Fintech News

How Russian Banks Launched Instant Transfers By Phone Number – “You can leave home with just your cell phone and make any payment.”

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

The Fast Payment System, or SBP, was launched in Russia in January 2019 and allows money transfers by just a phone number. It has already pressed its competitors and begun moving customers away from using plastic cards. In 2022, users made over 3 billion financial transactions with the help of the SBP, equivalent to 14.4 trillion rubles—roughly $170 billion. The number and volume of transactions through the system, which the Central Bank of Russia created together with commercial banks, is growing from quarter to quarter. Kirill Ostrovskii, an expert in the IT field who led the launch of the SBP in one of Russia’s largest financial organizations, speaks to how it all began.

“You can leave home with just your cell phone and make any payment.”

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

Kirill, how did you begin your career in fintech? 

“I used to work in classic Tech companies, including and VK. I have always liked what I do, but banking technologies seemed like the peak of complexity and responsibility. At some point, digitalization in the financial sector began to develop in Russia. Banks began to appear on the Internet, and the head of Sberbank, the largest bank, German Gref, said that they plan to attract 14,000 programmers. As a person working in IT and Tech, I could not ignore this.

I became a Product Director at Sberbank and began working on a catalog of third-party digital products in the Sberbank online mobile application. For example, Apple cards, certificates from cosmetic brands, and subscriptions to digital services. I was responsible for a team of developers, analysts, testers, and business development specialists.”

What is it like to work with technological products within the financial sector?

“Banks call themselves Tech companies, but this is not entirely true. In Tech, there is a saying: Fake it till you make it. Meaning that products are allowed to be ‘in limbo’ when the team does not fully understand how they will turn out. In banking, this is unacceptable because the level of responsibility is colossal. The worst thing that can happen in IT is a site error. But if there are problems in the bank system, customers may doubt the security of their funds and begin removing them all together. That’s why nothing happens on the spur of the moment in banks. Mistakes in the banking sector lead to a loss of money.”

At Alfa-Bank, you launched the Fast Payment System from scratch. How was the product created?

“At Alfa-Bank, I had two teams: with one we implemented the Fast Payment System (SBP) project, and with the second, a service for the self-employed. SBP is a service that unites all banks in the Russian Federation and allows you to instantly transfer money by phone number between bank customers. Previously, this option was only available to customers within one bank. With the emergence of the SBP, it became possible to enter a phone number into the app, select the bank to which you want to send money, and funds are instantly transferred to the receiver’s account. It sounds pretty simple, but in fact there is huge technological and integration work behind it.

The system was created in 2019 at the initiative of the Russian Central Bank, which acted as the owner of the National Payment Card System, serving the SBP. The system united banks into one payment network. Alfa-Bank was one of the first to launch the SBP.”

What did the inner workings of that project look like?

“We did a lot of joint work with the Central Bank. There was a tough deadline with the regulator. It was a rather complicated project—the budget and amount of hardware and servers needed had to be increased. No one really knew what kind of system it was, what the requirements were, and as the project was implemented, they were revealed like puzzle pieces: data storage, the presence of a second circuit of servers, new types of payments, and so on. The events were implemented in a very short time, while new teams and business processes were formed along the way. We can say that it was a startup within a large company.”

As a Product Director, how did you deal with errors?

“It is worth remembering the fatality of the error. You don’t want to stumble because it can lead to very large losses, and I’m not talking about money. In order to avoid consequences when creating a Tech product, banks have a stage of pilot operation. At this stage, the money may go to the wrong client or disappear. The bank makes several payments at a loss, but this is usually a completely non-critical number of complications.

In general, everything went quite smoothly for us. The information security service is responsible for ensuring that money does not flow out of the bank. They are an important part of banking. Since the Director of Product is the person who is responsible for the implementation of the project from A to Z, my tasks included communication with other specialists. We drew a conceptual architectural design within the team—a document that describes which subsystems of banks interact. Therefore, it is clear what happens from one step to another.”

Could you describe the process of the service you launched for the self-employed?

“Since Alfa-Bank is the largest bank in the country, we were also one of the first to launch a service for the self-employed. The self-employed are people who run small businesses: bakers, artists, custodial services, etc. In 2019, a special tax regime was introduced for such workers.

Alfa-Bank has created a special section in its mobile application for these citizens. Our service allows them to register as self-employed without leaving their homes, just by entering a minimum amount of data. A self-employed person may ask clients to transfer payment to an account with Alfa-Bank, and the service automatically calculates what tax should be paid from this transaction. It is a simple way to legalize many sources of income. And we, as a bank, received a new client segment. Before, these clients were not visible to us, and now we can offer them an array of services.

It was a turnkey project. It was only one section in the Alfa-Bank application, but also a full-fledged service for the self-employed. We dealt with everything: visualization, internal integrations and development, coordination with lawyers and accounting, and the establishment of an operational component. The Federal Tax Service also set specific deadlines for the project.”

Have you been implementing projects with QR code payments?

I was invited to Uralsib Bank, where I made payments using QR codes through SBP. Using this technology, it was possible to open an application at checkout, select an account, and carry out transactions simply by scanning a QR code. This process is referred to as ‘quarrying’ and became the next step in the development of the Fast Payment System.”

How has quarrying become so successful?

The pioneer of quarrying in Russia was Sberbank; they offered to pay utility bills using QR codes. Users no longer had to enter data about the account number or amount. As it turns out, QR codes are extremely convenient—the majority of people have mobile phones with a camera. You can leave home with just your cell phone and make any payment. The era of bank cards may not have passed yet, but the popularity of this alternative payment method will definitely grow.”

Did the SBP have to be significantly modified to implement this function?

“Quarrying was built on the foundation of the SBP; it’s a new service that relies on one that’s already been created. Previously, people could not quickly pay through the SBP in favor of a legal entity. We have proposed a fundamentally new way that is simple and understandable to users. A new character appears in the chain—the business in favor of which the payment is made. They are able to return the money to the client, for example, if they refuse the product or service. In addition, an entrepreneur can generate a QR code for any amount. Prior to this, only c2c transfers were made through the SBP. But most importantly, quarrying is a fast and convenient form of payment.”

What trends do you predict to continue within contactless payments?

“Central Bank digital currency: this topic is discussed in every country in the world. Some are for it and some are against it. For example, the governor of Florida said that they are against the digital currency of the Central Bank (CBDC) because it could potentially violate fundamental freedoms. But in China, there is a rather active introduction of digital money. It is linked to an individual’s social status to the extent that if they are a malicious violator, their money ceases to be valid, and their digital wallet can simply be turned off. Hence the fears of analysts whether citizens could be cut off from the monetary system at any given initiative.

In Russia, a pilot project for the use of the digital ruble was launched by 14 banks last April, but it is not clear how it will pass. Digital currency can be endowed with some additional functions. For example, the ability to conduct analytics or smart contracts. It seems to me that digital money will be used for government projects, as the format allows for control over the intended use of funds. When approached wisely, this technology has its advantages.”

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