‘Banks have to run a greener, lightweight, agile, cost-effective, sustainable operational model in order to compete’: Temenos’ Nelly Rezny
- After years of competing in the US, core software provider Temenos now has over a thousand clients in the U.S., including Regions Bank.
- Nelly Rezny, the firm's evp, business solutions group of the Americas joins Tearsheet editor Zack Miller on the podcast.
After years of competing in the US, core software provider Temenos now has over a thousand clients in the U.S., including Regions Bank. Nelly Rezny leads a team of business consultants across the Americas, responsible for working with financial institutions with all of their different transformation initiatives. Nelly joins me on the podcast to discuss the challenges banks are seeing in the market and how that impacts their technology and innovation plans.
We talk about which technologies she sees as table stakes and what's coming down the pike. Nelly also shares her views about channels and the role core banking software can play in the future of financial services.
The following excerpts were edited for clarity.
Challenges for banking and banks
There's no denying that we're going through some really interesting times. These financial institutions are facing enormous price pressures across the board -- really from all angles, from competitors to regulators, to customers, investors and stakeholders alike. If we just take the competitor angle, for the last couple of years, we've seen numerous fintechs introduce new products and services. Some of the examples: deposit accounts, buy now pay later, and we've seen certain types of embedded finance services, which has been more evident at the point of payment. These fintech companies don't carry legacy technologies or infrastructure. They don't always have the regulator pressures that financial institutions have as well.
When you look at it that way, well, it's easier for them to launch products or go to market with something new and innovative that financial institutions certainly cannot do. So they're taking the industry by storm. Just look at the success of PayPal. You can look at Affirm, Apple and Google Pay, and Stripe. If you look at Apple's latest launch of their high interest savings account: $1 billion in 4 days.
Partner banks are challenged with scaling
As the bank sits back and looks at them, they say, how do we do that? So they're also looking at different ways to innovate. And one area that comes to mind is in order for them to increase some revenue stream, some of them are becoming sponsor banks. They're offering banking as a service to some of these fintech players, because these fintechs have great products, great services that may be struggling on getting their banking charter. So they're going to established banking organizations to help them. While it appears to be easy, and there could be some quick gains, really, these banks are struggling to onboard new fintechs because they simply cannot scale. They're still leveraging some of the older technologies, so it's becoming really tough for them.
They have to still try to build the trust, with what's going on in the industry. They're trying to also build stability and growth opportunities. And what I think we're also seeing is another shift. There's numerous consolidations and mergers and acquisitions taking place, but not only in banking -- also some of the new fintechs. We had an influx of fintech companies come out in the last couple of years, and there's going to be new ones that are going to emerge. But we are going to see a consolidation in that space, as well, so that they can build stronger and unified offerings.
In order to address these challenges, all service providers are going to use that interchangeably within the banks and the fintechs. They have to invest. They just have to -- they may have different priorities, they may have different approaches, but ultimately, they recognize that they have to focus on what matters most. Banks have to run a greener, lightweight, agile, cost effective, sustainable operational model in order to be able to compete.
I think technology is at the heart of everything, in order for FIs to be able to grow. You heard me mention about some of the legacy technology that's there. If you look at some of the US players, many of them are still running in-house, outdated systems. It's spaghetti, it just is what it is, and they know it, and they're trying to do their best to streamline their operations.
We're seeing a huge shift in SaaS and cloud, and that in itself, supports the bank's ESG initiatives. We're all hearing how important ESG is becoming not only to financial institutions, but they're getting pressured by their clients, their investors as well, to ensure that they are putting the proper measurement in place. So I do think that's an area from a technology perspective that we're seeing major shifts, and I'll talk a little bit more that in just a moment.
We're all hearing different types of AI going on. Lots of AI that's taking place right now, there's some that's disruptive, there's some that have a lot of uncertainty -- it's still very early in the sense of what it can do. AI itself has been around for quite some time. But when you just look at AI, initially, it was to help some of the operational efficiencies, but it needs to do more than that. And if you start looking at onboarding, you need to be able to have the right level of data to be able to provide, for example, the next best of breed product for that consumer. You need to be able to introduce new products and services. But if the data is not there, if the data is not reliable, if you don't have sufficient data, that in itself will also cause problems. So AI is going to continue to grow and we need to see where those shifts are going to be coming: pricing, scoring, cross selling, top selling -- all of that I think we're going see in the AI for sure where financial institutions are going to make some investments.
How Temenos is serving its customers
If I go back to SaaS and the adoption of SaaS, there was a latest report that indicated from Accenture that there is a major shift taking place right there. 94% of the bankers that were surveyed said that they're already doing 50% of their move to the cloud, that they're moving to the cloud in the next three years. I think we're certainly seeing it in financial institutions, and we're seeing it in other spaces as well.
If you look at what Temenos is doing, we do take ESG very seriously. And in our continued path to sustainable growth, we've also made that commitment and pledge in this area, and it's reflected in our banking cloud offering. We've developed ESG calculators, which is very key, that will allow our clients to track and monitor their carbon footprint. In our space, those clients have seen a 95% reduction in energy emission. And even with our software itself, going from removing from on prem and running to the cloud, we've also seen a 30% reduction in carbon impact. So there's a lot of benefits when it comes to SaaS and cloud.
Where are banks in move to cloud
I think everybody understands the need to move to cloud. And I don't think it's a matter of questioning whether they have to, it's a matter of when, but what ends up taking place is it's easier said than done. Some of the the financial institutions that been around for a very long time, it's a little bit of a struggle for them, because they have so many different systems in house. It's complex, and then they have different talent in house and knowledge. Sometimes we have to help them change the narrative, and where am I going with that, for those of us that provide a cloud offering for financial institutions, the idea is to help them understand by moving to the cloud and allowing someone like us to take care of your operations, you allow yourself or you give yourself a platform to be able to innovate.
Now you can shift your employees to do that innovation to serve your clients better. Allow us to run your operations, so you don't have to worry about that. You don't have individuals in house anymore who understand the latest technology -- it's more about let's reduce your costs. There's a lot of cost savings. Allow us to do it. We make enormous investments and, and there's so many hyperscalers out there that take care of the resilience, all of the security that comes into play. They don't have to make those kinds of investments. So, we're seeing that movement.
We've got clients like Varo, who is a challenger bank. We have Regions National Bank that was a traditional brick and mortar and commerce, and they've all done the move to go to the cloud. With the fintechs, it's easier, and while they don't have all this legacy to contend with, banks have been around for a while. That's where the struggle is -- it's still there, and the move is coming. They're making it.
SaaS and cloud are becoming table stakes for sure. Fintechs are going to continue to try to capture market share when it comes to deposit accounts -- that the number one key that's always going to be a challenge here in the US and certainly in other countries is that first, we're heavily regulated. You know, the US is a heavily regulated market. And let me tell you, even though there was a lot of applications for getting that banking charter, they take forever, they take forever to get that banking charter and the reality is fintechs are phenomenal for innovating. They may not understand what it means to become a bank. It's not easy, but there is an opportunity in that blend, to be able to work with financial institutions, gain that partnership, to be able to offer some of the traditional banking services for sure.
Payments is so fundamental and necessary for everything we do. We're not going to go back to the way it was. We're doing everything online. And that is the way we live our everyday life. I listened to a recent podcast that you just did, and it talked about Gen Z. It's all about Gen Z -- my son fits into that area. And it's all about the now, the ease, the convenience of being able to have a service, a transaction, immediately -- it's that immediate gratification and personalization that is taking place with Gen Z.
Channels still matter
If you talk to my mom, she still loves to go into the branch. She loves that personalized service, she likes to be greeted, she likes to have a conversation. If you talk to other friends and members of my family, they do a little bit of both. And there's my son who doesn't know what a check is, he doesn't even know what it's like to walk into a branch. He'll say, what's that? Just send me money, and so you have to be able to support that entire mix. And financial institutions are targeting different types of demographics.
But having said that, you have to be able to have the tools in place, because digital is here to stay, to be able to assist in every area, whether it's onboarding, whether it's giving them the types of accounts that give the best rewards, introducing that next best product for them, and even services that have nothing to do with their banking, like can I buy an insurance policy? I want to take a vacation, and you know what, I want to pay it in three payments. I don't want to pay interest. So
Buy now, pay later
Buy now pay later, depends who you ask. People can say, well, you know, it's going down, it's not really increasing. And for me, this is just my personal opinion, it's taking different shapes. Call it whatever you want, but it's here to stay. And everyone is launching. I used some examples about going on vacation. The other day I read you can go see a doctor and then pay it later. So it is emerging in very different aspects of our life. And if you look at where the economy is, there is some uncertainty right now. And these kind of lending offers are critical. What you have to be careful is that you don't over exhaust yourself and overextend your credit.
I'll tell you one area that I wish someone would create, and maybe somebody is going to tell me it's already done, but I've yet to see it. There are so many great applications out there where you can get these kinds of loans. And we continue to state the risks that go behind it. I'd love to see an app that would bring all of them together so that you can get the view that I'm working with four lenders, multiple different banks, these are the different buy now pay later services that I have in a way that you can visualize it to help manage your finances. I think that would be something great that can be sold everywhere and anywhere. So there's somebody out there listening, go create it and put it out there.
Temenos looking ahead
There are about 3000 clients that we're working with today. And in the US, there's about 1400 clients. You know, I've worked in many different markets and the US is the toughest to break into. And I'm really proud of the work that Temenos has done -- we have captured a market not only in the traditional banking space, there's also a lot of credit unions that we serve, and certainly fintechs. And in the US, you have to be able to compete with the top three. And we certainly do that, because we ensure that our software is maintaining the regulatory aspects that are needed, we're proven because these clients are now live.
And it's not easy. The investments we make in our product, which is about 20% of our revenue, year over year, in the next four years, that really represents $1.3 billion. So it's significant. We believe in growing our products, we believe in SaaS, and continuously be able to increase our SaaS business. I mentioned ESG. And certainly, we're constantly looking at where the market is going globally. Where's the market going in the US? How do we need to shift to be able to support those changes?
We're here to stay. And we have a phenomenal client base. And we continue to see growth in all aspects. And even interesting players that we never thought would take on a core banking platform. You know, it's a banking platform that provides what we call composable banking. That means that you can license what you need today -- it's no longer take this whole entire package, if you use it fine. And if you don't, you don't. This is, hey, I want to go into buy now pay later. Fine, take this. I'm an embedded finance player. Fine, take this piece. I'm now a BaaS provider, or I'm just a payments provider. And it's about growing and scaling as you need to be able to grow.
In closing, we have a phenomenal ecosystem of partners. Because we recognize there are areas we just don't want to get into. And there are some great companies out there. And we partner with them to be able to bring to the table the best of the best for financial institutions and fintechs alike.