Today, we are welcoming Rashad Khalafov, Chief Information Technology Officer at Bank Respublika, from one of the leading banks in Azerbaijan. During our conversation, he will shed light on digital platforms and fintech solutions that have become an integral part of modern banking business.
What digital platforms and financial technologies are used in the modern banking sector?
Digital platforms and fintech technologies have revolutionized the modern banking sector, making it more convenient, efficient, and innovative. Let me share some key examples of such platforms.
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Open Banking: This is one of our main digital initiatives in the banking sector of Azerbaijan. Open Banking uses API (Application Programming Interfaces) to exchange data between banks and third-party providers, allowing for the creation of new products and services for customers. This enables consumers to more easily manage their finances, opening up opportunities for new ways of interacting with financial services.
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Mobile Solutions: The utilization of mobile applications enables banks to offer a more direct and readily available service to their customers. Today's clients expect services to be easily accessible and convenient, and our mobile application, Mobil Şöbə, is instrumental in fulfilling this requirement. The app provides the capability for users to conduct transactions, verify account balances, and settle bills on-the-go. Designed for user-friendliness and swift access to various functionalities, Mobil Şöbə is continuously enhanced with additional features and services. We also ensure that the security of transactions remains a top priority even as we advance the application.
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Blockchain and Digital Currencies: Even though the adoption of virtual currencies in Azerbaijan is currently under evaluation, the nation's banking industry should commence investigation into the potential applications of this technology. Despite the unpredictable nature of virtual currencies, the blockchain technology that underpins them presents opportunities for cost cutting, transaction speed enhancement, and security fortification..
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Artificial Intelligence and Machine Learning: These technologies are actively used in various aspects of banking operations worldwide, ranging from enhancing risk management strategies to developing personalized offerings for clients. The foundation of these technologies is "information." It's important to note that a few years ago, we initiated the process of data accumulation and classification. Today, we are in the process of combining and transforming "data" into "information," which facilitates quality and most relevant service to our customers.
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Cloud Technologies: Cloud computing technologies allow financial institutions to reduce costs on IT infrastructure, as well as increase efficiency and speed up the introduction of new products and services. However, due to regulatory constraints, as a banking organization, we are limited in using cloud technologies outside of Azerbaijan, which has its pros and cons. Therefore, as a bank, we have invested in deploying our own solutions within a private cloud infrastructure.
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Digital Platforms: Platforms such as payment systems, investment platforms, P2P lending sites, and others, offer alternative channels for delivering financial services. They make banking operations more straightforward, faster, and convenient for consumers. At this point, it is too early to discuss the specific implementation of these platforms in our country, as we still have many of the above-described technologies that need to be refined and perfected to the ideal.
These technologies are transforming the face of the banking industry, and we at our bank are committed to leveraging them to their utmost potential in servicing our customers.
What new business models in the banking sector could emerge due to the expansion of digitization and the implementation of new technologies?
Digitization and the introduction of new technologies create opportunities for a variety of new business models in the banking sector. Below, I highlight some of them.
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Platform Banks: In this model, banks operate as open platforms that integrate with third-party fintech applications. This allows customers to choose from a multitude of services provided by various providers, ultimately offering a broader range of services.
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Banking as a Service (BaaS): In this approach, traditional banks lend their infrastructure to fintech firms or other businesses to facilitate financial services. This can encompass activities ranging from card issuance, payment processing, to extending loans.
One could say that our bank has already initiated the implementation of such a service on a preliminary level. By partnering with Wolt and Mover, we have created co-branded plastic cards. The distinct feature of these cards for our partners' customers is that they aren't seen as a Bank Respublika product, but solely as a product of our partners and remain exclusively within our partners' ecosystem. -
Bank partnerships with fintech companies: This model implies collaboration to create and offer innovative financial products and services. This can help banks better respond to the changing needs of clients.
We have also started effective interaction in this direction, and as I mentioned earlier, we became one of the first in the market to implement and launch Open Banking. Services like hesab.az, epul.az, portmanat.az have already joined this initiative. Such cooperation is based on the principle of providing services to clients served by both us and our partners, at places where it's most convenient for them.
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Digital Neobanks: These are fully digital banks that typically provide a higher level of convenience and efficiency compared to traditional banks. They often offer products targeted at specific market segments that traditional banks might overlook.
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Banks with Marketplaces: In this model, banks create online marketplaces where they can offer their own and third-party products and services. This can include everything from insurance and mortgage loans to investment management services.
At present, it would be premature to suggest that any of these new models will be fully adopted in our country, as the main factors here are security and regulatory issues. It should be noted that banks are institutions that operate within strict state regulation, but collaboration between all sector participants in this direction has been ongoing for several years.
Which areas of banking activity are most in demand for innovations and cooperation with startups?
In the context of Azerbaijan, there are several sectors of banking activity that are particularly involved in innovations and cooperation with startups, but overall, almost all areas of banking activity can benefit from innovations and collaboration with startups. It is important, again, to remember regulatory requirements and risk management when implementing these new solutions.
The sphere of swift transaction systems, mobile payment solutions, and e-wallets is witnessing active growth, facilitated by advances in technology and collaborations with fintech startups, bolstered by regulatory backing. These innovations have the potential to streamline and expedite payment processes for consumers.
In our country, we already have successful experience in implementing such systems, for example, AniPay - an instant interbank money transfer system using the phone number, account, and other identification data of the client.
Digital Banking: Startups can aid in the development of digital interfaces that make banking operations more intuitive and convenient. This can encompass everything from enhancing the functionality of mobile applications to developing chatbots for customer service.
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Revolut - fintech startup from UK, offering a platform for mobile banking, currency exchange, debit card servicing, and other services.
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N26 - founded in Germany neobank, provides a digital banking platform that includes budget management functions, savings vaults, transfers between users.
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Chime - an American startup, offers online banking services
Startups can also offer solutions based on machine learning and artificial intelligence to improve risk management processes, prevent fraud, and ensure data security. For instance, artificial intelligence can be used to analyze behavioral patterns and identify unusual activities that may suggest fraudulent behavior. Machine learning can help in predicting and managing risks by analyzing vast amounts of data and identifying trends and patterns. These innovative technologies can significantly enhance the ability of banks to protect their customers and themselves.
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Darktrace - Specializes in detecting unknown and evolving cyber threats using a method known as the "Enterprise Immune System."
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Featurespace - Uses machine learning to detect fraud in the financial sector.
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Onfido - Their technology allows companies to verify user identification documents, ensuring a high level of security.
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Quantexa - Assists companies in solving complex issues like financial crime, risk management, and compliance with regulatory requirements.
Micro Financing: Innovations in this area can help banks offer more accessible and convenient microloans to customers, especially for small entrepreneurs and underserved population groups. Global examples:
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Tala - is a fintech startup that uses data from customers' smartphones to determine their creditworthiness.
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M-Pesa - is a mobile payment system created by Safaricom, Kenya's largest mobile operator. It allows users to receive and issue microloans directly from their mobile phones, providing financial services to the unbanked population.
What trends and prospects for the development of cooperation between banks and startups can be expected in the future in the context of digital platforms and financial technologies?
Сontinued implementation of Open Banking: Open Banking will continue to be a catalyst for cooperation between banks and startups. This model allows startups to create services that integrate with banking systems, improving the banking experience for customers.
Collaboration in the field of artificial intelligence: Artificial intelligence and machine learning will continue to play a key role in cooperation between banks and startups. These technologies can help automate processes, improve risk management, and provide more personalized services for customers. In turn, the Bank provides valuable input to this process, offering access to large amounts of data, specialized expertise, and extensive server capabilities..
Сybersecurity: As the number of digital transactions and data increases, cooperation between banks and startups in the field of cybersecurity will play an increasingly important role. Startups can offer innovative solutions to ensure customer data protection and prevent cyber attacks.
Increase in partnerships: Over time, there is expected to be a growth in the number of strategic partnerships between banks and fintech startups. Instead of competing with each other, banks and startups will increasingly collaborate to achieve shared goals together.
These trends and prospects present opportunities for banks and startups, but they also require these organizations to be ready for change, innovation, and overcoming challenges related to security and regulation.
In conclusion, I want to underline that in our country after the pandemic, there is a significant increase in interest in digital transformation in the banking sector (while it's important not to confuse this process with digitization - a stage that the main players of Azerbaijan's banking system have successfully passed earlier) and the use of new technologies. Today is characterized by the fact that banks have become less conservative in terms of using open-source solutions, intensifying investments in developing their own competencies in the field of innovation development and implementation. It's also worth noting the active support from regulatory bodies, in particular, the Central Bank, and the strong desire of government agencies to support the digitalization process in our industry.