We've been following Geneva-based core banking software company Temenos with interest ever since Metro Bank opened in London in July 2010 as a marquee customer of Temenos' T24 Model Bank software.
The bank, which was conceived by Commerce Bank founder Vernon Hill, offered seven-day service, free dog biscuits and a 15-minute account opening, complete with debit card, credit card, checks, and an online banking account (provided the customer has photographic proof of ID). At the time, at rival London banks, anyone opening a bank account had to wait at least a week for a card and PIN. The straight-through processing built into its technology helped the bank achieve this quick setup, including the handling of Know Your Customer and anti-money laundering rules.
This week Temenos released
After eight years of "fantastic growth," in 2012, "we had a bit of a wobble," says the refreshingly honest Arnott. "The first quarter was flat, but by the fourth quarter we firmly returned to growth -- we grew 17% in that quarter. You could feel the sigh of relief within Temenos and among our client base and investors. We weren't doing anything wrong other than being bureaucratic. As soon as we refocused the organization, we did very well."
This week, Arnott, who has been CEO for six months, outlined a strategy for the next three years. "It's simple: maintain our product focus, focus on licensing and maintenance, and follow the market."
He anticipates a lot of new business in emerging markets. "They're having structural growth pains, they need software so they can grow and bank the unbanked; there's also a big trend toward mass affluent and high net worth in emerging markets, so we're putting a lot more resources there," he says. "In Europe it's much more total chaos, total turmoil. Banks are struggling to work out where they should be going. It's a combination of cost pressure, regulation and compliance, coupled with fickle customers who will happily jump to another bank for a few basis points." On the other hand, he says, Temenos had a good fourth quarter in Europe, and he sees signs of stabilization there.
Temenos' three primary target markets are the U.S., China and Japan. China is a target because of its growth potential and Japan because it's the third largest IT spending country in the world.
The U.S. is unavoidable. "It's half the addressable market," Arnott observes. "But we believe with the right focus it can be a hugely rich market for us. We don't believe products we're competing with are functionally better."
So far, Temenos has sold private wealth technology in the U.S. Some of its European private banking customers, including Julius Baer, moved into the U.S. and brought Temenos software with them. "We've got quite a nice little niche market of private banks in New York and Boston using our software," Arnott says. The second U.S. market for Temenos is universal banks that are open to using cloud-hosted software rather than outsourcing.
"There's a tier of larger community banks that are interesting for us," he says. "If you approach them with a component-based implementation, you allow them to change part of their system, maybe payments, then the next year mortgages, then the next year lending. They're big enough that they don't need to depend on the outsourcers. Provided you have a product offering that allows you to not ask them to swallow the elephant whole, that allows them to migrate in a risk-managed way described as progressive innovation approach." The company has signed but not yet announced a U.S. bank that is helping Temenos build a U.S. platform for its core banking software that will be available in phases over the next 12-18 months.
"We've come to the conclusion that you either do it properly or you don't do it at all," Arnott says.
