A tech and banking expert discusses the beginnings of digital banking development and how Russian FinTech services will adapt to international sanctions.

In the 2000s, following the impressive growth of web services in Russia, financial institutions and banks began embracing digitalization and creating their own digital services.  They initially focused on refining websites and later on developing mobile applications. Sberbank went even further - its CEO, German Gref, aimed to transform the country's largest bank into an ecosystem, a comprehensive technological platform capable of impacting all aspects of Russian life.

FinTech expert Kirill Ostrovskii was at the forefront of the digital banking market's evolution. With his direct involvement, the country's most popular banking services were developed - Sberbank Online, Service for the Self-Employed, the Fast Payment System, and contactless payments using QR codes. These groundbreaking projects completely reshaped the banking landscape. Kirill shares his experiences and insights on the future of financial technologies in Russia.

Dossier

Kirill Ostrovskii, Head of the Directorate for the Development of Remote Channels of Uralsib Bank (Moscow)

Born on October 3, 1980, in Moscow.

He started his career in 2003 at Mail.Ru, the largest tech ecosystem in Eastern Europe, where he worked his way up from a content manager to a technical project manager. One of the brightest implemented projects is the Mail.ru Maps cartographic service, an analog of Google Maps.

He has over 400 special projects and non-standard advertising activities for Mail.Ru and Odnoklassniki.ru portals.

In 2017, he began working in the banking sector at SBER PJSC, where he developed a marketplace for partner products and services in the Sberbank Online mobile app.

In 2018, Alfa-Bank was one of the first in Russia to launch a Service for the Self-Employed and The Fast Payment System ( FPS ).

Since 2019, he has been working as the Head of the Directorate for the Development of Remote Channels of Uralsib Bank, where he implemented integration with the SBP and other integration projects with market leaders.

Member of the Fintech Start Association.

Competencies

Project management, web, and mobile services development management.

Kirill Ostrovskii entered the tech world at the onset of the internet's rapid growth in Russia. Initially a regular user, he began creating simple websites before becoming a project manager at Mail.ru, the largest tech ecosystem in Eastern Europe.  After 11 years of immersing himself in web services and the internet at large, he transitioned to the banking industry. Once again, Kirill found himself at the forefront of change, this time in the digitalization of banking.

As a Product Director, you've developed the most popular banking service in the country, Sberbank Online, despite having no prior experience in financial technology. What led you to enter this field?

- By the end of 2017, when I joined Sberbank, I had already gained considerable experience in creating and developing web services, but I yearned for more. I was always drawn to the idea that working in a bank is more serious and responsible, given that people constantly interact with banks in their daily lives. Additionally, the high stakes in this field appealed to me, as the cost of making a mistake can be significant.

In the past, banks didn't offer mobile applications, and clients had to visit a branch just to transfer money. When top executives announced their plans to develop online banking and enhance customer interaction, it presented new opportunities for tech specialists like myself. I was eager to be part of this global transformation in the financial sector, as it was both ambitious and intriguing..

What was the most crucial aspect when developing Sberbank Online?

Safety was, without a doubt, the most important factor. An online banking application essentially creates a gateway through which vast amounts of money can flow.  What we were doing felt like a new universe, the second life of the bank.

Banks did have websites, but they only allowed users to view their account balances. While money transfers eventually became possible, clients still needed to visit a branch and confirm their intention by receiving a confirmation code to complete the transaction. Our goal was to eliminate these intermediary steps, enabling clients to manage their accounts from home.

This undertaking was massive, with the mobile app driving significant structural changes within Sberbank and forming the core of its ecosystem. A large technology office, called the Agile Home, was established, attracting IT specialists from across Russia.

As a result, Sberbank Online became one of the top 5 most popular mobile apps in Russian app stores. Its active user base reached 50 million in 2019 and exceeded 70 million people per month in 2021.

It's not surprising, considering 87% of Russians use Sberbank services.

Indeed, Sberbank is the largest bank in the Russian Federation. However, we faced another challenge - how could we encourage customers who were accustomed to visiting branches to start using the app? We needed to address not only the mindset of customers but also bank employees. Ultimately, we succeeded, as the vast majority of customers began to interact with the bank exclusively online through the mobile app.

Which aspects did you focus on while working with this team?

As a Product Director at Sberbank, I was part of a larger effort that involved several dozen teams working on the mobile application. Each team had its own department, manager, programmers, business analyst, designer, and so on. My specific area of focus was the marketplace, a catalog of third-party services. The aim was to provide users with more than just the standard set of banking operations but also additional features such as purchasing extra banking products, gift cards, and so on.

Rising to the occasion

In the past five years, the Russian Federation's banking sector has seen the introduction of two significant innovative products - the Service for the Self-Employed and the Fast Payment System (FPS). Kirill Ostrovskii was invited to develop these groundbreaking solutions at one of the country's oldest private financial institutions, Alfa-Bank.

Alfa-Bank is much smaller than Sberbank and is a private institution. How did you find the experience of working in a private bank compared to Sberbank?

The structures are indeed different, and so was the work experience. Sberbank is a massive, somewhat rigid organisation, which had its drawbacks, particularly during the digital transformation phase. You could meet with someone multiple times a day for a month and make little progress. In contrast, Alfa-Bank was more agile and progressive.

They were one of the first to create a separate tech division - Alpha Laboratory - and granted its members considerable freedom. The traditional system of visiting offices and utilizing office services isn't suitable when trying to innovate. Instead, you need to generate new hypotheses, test them quickly, anticipate which products might be in demand, and swiftly bring them to market. Alfa-Bank managed to create this different environment.

Alfa-Bank has always been a significant player, as it was one of the first in the country to develop advanced, innovative financial services and products for its customers. I was fortunate to be involved in the implementation of two such services - "Self-Employed" and the "Quick Payment System" (FPS).

If I recall correctly, a service for the self-employed had to be created in a very short time frame, as a law on self-employed individuals came into effect in Russia in January 2019. This law provided a separate legal status for this category of entrepreneurs, with the aim of bringing a large group of small entrepreneurs out of the shadows. It also gave banks the opportunity to attract them as regular customers.

That's right, the law on the self-employed was enacted in early 2019, and Alfa-Bank launched this service in February. My team and I were tasked with integrating with the Federal Tax Service (FTS) and offering self-employed clients the ability to register through the Alfa-Bank mobile application.

Why was it important for the bank to attract these customers?

- Before this, the self-employed segment was largely invisible to the bank. We didn't know the income levels of these entrepreneurs, as they typically kept their money in cash. As a result, we couldn't offer them loans or mortgages, which meant they were essentially lost clients. With the introduction of the new law, we recognized the new business opportunities it presented and realized that, through our service, we could convert these entrepreneurs into our customers.

You're right that we had to act quickly.  formed and led a team of 8-12 people, which included specialized developers, a designer, Android and iOS programmers, a tester, and individuals who liaised with accountants and lawyers.

Our efforts paid off, as Alfa-Bank became one of the first Russian banks to offer such a service. Now, self-employed individuals can register through the app, and receive payments for their services via the bank, which then automatically calculates the tax amount and sends it to the Federal Tax Service.

At Alfa-Bank, you also led the team that was among the first in Russia to launch a new money transfer service, the Fast Payment System (FPS). This was a significant breakthrough for the entire market. Why was it necessary to act so quickly?

Firstly, it was a response to the demands of the time. Secondly, it was a business opportunity: when a bank can offer more than its competitors, it's logical that customers will be more likely to choose that bank's services.

Sberbank had already implemented a partially similar system, but it was limited to transfers within the bank itself. With FPS, the scope was much broader, allowing Russians to transfer money to one another using just their phone numbers, provided that both the sending and receiving banks were connected to the system. The Bank of Russia operates as the FPS settlement center, while the National Payment Card System serves as the operational, payment, and clearing center.

As the project director, I worked with a team of programmers, designers, testers, information security officers, system and network administrators, and other specialized experts to develop and implement this cutting-edge payment service for Alfa-Bank clients from scratch. We were among the first banks in the country to test this system, and after our successful implementation, other players in the banking market joined FPS.

Did the QR code payments you launched at Uralsib Bank serve as a natural progression from your work with the Fast Payment System?

Yes, at Uralsib Bank I continued working on the FPS in my role as Director for the Development of Remote Channels for Servicing Individuals. In addition, my development team and I implemented a new method of payment for services and purchases using QR codes.

The underlying principle was the same - to make banking services more convenient for users. Since we had already enabled payment exchanges between clients of any banks, we thought, why not also allow them to transfer money to legal entities, enabling quick and secure payments for services, goods, and education? So, we developed a project that allows legal entities to generate QR codes. Clients simply scan the code, and the money is instantly transferred from their account to the service provider's account via the FPS.

When launching QR-code payments, whose experience did you base your approach on?

We looked to the Chinese market for inspiration, as they've been using this technology for quite some time. It's a convenient method, as it eliminates the need to manually input extensive information when creating a bank order. Plus, with almost everyone having a mobile device nowadays, why not enable people to utilize their phone's camera for payments?

Another important aspect is that this method doesn't rely on plastic cards. Payments are processed through the national payment system "Mir," which is particularly beneficial given the challenges associated with using MasterCard and Visa in Russia.

Have there been any significant results or achievements related to the Fast Payment System and QR payments?

These projects have indeed been very successful. In the first quarter of 2022 alone, over 6 million citizens made approximately 16 million purchases through the FPS, amounting to nearly 63 billion rubles. 

In 2023, the banking market will focus on enhancing existing products and services, such as FPS, QR codes, and mobile applications. All major players have started developing overlapping ecosystems, where banks become service providers and retailers establish their own payment systems. However, changes will be necessary due to international sanctions.  As a result, the Mir payment system will gradually replace Visa and Mastercard. Kirill Ostrovskii is confident that Russia will follow a "Chinese scenario" in this regard.

Considering international sanctions, what are the main trends in the development of Russian FinTech services?

When looking at the strategies of leading banks, they will all continue their digital transformation and focus on building their ecosystems. Banks are no longer standalone players in the market but rather part of a community consisting of consumers and organisations providing goods and services. Sberbank, for instance, pioneered the digital ecosystem and now holds a leading position in the service market, offering goods delivery, car and apartment rentals, movies, electronics sales, and more. Other banks will inevitably follow this trend.

Digitalization also simplifies data collection on customers who spend within the ecosystem, keeping them within the purview of marketing and sales departments while utilizing banking services.

Key trends in FinTech ecosystems include remote client identification using biometric data, which eliminates the need for offline contact between the bank and its clients. Contactless payment methods, including QR code payments, will undoubtedly expand, especially given the withdrawal of foreign payment systems from Russia.

In response to the loss of phone-based payments at checkout, an alternative in the form of NFT stickers or smartphone stickers mimicking Apple Pay and Google Pay is emerging. The first batch of such stickers has already been released and is in high demand.

Additionally, banks will seek alternative methods for cross-border transfers. With almost all Russian banks disconnected from the international SWIFT system, the Fast Payment System remains the only option for transferring money to friendly countries.

Why do you see your future career in FinTech?

The answer is simple: FinTech is challenging, interesting, and carries significant responsibility. Financial technologies make life easier by providing more freedom in micropayments, and since money is something that connects all of us, I want to contribute to making money transfers technologically simple, fast, and secure. My goal is to help blur the boundaries of money movement.

With your extensive experience in the web industry, how do you find banking technologies different?

Banking organisations are an entirely different domain. There's a high cost for mistakes and a tremendous responsibility towards customers, as money is one of the most sensitive aspects of people's lives, health being another exception. When developing web services at Mail.ru, we didn't face the same level of responsibility. Of course, if the site went down, it was bad and considered an emergency situation, but it could be quickly resolved without major consequences. However, if your bank card fails during a payment at the checkout and you don't have cash, that's a different story altogether.

What adjustments did you have to make when you entered the banking industry?

First and foremost, I had to adapt to a different pace of processes. Decisions in banks are made more slowly because if a mistake is made, the consequences can be irreversible.

For instance, imagine if after an update, cards or the app stopped working for all customers - what would that lead to? People might think something has happened to the bank, and they would rush to withdraw their money en masse. This would be detrimental to banks both reputationally and financially. That's why some banks avoid updates at year-end or on payday.

Initially, I was slightly frustrated by the procedures that prevented me from quickly deploying a new development and testing it. However, that's not how things work in a bank. A bank is a large, traditional organization with multi-step checks and lengthy processes. And that's acceptable - because when dealing with money, you shouldn't rush.