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29 March 2024

Now is the right time for technology investments

Francisco Fernandez CEO, Avaloq Evolution. (SUPPLIED)

Published
By Nancy Sudheer

In the current crisis, financial institutions tend to postpone technology investments, which will prove costly once they overcome the crunch. It is important to invest during the crisis and now is the time for big projects. When the crisis is over it will not be right to invest in big projects, said a top official of a banking technology provider.

Swiss-based Avaloq Evolution plans to venture into the Middle East, targeting major banks and financial institutions. Over 35 banks worldwide rely on the Avaloq banking system, including private, retail or universal banking. Its list of customers include Barclays, RBS and Raiffeisen Switzerland, among others.

With 600 employees worldwide covering its two subsidiaries, the company grows 30-50 per cent in terms of headcount every year as it added 150 new employees last year. The software firm also plans to target assets worth $250 million (Dh918m) owned by banks in the Middle East.

Francisco Fernandez, CEO of Avaloq, on his recent visit to Dubai, told Emirates Business that the company was ready to target this highly potential market with Dubai as its base and then expand to other regions.


Avaloq has been active in the retail banking for sometime. Why did you decide to venture into the Middle East now?


It is part of our internationalisation strategy, especially as we reached market leadership in Switzerland two years ago. In 2007, we opened offices in Luxembourg and Singapore as our first two ventures outside India. This year Avaloq is targeting Germany, Eastern Europe, Russia and Middle East. Therefore, the decision to make an entry into the Middle East was part of a long-term strategy.

There are already established software players in the market, why would a bank opt for Avaloq?

In emerging markets, core banking systems are in focus meaning just accounts and customer data. On top of that some banks are looking at front office systems or CRM. Avaloq's system is a comprehensive banking system as all the processes of the bank are in one data model.

The system took 10 years to build in Switzerland as it is the most sophisticated country consisting all the dynamics of banking. In Switzerland, the banking industry makes four times the GDP which is one of the largest in the world from any sector. Since hundreds of years Swiss have been taking money from clients and investing all around the world.

The software system had to be built where banking was born and therefore the right place to build banking tools. Switzerland attracts a lot of IT talent especially because of the living conditions and high salaries.

Software companies like SAP do not have a banking product but just some customised software for a couple of big banks. They don't have a product to be installed in all banks. Avaloq's product is already installed in extremely diverse banks for derivative instruments, trading, Swiss national bank and international high-end banks like RBS and Barclays.

In retail banks, Raiffeisen Switzerland is a good example with 450 banks centralised and 1,150 subsidiaries. With Avaloq, extremely different business models can be brought together with the same comprehensive banking software. The software manages all the processes of the bank starting from deal capture that is when the customer says he wants a loan or mortgage or open an account in any currency. Customers want securities especially in private banking when they want to deal with any kind of assets. The software is involved from the deal capture to the dealing room and then processing down to the ledger. Reporting to the customer is part of the value chain covered in these asset clauses.

What is the long-term strategy for the company?

Middle East has been on the agenda and it's only a coincidence that Avaloq is now ready to deliver to the customer. I am a strong believer of quality and therefore never promise when you cannot deliver. Avaloq needed to reach market leadership in the home market and then go abroad. Islamic banking had to be programmed and therefore now ready to invest in the product and people.

The investment in the region started with an analysis of the market. Our study indicated that the market needed specialists and after discussions with customer understanding the local regulations Islamic banking had to be built into the product.

The market study also told us that people are ready to build a good banking platform and especially Dubai which wants to be in the top four of financial places in the world. This says a lot therefore they are willing to invest. The Arab market has potential to be a winner in the crisis. Therefore, Avaloq' regional office is set to open in Dubai with a local country manager along with a team of professionals. Evaluation had been done to open a office in Dubai or Bahrain but the former will be chosen because of the superior infrastructure.

IT investments in the banking sector have come down, would that not affect your business in the region?

In the crisis some financial institutions may postpone investments by 12 months. It is important to invest in the crisis and now is the time for big projects. When the crisis is over it will not be right to invest in big projects. Anti-cyclical behaviour distinguishes winners from the losers.

Do you see any diversion of investments by financial institutions?

Now while making investments CIOs must understand that an integrated banking system is the right solution. Very few banks have understood this as most of them have separate software for bank reconciliation, loans, etc.

Banks must understand the total exposure and then combine loans, mortgages and accounts. Systems have to be brought together which is more expensive as bringing together different interfaces is a tedious process. Integrating software from different engineers is expensive as different software models are designed differently. Therefore, every time there is a management decision, CIO will have to adapt new interfaces and systems with no time to market.

CIOs across the world have made mistakes as there was no other opportunity. Banking and IT has emerged in the past 30 years. Earlier banking was only about accounts, cash flows, interest and equity transactions. Today there is a structure product and lot more banking products like derivatives, loans, syndicated and structured loans, cash, credit cards, bonds, shares and convertibles. To make a business architecture with today's technology, banking has to be viewed differently.

Do you think banks have reached a maturity level in the region compared to global banks and banking processes?

In the Middle East, there are sophisticated ATM networks, consumer and corporate loans, Islamic banking concepts and therefore standards are set but not as much as other markets. In Switzerland, retail banking has many more diverse products which is the difference. In spite of the crisis banks are buying software and the mindset change is happening from writing their own software to purchasing from the vendor. In Europe, Avaloq has 40 per cent of the market share in spite of many banks still writing their own software.


PROFILE: Francisco Fernandez CEO, Avaloq Evolution

Fernandez has been with Avaloq Evolution since July 2000 as CEO and since 1991 as a member of the executive board. He is also the architect of the Avaloq banking system and project leader for numerous Avaloq projects. Fernandez completed his Master's in Computer Science ETH (Swiss Federal Institute of Technology) & BWI.

 

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