Temenos signs first major US market client — aims to double revenues

David Arnott (pictured) CEO of the Swiss-based core bank software provider says he is going to take on FIS, Fiserv and Jack Henry Banking — the firms that dominate the US market. Temonos’ consulting and integration partners Accenture and EY will be spearheading his campaign.

Core-banking software specialist Temenos says it will be soon ready to announce details of its first major US market retail banking client — “One of the 25 largest banks”, according to Temenos CEO David Arnott. The bank was signed last year and the integration of Temenos’s software will be completed in QA this year, Arnott told QA-Financial.com.

Currently less than 5% of Temenos’ revenues come from the Americas and Arnott acknowledges that he has a fight on his hands if he is going to succeed against the three firms that dominate the core banking market in the US. But the deal will be significant he said because: “It’s a very big step for a US bank to trust a European software company.” Growth in the US will be the key to achieving its target of doubling revenues over the medium term, he added.

The “localisation” of the Temenos product will be key to the success in the US, he added, and the firm’s integration partners Accenture and EY have plans in place for marketing Temenos to other banks in the US market.

In 2015 Temenos grew its revenues from software licences by 35% in 2015 to $199.4m and announced deals with Nordea, Julius Baer, ABN Amro and Bank Leumi. While Temenos does also count JP Morgan among its clients, that is for wholesale banking software rather than retail banking.

Last year saw the continued recovery of the market for core banking software, following a steep decline in the wake of the financial crisis. Temenos says it recorded new 34 deals and that it has 17% of the global core banking market by volume. However, it’s core marketplace is Europe, followed by the emerging markets, which represent around 38% of revenue. The firm believes its software can compete against the incumbents in the US, partly — it says — because it can offer customers better analytic tools.

But the greatest opportunity, according to Arnott, is that 80% of the worlds banks do not use core banking software, preferring to build in-house. More banks will opt to source software externally because spending $5m to $10m on core banking licences can save them $30m to $40m annually he said. “There are two reasons to go for core banking. First, banks want cut costs, take out the ‘spaghetti’ and lose IT people,” said Arnott. The second reason is digitisation. A pre-requisite of digitisation is a modern core-banking system … the three-year opportunity [for Temenos] is huge.”

Some industry analysts will undoubtedly challenge the assertion that core banking software is the only way to go. The preferred choice of a growing number of banks has been to select multiple ‘best of breed’ software solutions in the belief that no over-arching platform can keep pace with change in customer markets, especially so in the case of mobile banking apps.

But there’s no doubting Arnott’s conviction that Temenos can maintain growth rates at the expense of its competitors, old and new. “That the beauty the software business; it’s ‘winner-takes-all’,” he said.

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