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November 19, 2019updated 04 Dec 2019 4:46pm

The Temenos digital strategy: front to back transformation

By Briony Richter

Now more than ever before, the banking industry is faced with a plethora of disruptors; challenger banks, customer demands, new regulations and technologies are all infiltrating the market. Briony Richter speaks to Managing Director of Europe at Temenos, Steen Jensen about how Temenos can help reinvent banks through digital transformation.

There are several factors at play when considering how to improve a banks digital capabilities. Digital transformation is all about customers needs and ensuring that both the front and the back end have up-to-date digital tools that will enable the bank to run quicker and more efficiently.

Speaking to EPI, Jensen details his role and goals at Temenos:

“I am the Managing Director for Temenos Europe and I have been with the company for more than a decade. My role involves informing strategy and driving business growth in Europe. My responsibilities span regional sales, services and operations in conjunction with a world-class  team of incredibly talented individuals.

“Together, we deliver banking software technology that transforms our customers’ business to help them deliver outstanding digital experiences and have tangible business benefits.”

Regulation is driving change for the better

Driving business growth for both Temenos and banks involves reacting to the constantly changing demands across the industry. Regulation is driving change for the better, however, as Jensen explains, many banks are not quite up to scratch with the requirements.

While Europe may be blazing the trail for Open Banking, many banks are still not equipped for this change because of limitations caused by their legacy IT systems. With specific European developments and regulatory requirements like PSD2, there is now increased competition for banks, which is driving them to address their legacy IT deficit and adopt modern open API architectures.

“At Temenos, we are seeing many of our clients implementing open banking successfully. We support this by providing a fully integrated front-to-back API-based technology architecture that helps banks not only comply, but enables them to collaborate with multiple partners flexibly and seamlessly. By doing this, we make sure that banks are no longer constrained by their IT, and instead have the freedom to innovate and have an advantage over their competition.”

Leveraging Open Banking

Implementing a successful API-based architecture is critical for a bank to fully leverage the benefits of Open Banking.

To do this, each bank needs to define an API specification to ensure how the bank exposes its internal data safely to external parties. Once it has been well-defined banks then need to think about to restrict access to the APIS to authorised third parties only.

In an Open Banking world many consumers are afraid that banks are simply opening the floodgates to other parties and giving access to their data. It’s a fair concern and banks that are working with Temenos must also ensure that they are fully transparent with their customers.

Getting fully digital isn’t just about adopting the newest solution out there; adopting and enhancing technology such as the cloud and AI can really boost the capabilities of a bank.

Payments stored in the cloud benefit both big banks and small financial institutions due to its flexibility and transparency.

With payments in the cloud, banks are able to run and process payments and core services in a single, scalable and seamless solution.

Cloud: the most natural partner for banks

Speaking about why the cloud is the most natural partner for banks, Jensen notes:

“Banks are facing a new set of challenges as they try to meet the needs of customers in today’s digital economy.

“Agile, cloud-based banking technology offers significant benefits when it comes to innovating with speed and scalability, and delivering new services. Cloud enables this while also significantly reducing operational costs.”

Continuing, he adds: “In addition, as more customers interact with their banks through multiple channels – be it via wearables, mobile apps, or online – data is becoming a big asset and cloud can help banks better utilise these assets for financial crime mitigation, offering outstanding customer journeys, and even adopting AI.”

Both incumbent and challenger banks are moving towards cloud-based business models. Incumbents especially that want to completely renovate their legacy systems will be able to deliver more synchronised services on a cloud platform.

Overall using cloud-based banking technology reduces complexity, costs and enables rapid deployment, setting out a robust system that will be able to support the volumes as they inevitably grow over time.

Competition

The incumbent banking industry today is under even more pressure to adopt and successfully deliver digitised products and services.

Jensen explains that often the biggest hurdle holding back the big banks is that they are still reliant on systems that date back 50 years.

“In a world where customers demand the same level of experience from their banks as they get from the likes of Amazon, Uber or Spotify, banks are saddled with legacy IT systems, slow innovation and delivering a poor customer experience.

In order to achieve end-to-end digital transformation, banks must cast off the legacy technology that has operating risks, reduced speed to market and poor customer service, and seek modern, cloud-based and API-first architecture that’s fit for a digital world and today’s digital customers.”

The GAFA threat

Noting the significance that GAFAs will continue to play, Jenson adds that although these big tech companies have raised the bar for customer expectations and delivered customer-focused service, there is still a place for banks and that is all done to trust.

“Banks have the capital, the customers (and their valuable data), and are regulated, which means they are still the preferred choice when it comes to being the trusted advisors and custodians of financial assets to today’s customers.

“There is a significant opportunity for banks to leverage their expertise and credibility and emerge as winners, but they will have to capitalise on this once-in-a-generation shift, speed up their modernisation plans and get rid of their legacy technology burdens.”

Concern that GAFAs (Google, Apple, Facebook and Amazon) will infiltrate the banking industry even further has long been a fear. Banks may have consumer trust for now but in time that trust can switch if these tech giants prove to have long-standing and reliable banking services.

A report published by Economist Intelligence Unit revealed that 30% of banking executives considered Google, Apple, Facebook and Amazon their biggest competition in the years to 2020.

Those companies gain loyalty by finding real connections to the consumer and their life. They then built on these to create a real relationship, by delivering me what they needed better than anyone else.

The same can potentially happen when they start to deliver more financial services. They will go about it in different ways, but all four will have one objective in mind – to keep the customer by delivering relentless value.

So how can Temenos support banks to ensure that they can continue to hold onto customer loyalty?

“Temenos has 26 years of experience in developing and delivering software to financial institutions that’s infused with rich banking functionality and the most advanced cloud-native, cloud-agnostic and AI technology.

“This software gives banks the freedom they need to innovate at speed and deliver personalised experiences to transform their customer journeys. Because this software is agile and highly scalable, it doesn’t only support banks today, but provides a future-proof model to support growth as they grow and expand their customer base.”

Combating crime

Globally, the banking industry continues to be plagued by financial crime. Quite simply criminals use cutting-edge technology, and the forces against them do not.

Hackers can easily share private information, disguising money by channelling it through multiple transactions that can eliminate any trace of activity.

In contrast, the financial industry is constrained because sharing data widely could compromise the privacy of customers. This leaves financial crime prevention efforts isolated from each other, caught in information silos from which large-scale crime networks are mostly invisible.

Of course, technology can correct this but going forward banks need a proactive focus rather than being reactive.

Jensen lists some of the ways that banks can protect themselves against breaches:

“There is no single cure-all – efforts need to be multifaceted, cohesive, and in the right place so as to minimise costs. A strong financial crime mitigation programme should have:

  • Strong and rigorous KYC procedures and solutions to ensure regular risk reviews according to the customers’ risk profiles. These reviews should integrate with transaction monitoring.
  • Link analysis to detect hidden connections between seemingly unrelated customers and counterparties
  • Smart systems that combine sophisticated rules, statistical analysis and AI to spot minor deviations from normal behaviour in relation to peers, while minimising disruptions to customers and the bank
  • Front-to-back staff education to establish a compliance culture where individuals “on the ground” are aware of the threats and how to identify suspicious activity.
  • Information sharing about real financial crime cases between the financial industry, financial intelligence units and law enforcement.”

Collaboration efforts between banks and the authorities allow for real, workable solutions for the industry and regulators to capture ever-evolving criminal activity.

It’s without a doubt that incumbent and challenger banks still have a way to go to achieve digital transformation. The priorities have now completely shifted to customer demand and finding what technology can enable a specific need.

2019 highlights

Coming to the end of year, EPI asks Jensen what have been some of the highlights for Temenos this year.

“2019 has been an incredible year of innovation and exciting change for us. In January, we announced the launch of our two products, Temenos Infinity and Temenos T24 Transact. These products provide our clients with the most complete set of digital front office and core banking capabilities. Cloud-native, cloud-agnostic, packaged and upgradeable, Temenos Infinity and T24 Transact provide unparalleled scalability and cost-efficiency and, by virtue of being API-first, they empower banks to rapidly innovate – connecting to ecosystems and enabling developers to build in the morning and consume in the afternoon.

“More recently, we completed the acquisition of the US #1 digital banking SaaS company, Kony. By joining forces with Kony, we are accelerating the capabilities of our front office product Temenos Infinity and significantly expanding our market presence in the US – a key growth region for us.”

 

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