MOSCOW. 29 May 2024. Right line.

What risks do banks bear when implementing the CD? What competences do specialists need to integrate and maintain the platform? Is it profitable for banks to connect the CDs.

Commercial Director of Right line, a leading developer of software solutions for the financial and banking industries. Expert in IT and fintech.

The development of the digital ruble (DR) by the Bank of Russia started back in 2020. In April 2021, the Central Bank presented the concept of the DR, and in August 2023, Federal Law No. 270838-8 on its implementation as the third form of national currency (along with cash and non-cash) came into force, and the first pilot tests to connect banks to the DR platform began.

Now about 30 banks, including Sber, Tinkoff, Alfa Bank and others, are involved in the project to implement the CD. Despite the fact that the introduction of the CD into circulation is planned only upon successful completion of ‘piloting of all transaction scenarios’, there are already discussions that by 2025 all citizens and businesses should be able to use the digital ruble. Despite the fact that the use of CDs is still not a mandatory requirement of the regulator, in March the media reported that the Central Bank plans to legally oblige all retail outlets in the Russian Federation with revenues of more than 20 million rubles per year to accept payment via SBP and digital rubles. Not all market participants believe that this can be realised.

Despite the ambitiousness of the digital rouble project and its compliance with the digitalisation trend, there are still many questions: what risks do banks bear when implementing CDs, what competencies do specialists need to integrate and maintain the platform within their system, and is it profitable for banks to connect such a payment method?

While for the average bank customer all operations with CDs look quite simple and are performed in the personal cabinet of the banking application in one click, banks, especially small ones, are less fortunate. Installing and ensuring all the requirements to maintain the platform can be very costly.

Ivan Belorybkin, Commercial Director of Right line, one of the key vendors of the pilot project on CR implementation, shared his view on the processes of CR implementation and use.

Do banks need a digital rouble

Opinions differ among banks regarding the demand for the digital rouble: some say that the CD connection is primarily a requirement of the regulator, which is striving for digitalisation, transparency and development of the fintech sector, although many banks still have questions about the financial benefits of this project.

Others, however, see it as an opportunity. One of the arguments is the expansion of the client base. If now these bases are stable and rather densely formed, the digital rouble is a new market shake-up after the launch of the SBP, a new ‘killer feature’, which, firstly, is currently not available to all competitors due to its technical and financial component, and secondly, is a powerful marketing and PR strategy tool (attracting customers through the availability of a new payment method, bonuses for connection, expertise in the market, competitive advantage, etc.).

From the point of view of attracting new partners and e-comm by banks, this is a useful tool in view of possible future requirements for mandatory use of the digital rouble by retail outlets. In general, this path has already been travelled by banks with the previously mentioned SBP in 2019. The process was not fast, but already today it is almost impossible to imagine the daily financial life of millions of people and businesses without the SBP.

Integration of the CD is also associated with a number of technical and financial difficulties. It should be realised that these are really acute issues and it is not easy to solve them at the legal level. In the case of mandatory implementation of the digital rouble, not every bank will be able to afford to do it promptly, which will lead to a situation where businesses will either have to change the bank itself or lose customers.

In addition to adapting the new software to the bank’s current systems, employees (if any) will need to be trained to keep the platform up and running, and strict compliance with Central Bank regulations and security rules will be required.

Challenges of CD implementation: the technical aspect of connecting the digital rouble platform

The process of connecting the CD is divided into three major stages, during which the Bank of Russia needs to develop new algorithms for working with the digital ruble, including exchange, storage and transactions with digital money. Banks themselves will need to adapt existing banking services to these tasks and integrate the new mechanisms into their work.

At the first stage, the software manufacturer offers its ‘box solution’ – software with a ready-made set of functions and automated processes, which is built into the existing system.

Of course, instead of turning to vendors for a ‘box’, the bank can involve its own team of programmers in the implementation of the project, but most often small and medium-sized banks do not have enough time and specialists in the team to close this kind of tasks.

The second stage is modification of the systems that the bank has now, in particular RBS (note: remote banking). After all, it is not enough just to deploy a solution – it is necessary to enable the user – the bank’s client – to interact with it comfortably. Therefore, the bank, on its part, must modernise its RBS and client application. This is not easy, because there are general information security (IS) requirements, the need to integrate the Bank of Russia’s software module into the system, to ensure cryptography, TLS operation, etc.

The third part concerns the IS project for the digital rouble as a whole. This stage is the most costly and complex, and we always receive the most questions from partner banks about it. At the first two stages, the bank mostly interacts with a ‘box’ of microservices, which are quite adaptable and can be integrated in a way that suits the bank (we have to fulfil certain requirements of the Central Bank, but it is still flexible and quite cheap software).

This is not possible with IS. Because there are requirements for software and hardware complexes, routers, etc., which work in accordance with FSB norms. To this you need to add a number of related processes that must also be correlated with IS requirements, and the high cost of their maintenance.

Even if banks are willing to go all the way through procurement and customisation, you need to keep the team in mind. The entire installation must be carried out in accordance with the strict requirements of the regulator, and this requires competent specialists. While a ‘boxed solution’ is fairly easy to implement, you can’t expect it to work without support and additional changes. Regardless of the level of immersion in the processes, there must be an understanding of what security certificates are, how they are issued, etc.

For technically strong banks – we are talking about the top 10 banks of the Russian Federation – all these steps and processes are painless and will not bring big costs. The most important thing is that they have their own teams of specialists capable of setting up the platform.

If the bank understands this and finds a technically competent team, it takes about 3 months to implement the CD, during which time the system is set up, the whole system is deployed and TIVs are conducted.

Prospects for the digital ruble

There has been talk of expanding the scope of the digital ruble for a long time. Nevertheless, this topic is still causing unrest, primarily among banks. After all, it is they who bear the entire technical burden. Other market participants, such as retailers, do not need to make any additional efforts. They are simply waiting for the bank, whose client they are, to offer them the functionality of the CD and give them the opportunity to work with this payment instrument via an application or web-interface.

More opportunities are opening up for retailers: to give their customers a new payment system, convenient service and bonuses. Of course, they will need changes, but minimal ones: for example, to take into account the possibility of payment at the cash register through the CR, to record it through the accounting department, to collect reports. But this is not comparable to the costs incurred by banks.

On the whole, the introduction of the digital rouble could have a significant impact on the Russian economy and financial system and continue the processes that emerged under the SBP. One of the main advantages should be the possibility of more effective control and monitoring of financial flows. The CDR will also make financial transactions more transparent, stimulate the digitalisation of society, and support the creation of new services to automate reporting and financial management, which in turn contributes to the development of the country’s economy.

Source: RBC Companies