Scott Wilkinson

C.D. Howe Institute FINANCIAL SERVICES RESEARCH INITIATIVE

April 15, 2015

2

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

3

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

4

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

5

Profitability pressures structural and cannot be ignored

The profitability gap

Banks RoE levels globally

5

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

6

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

6

Banks capital doubled since 2007… 13% average returns

Data Source: OSFI 2015

7

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

8

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

9

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

10

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

11

… 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

12

Changing technology

Banking is undergoing a digital revolution

Cloud

Big Data

Mobile

Payments

Internet of things

13

$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

14

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

15

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

2

1

3

4

16

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