As a relative newcomer to the U.S. market for core processing systems, Temenos has its work cut out for it.
If retail banking is "sticky," then the relationship between a bank and its core processing vendor may be close to Krazy Glue. Although analysts have been forecasting large-scale core system replacements for more than a decade, only a few banks have made the move, reflecting the costs and risks of such a project.
But Temenos executives said the firm, based in Geneva, Switzerland, is now in the running for several core banking contracts in the U.S. with its T24 platform, a modern real-time core system that can run on-premise or in the cloud.
To enter the U.S. market, Temenos has acquired two U.S. financial technology vendors. In 2013 it acquired TriNovus in Birmingham, AL, which offers compliance software as a service (SaaS) to more than 800 banks and credit unions. In February of this year it bought Philadelphia-based Akcelerant, a specialist provider of software for loans, collections and risk management for credit unions and small banks.
Stephen Greer and Jim O'Neill, analysts at the banking research firm Celent, said Temenos plans to start with smaller banks and work its way up. Acquiring a company that specializes in compliance software gets them a foot in the door of that company's current clients and helps them learn the complexities of U.S. banking regulation. Although Temenos claims 15 institutions are running T24 in the U.S., the analysts think that includes branch operations of foreign banks, such as Spanish bankers targeting Latin America, which don't have to meet all U.S. regulations.
The only U.S. banks currently running Temenos's T24 core banking software are nD Bancgroup, which has a license for a bank in Greenville, S.C., but plans to offer digital payment services to companies like mobile phone operators, and Independent Bankers Bank.
Temenos said that other signed institutions that will go live soon include AimBank, Clare Bank, Farmers & Merchants Bank, National Bank of Andrews, and State Bank of Spencer.
Breaking into a new country can be rocky at first for a banking software provider, said Celent's Greer.
"Their biggest issue is name recognition," he added. "I would be shocked if more than a single-digit percentage of bankers in the U.S. have even thought about them. It's not like they have existing relationships with the banks like FIS and Fiserv do."
Beyond name recognition, they need to get over the hurdle of few implementations and learn what in their system needs to be tweaked, added O'Neill. Offering core banking or analytics over the cloud to small banks with less than $5 billion in assets offers an opportunity, added Greer, because those banks are under pressure and a cloud solution could be attractive.
Banks need to move, says David Arnott, the vendor's CEO.
"Only the most innovative banks will be profitable," he said during the company's annual meeting of customers and partners held in Istanbul last month. "They need to be real forward-thinking. And at the same time as margins are under pressure, customers want their banks to advise them on financial products, help them save and reward their loyalty. They want personalized service delivered at the right time."
Aside from rare exceptions like BBVA Compass, which switched to Accenture's Alnova and Discover, which went with Infosys Finacle, banks have been reluctant to take on the risks of replacing their core systems. But bank priorities have shifted significantly in the last year, Arnott claimed.
Digitalization has displaced regulation as the primary concern of bankers. At the same time, customers are moving to more self-service, especially through mobile phones, which has led to massive increases in the number of times they contact the bank from twice a month to more than 30 times a month.
"Banks are spending hundreds of millions on front-end digitalization, but that won't work if the back-end is not real-time and integrated," Arnott said. "You have to start with the core, a single reference point at the heart of your system." Only with a modern core can a bank layer on analytics and then provide personalized service to customers, he said.
Celent analysts said they have never seen a bank move to a new core just to achieve real-time, which isn't a huge issue in the U.S., and won't be at least until payments move in real-time. Banks typically begin looking around at software solutions about two years before their contract ends, so typically 5% to 10% of banks are looking at systems, but the percentage hasn't changed much.
"There are a lot of consultants focused on doing RFPs who will stir up the waters, so stuff is going on, but it is business as usual," O'Neill said.
Temenos, which implemented 135 new installations of its range of software packages around the world last year, sees the U.S. as a key market, Arnott said.
Banks face pressures on profitability, Arnott said. For most of the last 25 years, banks in the U.S. and Europe have enjoyed return on equity of 16% or higher. The new normal, which is more like 9% or even 6% for some banks, barely covers the cost of capital.
Jay Mossman, who was CEO at Akcelerant, is now president of Temenos USA.
"My job is to blaze the path for T24 and find opportunities in the US market," Mossman said. "Temenos has great technology and a great foundation of customers through the world. If we can bring the Temenos ecosystem to the U.S. we can add tremendous value to the consumer."
John Schlesinger, chief enterprise architect at Temenos, said banks need two databases for mobile banking data one for queries and one for transactions.
"As the world of retail banking moves from tellers to mobile phones, the number of queries balloons," he said. "Banks don't make money from queries, so this is a way to make queries cheaper."
Banks can approach new systems in a few ways, he added. Credit Suisse is using Temenos for a new front end across multiple business lines. Julius Baer, the Swiss private bank, is using it to provide a new back office system in Asia. KBC Bank Ireland has created a new bank with Temenos T24 as its core and will migrate customers over, avoiding a "big bang" replacement of its existing systems. A new modern core can be much more efficient; by using T24 Bank Sinopac in Taiwan reduced its middle and back-office costs by 50%, Arnott said.
Mike Davis, client director at Temenos, said the vendor has developed an implementation model in partnership with Capgemini which has made a difference in the length of time it takes to install a new system. The banking technology vendor relies on a process-led approach, models, knowledge management, partners and an integration framework, he added.
Commonwealth Bank of Africa, based in Kenya, used the Temenos Integration Framework to roll out T24 in five months, three times faster than a traditional approach, the bank has said. It then used the platform to acquire three million new customers for its mobile-based M-Shwari banking.
The financial pressure banks are under has been good for them in IT, said Mark Gunning, global business solutions director at Temenos. He sees a more thoughtful investment in IT as banks understand change is inevitable.
"Perversely, it is a result partly of banks not having as much money. When you are wealthy, it is easy to invest short-term in IT. Now banks are taking IT more seriously because they know they have to change. I have talked to two major prospects in the last six weeks who say they know they cannot go into the next decade with the same cores they have today."
Tom Groenfeldt is a freelance writer in Sturgeon Bay, Wis., who specializes in writing about financial technology.