The reason for some inhibition is the accumulated "zoos" of the systems, determined by the specifics of each specific bank, as well as strict regulations. Previously formed IT infrastructures are characterized by low flexibility and complexity of integration with new solutions. However, traditional banks create blocks of digital business in their structure or outside its structure and strive to be in trend by introducing separate digital solutions.

According to the TAdviser survey, all large banks (TOP30) confirm their interest and readiness to move towards digitalization. 100% of them have already automated remote banking services (Internet and mobile bank). Individual banks are currently updating these decisions, or are considering replacing them. 95% of respondents automated loyalty programs. All 100% have a credit pipeline implemented.

New additional opportunities for business expansion - for example, through the sale of partner products (through the digital marketplace, as well as the implementation of the white label concept) are still of little interest to Russian TOP30 banks. First of all, the deterrent here is the non-obvious monetization, the absence of obvious successful cases, including in world practice.

50% of respondents use self-written software for digitalization tasks. Most banks note that they do not find a suitable turnkey solution on the market, and therefore also consider foreign platforms. Large banks are interested in maximizing the competitive advantage in digitalization. This determines the shift of priorities towards their own development.

Plans to replace the solutions used are confirmed by 15% of the surveyed banks. The replacement of the solutions used can be prompted by the presence of unique functionality, innovation (reflecting the most promising technological trends), as well as a low (relatively) cost of a new product. 85% also note that they plan to develop already implemented products.

75% of respondents believe that the tasks of digitalization should be accumulated within a single platform that can combine disparate solutions. In new digital solutions, banks are primarily interested in high availability and flexibility of services, fullness of functions, ease of use. For the vast majority , the issue of security is a priority.

The main priority of Russian banks TOP30 is to accelerate the launch of products to the market (time-to-market, we can talk about reducing the period from 1-1.5 years to less than 6 months) and, accordingly, increasing flexibility (), agile which will support higher rates.

Comment by Olga Rubtsova, CEO of Technosoft

Olga Rubtsova, General Director of TechnoSoft, told TAdviser about the main vectors of digitalization of the banking sector, as well as about a fundamentally new paradigm for the introduction of systems.

Olga
Rubtsova

Banks need not so much a digital platform as a digital approach

Notes