Infrastructure as a service is becoming a new line of business for established platforms in Russia
In certain countries monopolies happened because of a combination of material (infrastructural) or immaterial (relationships) wealth going into approved hands. In China, for example, the strict regulation of what people say and what they use to do that formed a plethora of national champions that took on to develop social media services, purchasing platforms and other utilities that leveraged the betterment and formation of middle class, benefiting from the economic renaissance — and created a springboard of its own — as the economies of scale allowed by these platforms created a new services economy in the web.
Today, Alibaba and Tencent are testing the international radio-waves, first connecting the global Chinese diaspora but also following the Belt-Road initiative. Having amassed each over 500+ million users, they are also putting the knowledge derived from the relationships and online behaviour into credit decision, advertising and other services. On the back of it, properly managing this data require vast space of server racks, so both invested heavily in building the processing, storage and backup infrastructure — now offered as independent line of business for other businesses.
Moving from utilising free storage space to enabling services is a natural evolution, where services can upload their data, utilise machine learning algorithms formed from much larger data-sets. It can also be in reverse: with big corporations providing anonymised pools of data for external providers to offer their view on how this data can be turned into meaningful data-set.
Rather than talk about the Chinese example, this post is about how infrastructure is turned into a service in Russian financial services sector: I’d focus on three consequential cases of how physical infrastructure of banks would allow all players to focus on products rather than retail footprint, solidify defences with regards to data privacy and key systems stability and turn identity into the trump card reinventing bank’s role of today.
Physical infrastructure is a starting point for online relationship: let’s start with physical locations: total bank branch network in Russia is at about 60 000 branches, a third of which is controlled by Sberbank, with another 12 000 by Postal Bank. Where the boom of deposit taking is gone and amid the recession and the doldrums that followed, people are largely keeping their savings at a minimum, managing branch network becomes costly. The results from numerous in-branch innovations (switching cashier desks with recycling ATMs), offering lite branch format are already accounted for, as is the national customer acquisition drive, done through payroll cards, where all employees are effectively required to remit workers salaries.
The digital platform, tested by both banks and the e-government services has been proven to be reliable and efficient channel for user onboarding and service. So banks have engaged in a number of pilots of both extending their product and sales models to other regional institutions, where in case of Postal Bank this is more a brand merge, where a bank, owned jointly by the Post and VTB, a major banking conglomerate, pays the Post a licence fee.
As these projects proliferate (where for regional banks, joining forces like Casasa in the US, is a way to compete with the major players), a new project is entering its next stage to allow banks to reuse users data once it has been collected by another player.
Turning banks into identity platform nodes: While the payment terms are to be negotiated, this financial passport regime (once mulled but stuck in the UK) would allow users to quickly switch banks, or order new bank products unavailable at their institution from other financial service providers. The so-called digital identity project, coupled with federated identification project, both curated by the Russian Fintech Association, would allow banks to collect, process and store a standard number of personally identifiable information so that each new application by the user is done using the set already collected. The standardised set, used as part of the digital identity stream, would allow financial services and other companies dabbling in user data to use the single and standard infrastructure.
Data storage infrastructure: the data being stored in a standard way, also motivated by the API and open banking stream of projects, too promulgated by the Association members, is narrating a unified and shared layer of services built on top of the shared infrastructure. That incentivise banks having free bandwidth and storage capacity to offer their storage and processing environments and compete in services and CAC efficiency (distribution costs and simplicity of the offering coming to the fore). Sberbank for example, is already one of such platforms, working with over 70 million customers visiting its network each month — so to manage these relationships it already has a huge cluster model — only naturally it is delving into API and service provisioning (thought a developer platform), enriching its datasets and may in the end provide infrastructure as a service models.