Sergey Fedotov, a Ukrainian banker with over 20 years of experience, has announced the launch of a banking platform for issuance of e-money that will be completely based on blockchain technology. The platform is said to become a full-fledged alternative to systems like Visa and MasterCard, and will provide banks with all functions necessary to run their operations.
The system’s code will be open sourced, while the platform itself is said to be in full compliance with Ukraine’s legislation.
With the aim of developing the platform, Attic Lab was founded in early 2016 with Sergey Vasilchiuk taking the role of the company’s CEO, and Sergey Fedotov being the anchor investor. Distributed Lab, a Ukrainian blockchain company known for creating a decentralized auction system, is Attic Lab’s another co-founder and has developed the platform’s crypto core.
Sergey Fedotov was born July 14, 1971 in Kyiv. His CV includes positions of a deputy chairman and a supervisory board member at Ukrgazbank, a chairman of board at Premium Bank, a supervisory board member at Vernum bank, and a supervisory board member at Axioma bank. His latest role is chairman of supervisory board at Smart Bank.
ForkLog contacted Sergey Fedotov to discuss the details and potential integration of the platform, and to talk about the key banking problems that blockchain technology may solve.
FL: Will you tell us more about your blockchain project for banks?
S. Fedotov: I’ve been involved in banking for a long time, and our project is mostly intended for banks as well. Today’s modern-day e-money market is enormous, yet not every bank knows how to deal with it. We’ve spent a lot of resources to make our platform multipurpose, and it will use blockchain technology (a private blockchain in this case, where bank affiliations will act as validators). We also kept in mind the regulatory framework issued by the National Bank of Ukraine. We also accounted for and excluded any third-party influence on such regulatory parameters.
The system’s core already implements all regulations for e-money in Ukraine as described in NBU decree No. 481 that specifies the rules for e-money operation in Ukraine. It’s our vision of the banking system’s evolution. The next steps are mobile apps, blockchain-based user identification, and eventually creation of a blockchain-based bank with all that it entails, i.e. different regulation provisions.
FL: Is the system capable of becoming a full-fledged alternative to Visa and MasterCard processing systems?
S. Fedotov: Totally.
FL: What about market competition? Visa and MasterCard are accepted everywhere. Will it be difficult for banks and users to switch to your system? How expensive would it be?
S. Fedotov: You are touching the other side of the problem. There is indeed a monopoly on both Ukrainian and global markets. However, an electronic means of payment, as defined in Ukraine’s laws on payments systems, i.e. a regular plastic card, has numerous disadvantages. The technology itself implies that infrastructure operators protect the communication channels and the transaction upon the request of Visa/MasterCard owner, which results in the service’s appreciation. Thus, transaction fee may reach 2.5 per cent.
Additionally, we are all aware of the events in the United States, where numerous companies have refused to use Visa/MasterCard terminals in their networks. This is a result of expensiveness and monopolization of the market on the part of those payment systems.
As for our system, the transaction fee here is close to zero, as we need no secured channels or special terminals. Using all advantages of the blockchain technology, we understand that a terminal may be very cheap, and banks may enjoy depreciation of transactions. Switching to the system would go unnoticed for banks and their customers. We intend to provide free access to the code, and to start forming a culture of using the technology in Ukraine. On the customer’s side, it would probably require issuing an additional card and using both systems concurrently. If there’s a QR code acceptance system, one may use our system; if there is none, one may use a regular card. In terms of technical integration, it would require payment systems, which are abundant in Ukraine. They’re engaged in aggregating payments.
While writing our system, we put emphasis on Prostir payment system (Ukrainian for “space” or “spaciousness” – FL) formerly known as NSPEP. As I’m still an active banker, I was thinking about ways to legalize my e-money system. As a matter of fact, doing this with the Prostir system is a beginning of works. It means I start issuing e-payments within a blockchain-based payment system, and inform the National Bank that I have started issuing e-money. And that’s all. So we’re mostly focusing on Ukrainian banks that are members of Prostir. On their side, it is sufficient to inform the NBU within five days as of implementation of our system. I think, if a bank is willing to do so, it would take two weeks at most in order to deploy full-fledged operations in the system. As a part of the project, we’ve implemented an integration module with Ukraine’s most popular automated banking system.
FL: But blockchain’s initial philosophy is about cryptoanarchism. It implies transparency of operations within the system. As a seasoned banker, do you support this approach ?
S. Fedotov: It’s a great question. Blockchain forms a completely different approach to an individual’s life. We’re approaching the phase where concealing something in your life would be impossible. Anyone’s financial transactions would be transparent to anyone, like it or not. It concerns the regulators, the general public, and, most of all, the politicians.
For that reason, blockchain is what I believe in technologically, it’s something that will change the society because the society needs this drastic transformation. Think of all those restrictions after 9/11. A constellation of new regulators called “Financial Monitoring” has emerged. The purpose of these entities is to disclose information on financial operations. With blockchain you don’t have to disclose anything as the information is already open, you can see and analyze it. The very task of the regulators goes inside out. It would not be to find information, but to analyze it. Blockchain is a perfect solution to that. Therefore, I believe blockchain is the future of banking. I’d say, we’re becoming a society that lives on completely different principles, principles of honesty. Cheating would not be only impossible, it would also be unprofitable.
FL: Do you think modern-day banking sector is ready for such an approach? Are global banks actually interested in transparency and new order of operations? There’s a widespread believe that the 2008 financial crisis, among other things, was caused by greedy banks.
S. Fedotov: I don’t think it’s about greed, it’s about the very essence of modern money. Society has no control over the issuance of money. The emission of money occurs under the rules the society doesn’t understand.
As a matter of fact, the latest anti-crisis efforts have boiled down to what could be compared to throwing money out of helicopters, and flooding the economy with new money. Speaking about whether the bankers are ready for the new order, I’d compare this to Mel Gibson’s Apocalypto. In the ending of the film there are battles between the Mayans and other tribes, there’s blood all over the place, and then there are conquistador ships approaching their shores. Soon there would be nothing left of those tribes. That’s what the banks are doing: they are fighting each other in competition for money and customers, but what they don’t realize is that the modern-day conquistadors, the IT community, are approaching their shores.
That’s why we speak about the openness of our system and our approach. It should not come as a surprise for the banks. We urge the banks to pay attention to new technologies, to grasp them so that the transition is evolutionary.
FL: When do you plan to integrate the system as a pilot version and in full?
S. Fedotov: Technologically wise the system is fully ready for implementation. We have already talked to a number of banks and financial companies in Ukraine, and we see enormous interest for an open technology capable of significantly expanding the e-money market. Remarkably, it’s the lack of understanding of what they are offered, rather than close-mindedness or unwillingness that many banks are demonstrating.
That’s why we are taking the open source approach, and we are willing to charge ourselves with the system’s implementation. Any integration of that kind implies individual settings. Frankly, our system’s mobile and web apps are mostly prototypes, as their final versions are created with specific applications in mind. However, we’re starting to implement them now, and this work is already underway.
Today Ukraine has an extremely opportune environment for the e-money market. Firstly, the e-money market leader, Monexy, has failed because its partner bank, FidoBANK, has gone west with 12.5 million hryvnias stuck in its accounts. Another major player on this market, GlobalMoney, as far as we know from open sources, is also closing up its business. That’s why this is the best moment for bankers to enter.
FL: How long did it take you to decide to make your code open source? It’s generally considered “good manners” within the IT community, yet some traditional players are cautious about that. How did you make that decision?
S. Fedotov: Yes, it took us a while to make the decision. Indeed, all bankers are accustomed to purchasing technological software. In fact, in Ukraine, as elsewhere in the world, there is a special monopoly of banking IT experts who are mostly clued up on the systems their banks use. They don’t see what’s going on around them.
With that being said, all banking systems are quite expensive, yet, technologically wise they are operated only by the people raised by those systems. Our platform’s openness implies every developer has an opportunity to take part in the development of the final product. That’s why we’ve taken the open source path which is ideologically close to the spirit of blockchain.
FL: Speaking about the original spirit, what do you think about Bitcoin, and cryptocurrencies in general?
S. Fedotov: I don’t understand other cryptocurrencies apart from Bitcoin, with the exception of the Ethereum phenomenon. Everything else for me is just Bitcoin forks and a constellation of miners. To my reckoning, Bitcoin has outlived the awareness phase, and now it’s entering lives of average people. I believe Bitcoin will become another global currency, an expensive asset used in interbank and international settlements. So my recommendation to everyone is to invest a part of your assets in Bitcoin.
FL: Being an experienced banker, what would you tell people about banks?
S. Fedotov: As liars, bankers are second to politicians.
FL: It’s pretty impressive to hear this from a banker. Thanks for the interview.
Sergey Fedotov was interviewed by Toly Kaplan