28 Sep Digitally transforming the world’s banks and making banking better
Max Chuard, CEO, Temenos, reveals how the number one banking software is supporting the sector’s transition to full digitalization
Temenos is one of Switzerland’s biggest tech success stories, which was created with the advent of the internet in 1993. The company has become the world’s number one banking software business, with 67 offices in 40 countries. How would you assess the impact and contribution of a company like Temenos in the global financial sector over the past 30 years and what has this journey been like for the company?
It’s been an amazing story, which all started 27 years ago. Since our inception, we have been focused 100 percent on supporting the banking community. We have been investing massively in our technology to ensure that we can ultimately digitalize banks of all sizes and within any sector of the banking industry. We have done that quite successfully and, as of today, 3,000 banks are using our system across 150 countries. I’m very pleased with this journey. Over the 27 years of our existence, technology has evolved a lot, enabling dramatic change. When I look at our overall offering and see what we are able to do and how we can support our customers, I’m very proud of what we have been able to achieve. But our success is ultimately linked to technology, and if we look at what the cloud is supporting today and what artificial intelligence (AI) is doing as well, it’s truly amazing.
Since the 2008 Lehman brothers crash, banks have been through a huge and very rapid transformation journey, pushed by increasing regulations and accelerating technology. How has Temenos helped the banks transform and reinvent their business model?
Before the 2008-2009 crisis, banks were enjoying quite high returns on equity globally, but following the crisis all that disappeared. Temenos has been able to support the banks post 2008, ensuring that, through automation and enhanced efficiency, they were able to drive increased profitability. We have helped them regain the trust of customers by providing solutions that enable them to understand their audience and offer hyper-personalized experiences using AI-driven solutions. Banks over that period of time have seen an increase in regulation, which ultimately has increased competition. We have also seen the likes of GAFA tech giants coming into the segment. But we believe that banks still have everything they need to succeed. Through modern technology, they will be able to win in this market. That’s part of what we have been focusing on during the recent crisis: ensuring banks are extremely strong and have the right infrastructure in place to support their customers.
Even though the COVID-19 crisis is very different in essence to the 2008 global shock, can we expect to see a similar boom for your business activities?
The current crisis is clearly very different. As opposed to the 2008-2009 crisis, where banks were part of the problem, this time around they are clearly part of the solution and I think this is a major change. Banks have come closer to the customer and have formed a new bond of trust around how they support society. Temenos has played a big role in this, supporting our banking customers and the broader community, and we are very proud of what we have been able to do. During the COVID-19 pandemic, banks have been focusing on their own business continuity plans, digitally engaging with the customer and supporting society. Temenos has been providing solutions to support our community and customers with these activities.
Just to name a few examples of where we have been very proud to support our customers: in the U.S., the government quickly brought in what they called the U.S. Paycheck Protection Plan (PPP) and, within days, they asked banks to provide relief funds to businesses. And we have been able to do that extremely successfully, for example, by supporting Atlantic Union Bank in rolling PPP out to its customers. Within days of working with us, Atlantic Union Bank were up and running, so were able to provide loans to more than 10,000 small- and medium-sized enterprises. Or we can look at a closer example in Switzerland, where we have seen financial crime surging during the COVID-19 crisis. With our solutions, we were able to support customers like UBS while they were fully working remotely.
I’m very pleased and proud of how we have been able to support banks, eventually enabling them to get closer to and rebuild trust with their end-customer. The COVID-19 crisis has been accelerating the need for digitization. Even before COVID-19, 2010-2020 was a decade of digital transformation, but recent events are making it more prominent than ever before. Every year we do a study with The Economist and the feedback collected from the CEOs in that survey clearly demonstrates that there is a need for an acceleration in digitization. So I’m very confident that banks will continue to modernize. Ultimately, the crisis has highlighted the benefit of modern technology and also highlighted the limitation of legacy technologies. I’m very confident for the future.
In 2020 we expect to continue to grow our profitability. We expect to be able to grow what we call our recurring revenues, which represent a bit more than 50 percent of our business—we expect this division to grow at more than 13 percent. The Temenos business model is very resilient in the sense that a lot of what we do is supporting our customers—that is very predictable and gives us comfort in delivering strong cash flows and profit. So I’m confident for 2020 but, beyond this, I’m confident about the growing need for banks to continue to transform. Only 20 percent of banks have started their digital transformation so there is still a massive opportunity and demand in the market. The unprecedented impacts of COVID-19 could not have been foreseen—and some banks were not fully prepared. We can forgive them for that, but if they’re not ready for the next situation it will be more difficult. We are here to support them to thoroughly transform.
We have seen the growth of contactless payments, for example, Apple Pay and mobile phone payments, but what are some of the other key trends that you see shaping the future following this crisis?
This need for digitization has two origins. The first one is how to get much closer to the customer and how to have hyper-personalized customer experiences. We’re using AI and modern technology to assess this, and this is very important at the front end. At the back end, it’s much more about automation, efficiencies and speed to market: how to innovate much faster. I think this is very, very important.
From a technology point of view, we see cloud and software as a service (SaaS) as being very prominent. This will probably accelerate following the COVID-19 crisis. These are amazing technologies that allow us to dramatically reduce the cost of the environment, create more resilience and security, and ultimately get to markets faster. AI as a technology is used across various industries today, however what is important and quite unique about AI in banking and about Temenos is that we are bringing transparency to the industry. We have invested in a patented solution around what we call “Explainable AI”. We believe that in banking you need to be able to explain your models. You need to explain to the customer the decision making process that led the bank to a certain conclusion, for instance accepting or refusing a loan to someone. This will become more and more important, and more and more regulators will be asking for this level of transparency. Ultimately, the customer will be asking for this too and, therefore, AI will only grow in importance in today’s environment.
Going forward, what’s in your innovation pipeline?
Innovation is really part of our DNA. If Temenos is the number one banking software company today, it’s because of our passion for innovation and our desire to always create new solutions. We were the first to be in the cloud, the first to have a marketplace with open APIs. That’s really what we are passionate about: the cloud, open APIs, interacting with a much broader and efficient marketplace, with the broader community, Explainable AI and so on—all those things are going to continue in the future and Temenos is extremely well positioned to support our customers this way.
We invest massively in technology: 20 percent of our revenue every year goes into research and development (R&D). To put that into perspective, over the next few years, we’ll probably invest more than a billion dollars in R&D, which is significantly more than anyone else in the market. And that’s why we have been able to sustain our leadership position over the years. That’s why Temenos is the largest software company in Switzerland and the third-largest software company in Europe today,. We are very proud of our investment and our innovation over the years.
Cybersecurity is a growing issue and challenge when it comes to digital banking. How is Temenos working in this area?
The fact that our technology and our solutions are modern means that security is embedded within everything we do. This is the big difference: our customers who are using legacy technology are in fact using many different applications combined together— we call this “spaghetti codes”, because it’s really hundreds of different applications that are all put together—and that’s when you get increased risk. Temenos offers a digital banking platform where security is fully embedded: that’s why we have been able to offer the most secure solution for our customers over the years.
Your growth strategy revolves a lot around acquisitions. After the acquisition of Kony in the U.S. last year, what is your vision for expanding your company’s footprint and your priority markets?
First, we believe we have got a huge opportunity organically because we operate in the bank vertical and only 20 percent of banks have ultimately engaged in the digital transformation so far. There remains 80 percent of the market for us to explore. As a leader, we want to go after that. So, we do see our organic case being very, very strong now. Secondly, if we can complement this with very specific strategic acquisitions, we will do so. We have done that over the years: for example, last year’s acquisition of Kony in the U.S. has allowed us to accelerate our U.S. penetration and also our digital transformation. We will continue to assess if there are any interesting assets out there. Clearly we have got a great organic growth potential but if we can accelerate our growth, either by further penetrating markets or by adding some assets that benefit our community, we will take those opportunities. Financially we are extremely disciplined and we have got the ability to finance pretty much any type of transaction. So we are assessing, but we remain always very disciplined around how we use our capital, obviously.
Are you considering expanding your solutions to other sectors outside of banking?
Banking is a huge sector, so I think this is where our focus remains and it is where we want to continue to lead the market. Temenos just received an accolade as the number one selling vendor in the banking industry for 15 years in a row. We are selling three times more solutions than our main competitor, which is great. I think we will continue to strengthen our leadership and grow our market share in banking. Banking is very large as a market and that’s really what we want: to transform banking history and ultimately make banking better. That’s our ultimate ambition.
You were appointed CEO of Temenos a little over a year ago. It’s been a challenging year as well, so what are some of the key lessons that you have gained from this year? And going forward, what is your vision, where would you like to take the company in the next two to five years?
It has been 18 months that have been full of excitement. I’ve been with Temenos for almost 20 years, previously as the chief financial officer, the chief operating officer, and now the CEO. Ultimately, it is a people business, so you need to have the right people to support you next to you. It is about technology, so it is about investing massively in new solutions, and that’s what we are doing. It’s also about focus, and about focusing on one industry. And clearly this is what I want to continue to do. It’s ultimately for our customers to know that we are in this together, that their success is our success. This is the strength of Temenos, but it is also about culture, about how we behave, and I think the COVID-19 crisis is showing how important culture is. Internally we call it “Temenosity”, which means what Temenos represents a company: international, diverse, and accepting of all cultures and types of people.
We are very proud of this internationalization and of having so many different cultures within the company. All of that makes Temenos what is today and I want to continue to build on that. I think, clearly, we have got more and more offerings, so our portfolio product is getting richer and richer over the years. We are becoming more specialized as a company, but very much remain focused on serving our banking community and ultimately, as I said, our aim is to make banking better.
Temenos was born in Switzerland, so it’s a Swiss success story and is listed on the SIX Stock Exchange, but it’s grown to be very much global today. How close or far is Temenos now from its Swiss roots?
I’m Swiss myself, so at least the CEO of Temenos is Swiss, yet it is a very international company and we are very proud of that. But ultimately, we put our headquarters in Geneva because it reflects all those values of being international, being inclusive, being open, being high technology, and being a hub for banking. So all of those values that define Temenos are found in Geneva, in Switzerland. So yes, we are a global company today but we are very proud of our origins. We are proud of being listed and headquartered in Switzerland, but we operate globally and our goal is to transform the banking industry on a global basis, as much as to continue to serve our customers that we’ve got here in Switzerland very successfully.
Do you have a final message for our readers?
As the world’s number one banking software company, Temenos is very excited about transforming this industry, because it is an industry that is ultimately still by and large using legacy technology. The COVID-19 crisis has shown us the banking industry needs to be able to fully digitize to sustainably grow and thrive. Temenos is there to support that transition. We have been investing massively in technology, being the first to come to the cloud, the first to offer 24/7 non-stop solutions, the first to have APIs in marketplaces and the first to come up with explainable artificial intelligence. We are there to support banks, as we have done in Switzerland and also globally. We support banks in 150 countries and we are very excited about the opportunity within this industry. Ultimately, our purpose is to make banking better and to ensure that banks can fully support their customers.