Temenos, a global banking software vendor, brought together multiple players in the industry to Barcelona for its Temenos Community Forum (TCF). This event focused on the developments in the financial sector and the innovation coming from new entrants. Patrick Brusnahan reports on the key findings and ideas
The potential of the US
In an intimate lunch meeting, David Arnott, CEO of Temenos, talked about the areas with the most potential for a software vendor such as his firm.
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He said: “The US market is absolutely ripe for change. Many of the smaller community banks and credit unions, despite their size in terms of assets, are all identical. That’s an exciting opportunity for us.”
Currently, Temenos’ revenue from the US totals less than 1% of total yearly revenue, but he claimed ‘when you get your foot in the door, it can be transformational’.
Arnott believed that offering a different business model to its competitors could be key to gaining a greater foothold in the region.
“Fiserv, Fidelity, and Jack Henry are the big three and what’s happened in the market is these three big companies are big outsourcers that have come in and taken advantage with big data centres in the middle of nowhere. They do everything and, effectively, all the bank needs to do is maintain the branch network and decide which products they want to sell,” Arnott explained.
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By GlobalData“We see ourselves as more of a Microsoft. We’re coming in with a different approach. None of these three have the software we have. Keeping it modern has not been top of mind for them.”
The big problem, according to Arnott, was companies taking on a services model and it kills them through an attempt to ‘take the revenue short-term’.
He said: “There’s nothing really different about the US market, a loan is a loan, a mortgage is a mortgage. When we went to America, we came and said we only wanted to do the software part, with no desire to install our own software, which immediately set up apart from other software players, who do want to do their own services. They recommend us because they can make more money.”
Another region discussed as packed to the brim with opportunity were emerging markets where Temenos receives approximately 38% of its revenue.
“The opportunity for growth is great. Emerging markets have a lot of real challenges. There are demographic changes, emerging middle classes, technology players. They’ve got really nimble competitors and a market that is increasingly technology savvy. There is less of a loyalty to the traditional banking model and some of the market doesn’t even have banks,” Arnott purported.
He concluded: “I think we’ve got all the products we need now. The next step is to be more of a trusted advisor.”
CBA and 60-second onboarding
A number of players in the financial industry attended TCF to impress people with their technology. One that grabbed the attention of many eyes was The Commonwealth Bank of Africa (CBA) with their service that enabled 60-second account sign up.
When speaking with RBI, Mohammed Jama Dalal, the head of technical services at CBA, bragged that the service ‘tends to do better than 60 seconds’.
The product is M-Shwari. Launched in November 2012, through a strategic partnership between CBA and Safaricom (the owners of M-Pesa), it has taken the Kenyan market by storm with its banking account, a mixture of savings and loans.
Why did CBA take on this strategy? Dalal explained: “CBA has always been known to be a high net worth type of bank, we’ve been known to bank for HNWIs. We had retail products, but that was not really our market until 2011 where the new strategic objective was to expand into the mass market.
“However, we need to not go into it the same way as our competitors did. This obvious tactic is to pump more money into it and increase your branch network. We only have 23 branches in Kenya, so we didn’t feel that would be the right thing to do.”
Safaricom has over 25 million customers, approximately 20 million of which do not have a formal bank account. Most of these consumers actively used M-Pesa, but they did not receive any interest or any proper banking services. This was an opportunity for CBA.
Dalal said: “We partnered with [Safaricom] and said we would own a product and offer it to your existing customers by making use of their channel. What really happens is that the customers can access their account, accept terms and conditions, and then we automatically create a savings account.
“Once a customer chooses to register, we are integrated with the M-Pesa systems and the information is already there. We can fetch all of their information and subject them to a credit scoring and immediately determine everything within 60 seconds.”
Currently, M-Shwari has 14.6 million customers in comparison to M-Pesa’s 25 million, so Dalal considers the experiment to be a great success.
“When we launched, the first day reached 79,000 customers. We could have had more, but we didn’t expect those numbers and struggled with volume. With 40 days, we hit a million. Facebook took six months to get that,” he said.
“After three years, we now have 14.6 million users and it’s growing at a rate of 11,000 customers a day. We accept about 66,000 loans per day and we’ve tried to enrich the value proposition we give to our customers. We’ve launched a similar thing in Tanzania and Uganda and, before the end of the year, we want to have launched it in Rwanda. In Tanzania, we have over four million customers. We launched in Uganda two weeks ago and we expect two million users in the first 18 months.”
While this is good njews for CBA, the lender has much bigger plans in sight.
Dalal concluded: “We have an ongoing project to create a digital bank in Kenya. We honestly believe this is going to be the road map for the banks in the retail space, so now we want to own our own channel as opposed to being reliant on [Safaricom]. Our hope is to convert at least four million existing customers into the digital bank. We’ll give them a debit card in their hands, as well as a prepaid card, all connected through an app.
“We hope to launch in August and see where it takes us.”
Data to “make a difference”
The world’s data doubles every two years, according to Temenos CEO David Arnott. The question is: how can financial institutions utilise this vast ocean of information?
Considering the vast amount of data available, one would think that banks and other financial institutions would be using it to their advantage.
However, this is not the case. While companies such as Google make a vast amount of their revenue through data, according to Temenos at its Community Forum (TCF), banks find close to 0% of income through data.
It seems as if everyone is looking towards data apart from banks. A startling fact from Arnott stated that 99% of consumers’ data is easily available through hackers. At the same time, FIs refuse to look at what they already have. However, Arnott said that ‘there’s now a desire to make a difference’.
He added: “We need a clear view of what we do with data.”
Mark Winterburn, group product director, agreed. He argued: “Data in the past was a problem. Now, it is an opportunity. The key is knowing the right action for the right time.”
One key advantage that data can bring is proper use of analytics or as Winterburn put it: “When data is everywhere, we can enable analytics everywhere.”
Dharmesh Mistry, product director – UXP at Temenos, said: “We have integrated data into our PFM (personal finance management) engine. Through this, Temenos UXP is being used to drive customer experience. You can capture events to drive engagement, but the way to interact has to be in real time.”
With the usage of data, heavily regarded at the conference, a more personalised financial experience can be created. For example, data can be used to offer specialised loyalty rewards to faithful customers. However, this is up to banks and other financial institutions to implement.
As Arnott told RBI: “It is not [Temenos’] place to segment customers.”
Are banks meeting customers’ needs?
A panel entitled “The future of banking”, chaired by Ben Robinson, Chief Marketing Officer of Temenos, honed in on whether banks were providing what their customers needed.
Rita Gunther McGrath, a professor at Columbia Business School and the author of The End of Competitive Advantage, said: “People always talk about how customers’ needs are changing, but the needs are all the same. It’s all about how they are addressed.”
Michal Panowicz, vice-president of digital at Nordea and the Digital Banking Club’s Personality of the Year 2015, agreed: “I would say customer needs are not changing at all. What is changing is how we deliver those parameters.”
Bruce Rogers, chief insights officer at Forbes, cautiously stated: “The idea that millennials will go solely digital is just not true. They still want human contact.”
David Brear, CEO of 11FS, explained: “We need to start talking about banks meeting needs. They know what the needs are, but are they meeting them? Probably not. Arguably, products have been the same for the last 300 years.
“Digital banking has been used as a cost-cutting measure and it has been underwhelming in results. In the UK, banks are basically bribing people to move. That’s not an incentive that is good enough.”
The discussion turned towards the unbundling of products, which Panowicz described as proposing ‘serious questions’.
McGrath said: “Some good examples are PayPal and TransferWise. These sorts of things are sustainable. Do they completely unbundle a bank? No.”
Fintech needed to be more closely examined, according to Panowicz. “We need to deaverage fintech. They are not one great blob of goodness or badness,” he said.
Brear continued: “A lot of collaboration I see in fintech is just good PR. A lot of the business units sit in the same brand, but they sit as far apart as they can. I’m not sure banks diversify into this because customers demand it.”
McGrath concluded: “The tendency to do things in a stupid way is still prevalent. You have to see touchpoints in a very precise way. Consumers compare their experience with [banks] to the best experience they’ve ever had.”
