Moving Forward, Fully Armed

I have been interviewed by IT Vision Moscow in December 2012 — this is the edited translation
Sberbank Technology Research Center has been functioning for more than a year. Mircea Mihaescu, Director of the Center, is telling us about the results and plans for future.
IТ-Vision : What does Sberbank Technology Research Center do ?
Mircea Mihaescu: Though the word “research” is mentioned in the Center name, our work is much closer related to technology and innovation. 
First of all, let me share with the readers my point of view regarding R&D; (research work) advisability in big corporations and banks. I think that banks shouldn’t plunge deep into research work, even in the application area.  There’re plenty of published reports proving that the volume of research work in average commercial organization has nothing to do with its market success.  Only those companies can be successful which understand how to convert research results into practice in the most effective way.
I’m sure that first of all it is necessary to spend resources on studying the existing market products and practices suitable for solving current business needs. I’d like to point out once again – there’s no need to reinvent a wheel, we need to turn ideas into the best practices wisely and quickly.  I’ll illustrate this thesis by an example from a non-banking business: Microsoft spends on R&D; much more than Apple. At the same time Apple makes tremendous efforts to bring their products to perfection in terms of user interface, attractiveness, practicality and convenience. And what is the result? Market positions of these two players speak louder than words.  Transferring these analogies to Sberbank, I’m planning to rename our Department making an emphasis on technologies and innovations, not research, as we are not dealing with research work at all. 
IТ-Vision: What exactly do you do?
ММ.: We study the technologies which appear in the market and gain recognition. I’d like to point out this is not about the technologies on the development stage but technologies which have already been applied in practice. If we use Gartner Hype Cycle curve as an illustration, then we are interested in the technologies in the upper part, at the peak of expectations. Everything on the left is too “raw”, everything on the right doesn’t need to be researched, these are recognized solutions which can be safely applied. An example of such a technology acquired by Sberbank is Single Automated Human Resource Management System (SAP HR) which allows all the participants of recruitment process to work in common information space, reduce paper work, accelerate the process of approving the candidates etc.
IT-Vision: Could you, please, give examples of technologies which fell into the focus of your attention?
ММ.: For example, NFC (Near Field Communications) is one of the technologies coming out now into the stage of practical application. A year has passed since we started working with NFC and today we understand clearly the prospects of this technology and have already launched three pilot projects. It’s safe to say that our bank has a strategy in this area, we understand what direction to move and are ready for more ambitious projects.  This, in fact, shows the difference between the innovative approach to IT that we use and a traditional one.  Our advantages are speed and low cost.  We can test a technology within 2-3 weeks and give our conclusion with regard to the bank specific scenario. In a traditional IT-division before implementing a project you’ll have to communicate with vendors for a while, announce tenders, and then work on the project realization for months if not years and for a lot of money; plus you should take into account that risk of failure in average is 50%. The most effective ones will be successful in 80% of cases, others – only in 10%.
And there’re other examples. A year and a half ago we began working on mobile payments (at that time they were at the peak of the curve). NFC is only a part of an iceberg, there’re other types of mobile and non-contact payments. For example, a seller has a phone number, a buyer has a phone number. A buyer can transfer money from one account to another using only a phone number as an identifier. Payments can be made without any cards or special interfaces. You only need to enter a phone number, amount, pin and the payment is made. Perhaps, this operation will take more than a second but no infrastructure is needed. 
Now I can say that a lot has been done for the bank in this sphere – there’s a strategy, suppliers are chosen, implementation process is launched.
IT-Vision: How many technologies are you studying right now?
ММ.: It works according to a funnel principle.  Initially we selected about 200 technologies. In 2012 we wrote a concept for 59 technologies (their pluses and minuses, spheres of potential application in the bank). A third of them remained on paper as they were not approved by business for various reasons, and we began working on 40 projects – worked through solution architecture, security issues, consulted with suppliers etc.  20 projects reached the implementation stage. And the only reason there were only 20 of them is financial matters, cost,  and nothing else.
In the background we are monitoring many potentially interesting things, participate in various industrial forums (for example Finnovate is presenting the latest products for financial companies, we found a lot of our current partners).
Each team member has a specialty, though not a narrowly defined one, and may be working on dozen of technologies but it doesn’t mean that in the end all of them will turn into dozen of projects. 
IT-Vision: The pilot projects you have mentioned, are they implemented fully by your Center?
ММ.: There’re projects which we program ourselves from beginning to end, projects which we give to vendors; and finally, combined projects. Why can’t we do all the projects ourselves?
This is a problem of human resources – we need masters of all trades, and there’re few of them in the market.  There’re professionals who have studied Microsoft Exchange Server for 7 years and know everything about it — but I need universal masters. That’s why we often have to start projects with vendors but I hope we’ll manage to reverse this trend next year with the growth of our Center. 
IT-Vision: How fruitful was last year for you?
М. М.: From 20 projects I have mentioned 8 are finished, 6 are at the production stage. The rest will be finished in March. 
For example, now we are going to launch the pilot of a new card product for small payments.  This is the so called stored value card that has a chip with a certain amount of money in it. The technology allows to make payments without connecting to the processing center, and doesn’t require installing any new equipment from trading organizations. The main point of the project is to reduce the cost of transaction, it’s not a secret that any transaction below a certain threshold that is made with the help of a traditional card is unprofitable for a bank; a bank has to “sponsor” such transactions to increase the frequency of card use and spread. The new technology will allow card payments to remain profitable at any transaction sums. 
IT-Vision: You said that the main point of your work is to search for advanced technologies which would allow solving some specific problems of the bank. Could you give examples of such problems?
М. М.: A large number of people come to the bank to submit their questions, complaints, problems. And all they should be submitted by a customer in a written form that is thousands, tens of thousands of queries. People should come to a bank branch to apply. Of course, it’s not easy to process all these applications quickly.  There’s a separate division in Sberbank formed for this purpose but it is overloaded with work.  To solve the problem we should consider it from two sides – from legislative and technological. We’ve been looking for a long time and go on looking for Software to convert Russian handwritten text into typewritten one, without much success though but I’m sure we’ll find a solution. The second aspect of the problem is that it takes a multi-stage sequential processing of information – and we need an army of employees for that. One of our projects – Complaints Analyzer – uses statistical and semantic analysis of texts. We use the methods of processing unstructured information known as Big Data technology. And there’s an interesting point. We processed about half a million of complaints and saw that half of them are caused by customers’ poor financial and computer literacy; these are not complaints as such but questions (for example, why can’t I enter Sberbank Online?). A large percentage of issues are related to the fact that, for example, some of the bank employees made a mistake in one of the letters of a customer’s name etc.  Half a million of customer complaints were processed in 2 hours. In the future we plan to use a new technology based on Open Source products to structure and process applications. This problem may not seem so noticeable from outside but having solved it with application of new technologies you’ll be able to see almost in real-time mode what your customers care about.    
IT-Vision: What is your relationship with business divisions of the bank?
М. М.: For last 18 months I’ve been explaining to our colleagues from business divisions what my department does and why it’s beneficial to cooperate with us. Some of them understand it and see the returns in business, others – don’t. The Board Members approved 12 research areas for the following year which are based on 48 trends identified by Gartner. We defined 61 solutions the development of which was supported by business. This kind of support is necessary as we do not deal with technologies for technology sake. 
IT-Vision: It’s not a secret that a big part of what is said about new technologies is of speculative character. How important is it to monitor innovations for real business? And how do you separate “the wheat from the chaff”? 
М. М.: I thought of a term “innovation theatre”.  I’ll explain its essence through the security example. We often have to go to airports where we come across metal detector arches at every corner. In fact, the number of these arches doesn’t affect the safety level but they affect our feelings – we become convinced on the basis of our own experience that the airport management does something for our safety and we calm down. In the USA after September, 11, 2001 I often saw military patrols at the airports with weapons but they were not loaded, it was just for show! And we all felt calm – the government is taking care of us!
If to transfer the analogy to innovations, we have something of the kind in this field as well – press releases, articles etc. Sometimes I call it a Hollywood complex – you all have seen a super hero in some films who breaks a complex system in two minutes.  For example, I’ve seen several demonstrations of Microsoft Kinect technology for banks. A guy is moving quickly form one window to another on the screen with many applications. Looks cool! But how does it really work? Where is what we call a business value? How to assess all that from the viewpoint of risks of using new technologies in the bank? Why should we (Sberbank) be interested in it? I even wrote the following post in Twitter: «Your bank does not need to care about innovations; innovations will take care of you».
You know Paypal, Square and many other companies which entered the territory of banks and take to themselves the most profitable part of the banking business? If banks don’t understand it in time they may find themselves in a very difficult situation or even outside the game. Of course, it’s just an assumption; no one knows the future for sure. Even Mark Twain said: “Beware of making predictions, particularly those about the future”. But it’s better to move forward to the future fully armed. 
Many people in banks will tell you – I’m doing real projects, I’m doing real banking, not that innovation nonsense.  But the question is what all this nonsense will turn into tomorrow? Today many people use QR-codes for payments. Banks which do not implement this service may be left behind as they will give the market generated by these technologies to a competitor. They don’t use the chance. A month ago I was asked during one of the interviews: why don’t you move faster? Our size doesn’t allow us to move faster. I think it doesn’t surprise you that an elephant doesn’t run like a rabbit. Obviously it’s not possible. However, with proper and careful planning – as my team does – it’s possible to benefit from implementing the most advanced innovation technologies. 
IT-Vision: Are there many banks in the world that have the same divisions as yours?
М. М.: Not many, according to my estimations there are about two dozens. Of course, we are not innovators in this area. Different banks look at new technologies in different ways. I know a person in one successful bank in Spain who has a budget and does the same as us but with the help of small specialized external companies. Here, due to legislation peculiarities (as we are a state bank) outside contractors have to go through too many bureaucratic procedures (tenders, permissions, approvals) and many small foreign companies cannot compete in a market battle as they do not have adequate resources to translate and adapt their materials and practices to Russian standards. So, for example, a Swedish company agrees to come to the Spanish market but not to the Russian one, it needs to grow and solve the issues concerning support, Russian language,  localization etc. I think they feel more comfortable within EU. American and Asian companies are more aggressive and want to work with us but expenses for notary certification, translations etc. as a rule cool down their fervor in six months. 
IT-Vision: How big will your Center grow in 2013?
М. М.: The number of personnel will be doubled. Half of them will be programmers, another half – technical managers (it means that we will focus on independent projects). A technical manager is a very difficult speciality for people with entrepreneurial abilities and it requires a deep understanding of the subject, working with partners and developers, selling ideas to business, preparing a stack of different papers and launching pilots to make business want to implement some specific solution. We need to hire exactly this kind of people, their qualification is critical to the success of our projects. We are interviewing hundreds of people to find the right one.
IT-Vision: How well do you cooperate with Sberbank Technologies (SBT)?
М. М.: Very well, but there’s no limit to perfection. I think you know a team sports game where participants pass a baton to each other. The team that succeeds in passing a baton better than other teams will win. Even if a runner is a champion at every section of a distance but a baton is not passed properly the team is disqualified. I see the situation this way: my team runs the distance very fast, SBT runs the distance fast as well but we don’t always pass the baton perfectly. But we’ll learn!
A positive result of our collaboration is that we’ve taught the business to listen to us. We can’t do without it as you understand. Earlier we were considered as innovation testers. This year we managed to explain that we are not IT, we are an alternative for IT when it comes to the things you are not sure of. We can help to determine quickly whether a solution will work or we’ll say honestly that the time for this solution hasn’t come yet. Or – I know there’re 3 mature technologies to solve this problem, so choose one yourself. Today the situation has changed: Business Management approves the chosen technology on the basis of pilot results and gives an order to SBT to do it! And this is our common victory.
Another real life example: there’s a set of technologies called PFM (personal finance management), they are represented by several suppliers in Russia. Though this issue was potentially interesting for Business Management nobody wanted to do such an expensive pilot with a vendor. So we did such a pilot ourselves. Everyone liked the idea, the system is recommended for application and a tender to choose a system in 2013 will be announced.