Core system swap outs are of increasing interest to banks, which need to support new products like health savings accounts and technologies like remote deposit image capture, but find that layering these new functions on top of siloed legacy systems is awkward and inefficient.
In spite of the pain associated with core system replacements, banks recognize there's no time to waste if they are to remain competitive. Technology providers, too, realize that enhancing system capabilities must happen if they are to acquire and retain customers. It's that sense of opportunity and urgency that brought Metavante and Temenos together.
Under the agreement, Metavante will distribute the Temenos core banking platform (TCB) in the U.S. and Temenos will retain royalties on license and maintenance fees, outsourcing fees and professional services revenues. The technology will be targeted at the largest U.S. institutions, about 150 tier one and two financial institutions.
By allying with the European-based Temenos, Metavante will be able to offer jointly developed strategic platforms by using TCB as its foundation. Already one of the three largest U.S. bank tech and payments processing firms with 2006 revenue of $1.5 billion, Metavante will have exclusive U.S. access to a co-developed global software platform for the U.S. market based on TCB.
The deal's a big score for both firms, since it will allow Metavante to upgrade its core banking offerings, giving its huge roster of banking clients access to a modernized core banking platform. By teaming with Temenos, Metavante can hit the market fast with a new core banking product. "They could have built their own system, but licensing makes the most sense, because there's a lot of good software out there," says Bart Narter, a senior analyst on the banking team at Celent.
As for Temenos, it's earned a ticket to a brand new market, and leverage over its own competitors. "Temenos has zero footprint in the U.S. and it has a more modern core banking platform," says Narter.
At a recent press swing through New York, Temenos CEO Andreas said penetrating the U.S. market was part of what attracted his firm to Metavante.
"There's a lot of core banking vendors trying to break into the U.S. market, and some have hit a brick wall, and some have made a few sales, but not a lot," Narter says. "The deal give Temenos instant credibility inside the United States."
And it's likely the best fit for Temenos, given the fact that most of Metavante's competitors, including Jack Henry & Associates, Open Solutions, Fiserv and Fidelity Information Systems, offer core banking technology that's too similar to TCB to make an alliance with Temenos a good fit. Temenos "got the last musical chair," Narter says. "The other core providers aren't necessarily looking for a foreign partner."
Metavante President and CEO Frank Martire says the business landscape for the 150 or so tier one and tier two institutions is becoming increasingly complex, especially as new product offerings place demands on existing core banking systems. When a product like health savings accounts or a foray into a new market overseas is taken into account, the stress on older systems can be overwhelming. "You need to have 24/7 operations," he says. "And many of today's systems are 20, 30 or 40 years old." Martire says.
Metavante and Temenos execs argue that the age of many core systems are creating problems for banks, such as a customer being listed in the system multiple times, yet there's still no complete view of that customer.
That's added to other problems such as slower time to market with product rollouts, old school batch processing, an inability to do business in multiple currencies and languages off of one system, and an inability to reengineer and streamline business processes.
Neither firm would say how many current clients were using the new partner's technology. But But both firms are confident about how the alliance will play out. Metavante, which has an existing client base that includes 91 of the largest 100 U.S. financial institutions, expects to generate a minimum of $102 million in contractual revenues over the next five years.
Going forward, the two firms plan to develop a new system that will be party-centric with a changeable product catalogue, which should facilitate speed to market. Built off of TCB, the new "U.S. Global Banking Platform" will be rolled out in an incremental, component-based manner and will leverage service oriented architecture to integrate Metavante and other surround solutions.
Metavante has entered into a number of business-expanding alliances recently, including one with Schwab Institutional to provide trust and brokerage technology and one with Monitise to create a mobile payments system for North America.
In the case of the Schwab, Metavante's trust clients will have the option of selecting Schwab as their custodian, granting them access to custody and trading platforms. "A lot of our independent investment advisor clients are being acquired by or are acquiring trust companies. With that, you start getting into trust accounting systems," says Cathy Clauson, vp of product development for Schwab Institutional. "This will allow the advisors to keep their assets with Schwab."
