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Tech revolutionizes Russia's Central Bank
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April 23, 2001 (Computerworld) -- First of a two-part series. Part two will appear next week
MOSCOW - As recently as a decade ago, the Russian banking sector was an antique monstrosity, a huge system of paper-based transactions inherited from the former Soviet Union.
Businessmen in the fledgling capitalist economy were forced to carry suitcases of cash - typically American dollars - in order to make business deals. There wasn't even a system of paper checks. People paid for utilities, bought groceries, paid rent and received their salaries in cash.
However, within the past few years, and particularly since the 1998 collapse of the ruble, an avalanche of technological changes has swept through the Russian banking system.
Today, paychecks are directly deposited into bank accounts, and residents of major cities can use their debit cards to pay for everything from groceries to gas. Money can be moved electronically and from bank to bank - no suitcases required. Transactions take from one to three days to settle instead of weeks.
Among the agents of this surprising transformation were the technologists and their supporters at the Central Bank of Russia, a quasi-independent, quasi-governmental behemoth that inherited its functions from its Soviet predecessor. The bank had to replace a paper-based payment processing system with modern technology and, at the same time, build a communications system to span 11 time zones and 79 banking regions.
"It wasn't easy," said Tatiana Paramonova, the Central Bank's first deputy chairwoman, who supported the bank's investments in communications technology and processing power.
After the fall of the Soviet Union, the state banking system was split into two parts: the Central Bank of the Russian Federation, which is responsible for interbank transfers and the money supply; and the private banking sector, which includes Sberbank, the descendant of the old state-controlled savings bank.
After a failed attempt to introduce paper checks in 1992 (the physical infrastructure simply wasn't there to handle them) the Russian banking system moved directly to electronic fund transfers.
That required a combination of satellites, radio relays and fiber-optic lines. The bank won't say how much it cost to build that infrastructure.
But some critics are concerned that by focusing on technology, the Central Bank and the Russian government as a whole are diverting attention from a more serious issue.
"Overall, the Russian banking system is not at all healthy," said Kim Iskyan, an analyst at Moscow-based Renaissance Capital. "There is poor supervision from the Central Bank, poor management on a bank-by-bank basis. Regulations aren't enforced particularly well. There's little understanding of how to manage risk. Technology is a sideshow to all that; the best technology in the world isn't going to matter if they don't have people who can manage well."
Iskyan pointed to the Russian economic crash of August 1998 as evidence that the banks don't have adequate oversight. "The banks were simply not prepared for the ruble to devalue, and they had risks and exposures such that they were caught in the worst position possible," Iskyan said. As a result, the investments in technology that the Central Bank and other Russian banks are making aren't as valuable as they could be, he explained.
Banking executives don't necessarily agree.
"I think we made the right decision to put in an electronic payments system," Paramonova said. "It was a big economic win for our country. It will help the economy evolve, and the regions will no longer feel isolated from Moscow."
Bank Learns to Manage Distant Systems
Russian institution jumps to satellites
Five years ago, Mikhail Senatorov, the Central Bank of Russia's deputy chairman and CIO, set out to create one of the largest, most sophisticated telecommunications and computer networks in Russia. The bank had gone from paper-based to electronic processing for financial transactions in 1993, but its leased lines couldn't handle the volume.
Today, using satellites and other technologies, automated settlement systems have been implemented in approximately 45 of the bank's 79 regions.
That's not to say all of those systems are the same. In order to get up to speed quickly, each processing center was allowed to find its own solutions to problems, Senatorov said.
"We spelled out the basic requirements, and over two to three years, the system was created in place and began working," he explained. "But everyone used their own means - HP, IBM, NCR, Sun, DEC - whatever they wanted to use."
Building a new transaction processing system was an expensive process, said Tatiana Paramonova, the Central Bank's deputy chairwoman. "It was a high percentage of our budget. But we understand that this is our future," she said.
As part of the process, during the past four years the bank sent more than 2,000 people to a special program at the Moscow Physical Engineering Institute for computer training. Senatorov said the bank is now working on putting courses on CDs and will begin developing networked classes.
Currently, the bank has Very Small Aperture Terminals at most of its branches and the second-largest Hewlett-Packard Co. OpenView-based remote management system in the world, according to Hilmar Lorenz, HP's country manager for Russia.
"Today, now that the system works and is reliable, we're starting to think about how to standardize on one solution," Senatorov said. "Computer hardware, software, central management - that's our challenge for the next stage."
The bank will also consolidate its processing centers into a handful of centers, organized along time zones and processing volume. Today, some centers handle only 1,000 transactions per day while others have half a million daily because of their locations. The new organization will distribute the workload more evenly, Senatorov said.
The telecommunications system is much less of a hodgepodge of systems, platforms and implementations, he said. "As a result, we can manage the telecom infrastructure from Moscow," said Senatorov.
Satellite links are necessary because fiber optics aren't available everywhere.
"Deep within Russia, I think the lines won't be there anytime in the near future," said Victor Krasovski, the Central Bank's deputy director of information systems.
In 1993 and 1994, the bank began building its communications network on the basis of military satellites, radio relays, fiber-optic and copper lines and the X.25 protocol, which allows a large degree of redundancy. The bank also put up its own satellites, as part of the Bankir (Russian for "banker") satellite system. Some estimates put the bank's spending at $120 million by 1996.
Although the Central Bank wouldn't say how much it spent on the project, Senatorov did tell Russian news media last year that annual communications costs are expected to drop to $15 million, from about $40 million spent per year when the bank leased lines.
Related stories:
- Opinion: Russia gets IT, Feb. 19, 2001
- Mastering Babel, Jan. 15, 2001
- TV tower fire sparks Net use in Russia, Sept. 4, 2000
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