Temenos: moving beyond the core

The extent to which a targeted series of acquisitions over the past few years have moved Temenos from being simply a core banking system vendor to a fully-fledged financial technology specialist became clear at its recent annual user event, this year held in Abu Dhabi.

Just ahead of the event, the company completed its acquisition of TriNovus, a US compliance systems vendor, on which its expansion in the hitherto elusive North American market will largely depend.

Beyond this is what amounts to a fundamental shift in the company’s approach to the problems that its customers face and how it plans to approach a changing market with this changed product set.

Celebrating 20 years in business, Temenos is at the start of a third phase in its history, said David Arnott, who took over as chief executive at the end of last year (pictured).

In the early days of the company, it was essentially selling core systems as replacements for an older generation – notably those of arch-rival Misys – or to the burgeoning opportunities for new systems in emerging markets such as South East Asia.

At the centre of that remains the difficulty of core systems replacement, and it seems that Temenos has taken the view that while institutions will have to bite that bullet sooner or later, there are more pressing problems facing them on a day-to-day basis. While many argue that ageing core systems are hampering banks’ attempts to modernise and innovate, Temenos is saying that some things can’t wait: sure, it would be nice to have a single-core integrated back-end system, but that isn’t what is needed right now.

Its solution is what it calls “progressive renovation”. Sort out the channels and the product sets using modern technology while also “integrating seamlessy to an efficient back-end over time”, said Arnott. “Getting into new channels is the real pain, and the real pain of that is disparate systems.” Putting the appropriate systems in place to take a faster route to market used to be a recipe for increasing that disparity, but modern architectures lend themselves to a more gradualist approach. A component-based architecture can provide a building block approach that makes it easier for larger banks to implement specific parts progressively, making it easier to keep systems up to date. Rather than a rip and replace” approach to upgrades or maintenance, components can be tweaked, replaced or augmented on an individual basis.

The company has been enthusiastically adopting such an architecture across its systems at a technical level for some time and now, it seems, has reached the point where it is reflected in the way it sells them – even its flagship T24 core banking system has become a suite of products.

“Two or three years ago, you had to buy T24 in toto; now you can buy modules,” said Arnott, introducing the other software products that it has been building up around T24 over the past few years, and for which it is claiming significant improvements in development time and speed to market, alongside a functionality such as data analytics, customer segmentation and social networking that were previously difficult for smaller banks to implement.

A prime example of this is the Connect suite of  products. These are essentially templates covering internet banking, mobile banking and customer onboarding, built using Temenos’ User Experience Platform technology to give productivity improvement in building new apps and interfaces.

Conceptually these are similar to the Model Bank idea that the company has been using to speed implementations of T24 for several years now – simply that there is a great deal of commonality across the main functionality of any bank systems, so the more that can be standardised and run out-of-the-box, the less customisation there will have to be.

Connect gives basic functionality for personal and corporate mobile banking applications, including corporate payments and trade finance. More are in the pipeline, said Mark Winterburn, group product director, including advisory and personal financial management for wealth management clients, and a client relationship management iPad app due in October.

Connect is part of the Temenos integration framework, which offers pre-integration of other vendors’ components with Temenos applications, and to integrate them into existing systems as part of that “progressive renovation” approach. The company says that it can “significantly cut implementation times”, citing Commercial Bank of Africa, which launched its M-Shwari banking services in three months compared to the original plan of a year.

One of the new modules has at least some of its roots in the acquisition several years ago of business intelligence capabilities that became its Insight product line which has been enhanced with broader customer and operational intelligence and works alongside the new relationship-based pricing module, providing tools to build personalised pricing to retain their most valuable customers, such as the most profitable and most loyal.

But perhaps the most significant recent development is the Trinovus acquisition, announced at the end of March.

“While in the context of the overall vendor landscape it is a relatively low-key deal, it is a significant strategic move for Temenos: it provides credibility, mindshare, and capability to help it crack the US market, a market in which non-US providers have found it tough to gain any traction so far,” said Daniel Mayo, practice leader for Ovum’s global financial services technology team. “TriNovus provides Temenos with a client base of 800 banks in the US, which will be valuable in helping it increase its mindshare in this market – although cross-selling is much easier said than done. Perhaps more significantly, TriNovus’s focus on compliance services and software-as-a-service core processing addresses two other pain points faced by US entrants: the need to demonstrate the ability to meet US market requirements, and the development of a sufficient customer base to provide a credible SaaS model.”

Russell Taylor, regional director for North America, certainly thinks that Temenos will be able to use the TriNovus operation and the TriComply product to increase business in the US, which has always proved elusive for the non-US core banking suppliers.

Temenos, of course, is no longer projecting itself as simply a core banking provider, and it is the other solutions that Taylor thinks will prove attractive to the 18,000 banks and credit unions that are in his target universe – along with the large Tier 1 banks where incumbent suppliers such as FIS and Fiserv dominate. The progressive renovation approach will play particularly well among the smaller institutions where compliance is a massive burden, while the ability to deliver the modular elements of T24 and associated products using a software as a service model will de-risk the decision for potential customers.

After several years of – alongside its rivals – hammering on the front door of the US market, it looks as though Temenos might have spotted an alternative way in that will be much more likely to succeed.

There remain new areas to develop, said Arnott. One of these is the payments systems market. A few years ago it looked specifically at buying such a system – Logica and Misys were both in the acquisition frame at one stage – but Temenos management at the time felt that existing systems were ageing and there was little advantage in buying one rather than simply developing interfaces.

Things have moved on, however, and Arnott said that such a move is back on the agenda, although he declined to talk about specific plans or potential acquisitions.

Perhaps by the time of next year’s client conference the position will have become clearer.