c.d. howe fsri handout april 15
TRANSCRIPT
Scott Wilkinson
C.D. Howe Institute FINANCIAL SERVICES RESEARCH INITIATIVE
April 15, 2015
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Product led
World’s leading banking
software company
World class delivery
No.1 1,600+
installations in 150+ countries
469m USD revenues in 2014
3,400+ employees in
58 international offices
135 go lives in 2014
Strength and depth: 1,000+ consultants, 100 concurrent projects
Community of 1800+ certified partner consultants
Highest level of R&D in the industry to drive innovation
Regular software upgrade strategy
Passion for standards and openness
Temenos – a global market leader
140+ employees in Toronto and Vancouver
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Our value proposition
Open Integrated
componentised upgradable
Temenos software
provides all the levers for banks to sustainably raise profits
Low cost, highly automated, scalable systems
Rapid launch of personalised products,
single view of Customer & risk
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Highly rated by industry analysts
3rd party validation of leadership
Leader in Magic Quadrant
6th consecutive year
Most innovative use of technology
Leader in Forrester Wave
Sole vendor to top both pyramids for new and
existing business
Market Leader
T24 ranked no. 1 for past two years
Twice number of deals of nearest competitor
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Profitability pressures structural and cannot be ignored
The profitability gap
Banks RoE levels globally
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1980-2007average
2008 2009 2010 2011 2012
16%
4% 7%
10% 10% 9%
6%
Global financial crisis New normal
Profitability gap - 6% pts
Source: BCG, Thomson Reuters
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0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
-
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Shareholder Equity (C$ 000's) Return on Equity (%)
Canadian Benchmarks Canadian Banks Capital and ROE
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Banks capital doubled since 2007… 13% average returns
Data Source: OSFI 2015
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Bank IT costs are too high
IT spending % of total
costs
14.3% 10.1% 9.8% 6.7%
5.6% 4.2% 2.8% 2.7%
Banking Telecom Insurance Public Sector
Healthcare Consumer Energy Industrial goods
Banks spend 2x cross-industry average
on IT
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Most profitable banks
48%
50%
52%
54%
56%
58%
60%
62%
64%
0%
2%
4%
6%
8%
10%
12%
14%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
Performance of Temenos customers compared to banks using both other third-party systems and legacy applications
37% 46% 25% 30%
-7.4% -8.5%
Legacy systems
3rd Party Temenos Legacy systems
3rd Party Temenos Legacy systems
3rd Party Temenos
Better results with 3rd party systems, even better results with Temenos
Return on assets Return on capital Cost/Income
Data taken from white paper, “Bridging the Profitability Gap”, co-written with
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Canadian Bank’s are becoming more efficient… but have more to go
30%
40%
50%
60%
70%
80%
90%
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-Interest Expense Efficiency Ratio Linear (Efficiency Ratio)
2006 has been only year
Canadian banks have cut expenses
19%
Data Source: OSFI 2015
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Too much legacy software…
77.1%
Expensive, inflexible, risky
Systems and interfaces at a typical universal bank
The percentage of banks’ IT budgets directed to maintenance vs enhancements
Source: BCG Celent, IT Spending in Banking:
A Global Perspective, 2013
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… doing less for more
Average Banking IT Spend
Maintenance Development
14% of Income… 22% dev spend
Temenos Client IT Spend
Maintenance/KTLO Development
6% of Income… 55% dev spend
Celent, IT Spending in Banking: A Global Perspective, 2013
Deloitte, 2013
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Changing technology
Banking is undergoing a digital revolution
Cloud
Big Data
Mobile
Payments
Internet of things
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$94
$40
$3 $1 $0
$10$20$30$40$50$60$70$80$90
$100
Today Temenos 6%Benchmark
Temenos SaaS PricingToday
Future State
Average Cost Per Retail Core Customer Per Year (2014)
Today Temenos 6% Benchmark Temenos SaaS Pricing Today Future State
Economics of Cloud/SaaS
Today Scenario. Based on 2014. OSFI Q4 Revenue Statement. Assuming 14% IT Costs on Retail Banking Net Interest and Fee Revenue and 20 Million Core accounts. 6% Scenario: Based on Deloitte 2013 study applying 6% operating cost to IT and 20 million accounts.
Standardized, disposable
applications… Flexible and
Scalable infrastructure
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Now and then
Account & transaction focused Customer & experience focused
High Margin Low Margin
High Volume of Transactions Enormous volume of inquiries
Batch oriented Real time
High Street Retailer Online Retailer
Teller transactions Self-assisted Transactions
Batch processing Straight Through Processing
Direct customer relationship Marketplaces
Makes money on float Makes money on spread
Competed against other banks Competing against Non-banks
Bank of 2010 Bank of 2020
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Implications: fragmentation threats
Enormous volume of inquiries
Customer-oriented, flexible platforms
Low Margin
Real time
Online Retailer
Self-assisted transactions
Straight Through Processing
Marketplaces
Makes money on spread
Competing against non-banks
Scale with lowest cost of ownership
Experience-driven banking
Real-time, actionable information
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Future of IT organizations in banking:
• Bank architecture a C-Suite concern
• IT jobs global and outsourced
• Cloud based, standardized and penalty on proprietary
• Keiretsu capital models, with clusters of expertise by life-choice and training competency
• Embracing constant change complexity
Policy implications:
• Banks not going to be large vertical employers
• Job creation penalties on enforced stability
• Education clusters and city structures for life style
• Capital and tax structures to encourage start-ups, VC and angels
Concluding thoughts