The Switzerland-headquartered firm talks about fighting fraud and other challenges. This is the latest in a set of profiles of fintech firms by this publication.

This article is part of a series of occasional profiles of the fintech firms responding to, and sometimes creating, changes across the world’s wealth management industry. (To see profiles of Objectway and IRESS, click here and here, respectively.)

Temenos, like many of its peers in the banking and financial services technology space, has been busy. It is bidding to acquire UK technology firm Fidessa as at the time of writing. The Switzerland-headquartered business acquired an Australian firm (Rubik) last year and clients continue to implement its offerings, such as its signature T24 core banking system. It says 41 of the world’s top 50 banks use its systems.

One sub-set of the firm’s work is in developing ways for clients to defeat and track financial crooks. Temenos has a suite of financial crime mitigation tools and services and this publication recently spoke to Adam Gable, Temenos’ product director for financial crime mitigation and treasury and risk, and Marlène Meli, head of compliance services practice.

“We recently deployed a fraud detection and prevention solution. This is fairly new. We are also working with machine learning techniques to detect patterns [of behaviour] that aren’t normal customer behaviour,” Meli said at their London office. “We will expand our offering in terms of fraud detection,” she said.

With cyber-security breaches making big headlines in recent months – such as the Equifax case in the US last year – financial firms shouldn’t need much persuading about what’s at stake. It's estimated that cybercrime will cost around $6 trillion per year on average through 2021 (Forbes, 13 July, 2013). 

Firms are in a kind of arms race to stay ahead of crooks. There is also the issue of how banks make sure clients are who they say they are as part of the KYC process and fight against illicit cash. 

Artificial intelligence, for example, can be useful in sifting through the challenge of knowing which “false positives” to discard when a name search is carried out as part of a background check on a prospective client, the Temenos managers said. 

Opening up
One area that might generate a need for more capabilities around fighting fraud is what is called open banking. Since new UK rules came into force in January, the country’s nine biggest banks – HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds and Nationwide – must release their data in a secure, standardised form, so that it can be shared more easily between authorised organisations online.

“Open banking, for example, opens new opportunities to fraudsters and a new point of vulnerability,” Gable said. 

Banks have had been saddled with a fat pile of technology requirements – they have had to be in shape for the MiFID II rules and the upcoming GDPR data protection regulations of the European Union. And Temenos, perhaps unsurprisingly, pitches itself as offering solutions to ease the pain. 

“The cost of running a sound financial crime mitigation programme in a bank is significant,” Gable said. “In the past, firms were throwing money at compliance areas, which was understandable. Banks will absolutely pay to glean better long term efficiencies,” he said. And as the two managers acknowledged, the weight of regulations are heavier on the shoulders of small – and medium-sized banks and financial firms than with the top-tier players.

An ability to provide much of the IT “plumbing” for banks can be shown in the sheer scale of assets that go through the pipework of a business such as Temenos. Gable said that at present a total of about $19 trillion of assets are processed through its software and systems in form or another. 

And those vast figures are translating into hard results. Temenos reported total revenue growth of 16 per cent in 2017 from a year ago; with total software licensing growth of 23 per cent. The firm expects non-IFRS earnings before interest of between $255 million and $260 million this year, and to accelerate sales momentum (source: Temenos annual report.)

Outsourcing
So all this talk of how firms can struggle to handle IT burdens in-house might have led to a mass shift towards outsourcing. Certainly, firms such as Pershing (part of BNY Mellon) and SEI, to give two examples, push the message that complexity and cost gives a strong case to outsource. 

But Temenos’s Meli said the argument around the outsourcing point isn’t so simple. 

Considerable constraints for outsourcing compliance and related work to expert firms still exist, she said. Firms must show regulators that their transaction monitoring and sanctions screens work well, so they can certify they have done what is needed to prove their obey the rules. These disciplines come under the UK’s new senior manager’s regime, for example, she said.

Temenos, meanwhile, is pushing on a variety of fronts and as mentioned earlier, is in a bidding tussle to acquire Fidessa. In February this year it announced it had offered to acquire Fidessa for about £1.4 billion. Fidessa, which listed on the London Stock Exchange in 1997, provides software and services for investment management systems, analytics and market data, serving both the buy-side and sell-side.
Its products include an order management system for equity markets.

Temenos last year told this news service that private banks risk losing clients to their retail counterparts if they do not enhance digital offerings.