Alexei Blagirev: Society Isn’t Yet Ready for Paperless Documents
7Seconds’ advisor Alexei Blagirev discusses the use of data and blockchain in the finance sector, his vision of the digital profile and prospects of a paperless society.
Q: Could you tell us a little about your background?
A: I’ve worked in the banking sector for 10 year. My path isn’t exactly conventional. I started out in financial audit, I worked for PricewaterhouseCoopers. Then I moved to Societe Generale where I dealt with methodology of financial reporting. Then I did a major switch to data, first at Alfa Bank and later at Otkritie. For the last seven years, I’ve been working with data in the banking sector. I launched Data team for Otkritie and run AI-based services for Tochka bank and Otkrytie and I also tried to launch an equivalent of Kaggle platform in Russia. These days, I work with data in the broadest sense. Among other things, Managed the first blockchain transaction in Russia, which involved five banks, and I took part in the creation of the Fintech association
Q: What is the main use of data on the 7Seconds platform?
A: Based on the 7Seconds platform, a full-fledge digital profile platform could be created, which would significantly redistribute resources currently available in the segment of banking services. That will help reduce banks’ spending on obtaining data. Now, the idea is that only banks that actually issue loans to customers will pay for credit record information on them, rather than all of them. That will bring major changes to the segment. Credit bureaus will lose money, and banks won’t waste their money on leads that don’t result in deals. But it’s possible to take this idea a step further and create a platform for onboarding customers and KYC procedures, which will reduce the costs of compliance for banks. Currently, 7Seconds is focusing on credit risks. But it’s possible to do a compliance service on the basis of 7Seconds. No services of that kind exist today. The concept of digital profile has been discussed for the last 10 years. In Russia, there is only one solution, used for government services. So, it’s possible to create a distributed platform based on existing banking services on the blockchain, which will facilitate exchange of data.
Q: What obstacles do you envisage for a problem of that kind?
A: Traditional market participants, such as credit bureaus, and state regulators are likely to show resistance because the centralized model suits them better. They like to have a single instrument that they would use, if necessary. Their idea is that if there is a risk, someone has to be responsible for it. In a decentralized model, responsibility for risks is still there, but a regulator wouldn’t know who specifically is responsible. So, I see lack of understanding from market participants as a potential problem. Also, requirements for compliance are constantly made tighter, so spending on compliance constantly increases, which could lead to a collapse of the entire banking sector in about seven years, as experts from BSG and McKinsey say. Banks simply won’t have money to run transactions because the entire margin from a transaction will have to be allocated to cover compliance costs. The absence of a single standard for API [application programming interface] could also be an issue. Banks need to come to an agreement about a standard for API. Otherwise, a platform working with multiple banks will have to face significant overheads. And, finally, there is an issue of user consent to data processing. Russia has a regulation on that, but is lags significantly behind [the General Data Protection Regulation].
Q: You also have experience with AI. How do you see this technology’s application on the 7Seconds’ platform?
A: AI is a very promising tool for a digital profile because the next step in that direction will be psychographics, a more in-depth profiling of users. With that technology, psychological types can be created, based on which people’s decisions will be predicted. Thanks to psycho profiling, it is possible to identify catch words, to which people react. All these models are 50 years old, but only now we have sufficient user data to actually apply them and build users’ ‘trajectories.’ For instance, [US president Donald] Trump was elected because the right catch words were used for respective demographics. People heard what they wanted to hear. And the 7Seconds platform has the potential to implement machine learning models that will select the most suitable products for users, based on their psychological types. That would completely change the methods currently used by banks to offer their products to end users. Banks are using outdated approaches to running automated marketing campaigns because they don’t have enough data. 7Seconds could obtain data on users from multiple sources and create a broad profile. In the long run, the company could graduate from a broker to a source of data for various segments.
Q: Why do you think R3 Corda platform is the most suitable option for 7Seconds?
A: Corda is a graph chain, or a ledger that combines characteristics of p2p chains, like the bitcoin network, in which the same transaction cannot be executed twice, with the flexibility of multi-rung networks. On the graph chain, you could, for instance, restrict access to a document, making it unavailable to people not involved in a transaction. If we consider the digital profile as a form of document, we will face the issue of privacy and confidentiality of data. And the graph chain is the most suitable solution for ensuring confidentiality of data. There are few working graph solutions in the world today, and Corda is one of them.
Q: What can you say about the speed of transactions on the graph chain?
A: On the graph chain, the speed of transactions depends upon a number of factors. There are no publicly available data on that, but, according to some estimates, up to 100 million transactions a day could be run with a Corda solution. But it depends on the specifics of the solution.
Q: What are the main challenges for creating solutions on Corda?
A: First of all, you need to learn new technologies. The code in Corda is written using Kotlin, and you need to get used to that programming language. Also, methodology is a major challenge. Creating an e-document on the blockchain is not the same as putting a PDF file on the blockchain. You would need the Ricardian contract, invented by Ian Grigg many years ago. That’s a format in which a document is legible by both humans and machines. But Ricardian contracts will only get a wide use in about 10 years. Society is not yet ready for them. People still think in terms of paper documents. For instance, we don’t need to create passport numbers because they are an attribute of a paper document. If you have a unique identifier, you can used it instead.
