1 TEMENOS HOME Global Conference on Access to Finance Washington DC 30 th and 31 st May 2006 Murray Gardiner

2 CORE BANKING SYSTEMS: WHAT IS IT? Core Banking Technology is the back office engine on which all products, services and information is processed. The information processing of core banking will include: CIF: Customer information file with all the non-dynamic information about the customer, business entity or group and relationships All bank liability accounts; savings; fixed deposits; current accounts etc. All Bank asset accounts; loans; mortgages; credit facilities Bank GL, Financials Payment systems; RTGS; Card systems; ETFPOS; ATM; etc Security with clear audit trail Reporting and compliance with with regulatory requirements

3 TEMENOS: Amongst the World Leaders… As demand grows, the competitive landscape will become extremely fierce with a few strong vendors leading the way… Celent Research 2003, Octavio Marenzi CEO TEMENOS CORPORTATETECHNOLOGY OVEVIEWARCHTECTURERELEASE MANAGEMENTDEPLOYMENTSUPPORT

4 CORE BANKING SYSTEMS: RISKS AND RELUCTANCE TO CHANGE Cost: core banking systems are priced on a utility basis, usually measured by concurrent users relative to enabled functionality Past failures and experience with core banking change. Realignment of power relationships within the bank Shift from dependency on periphery to centre with branch systems Loss of influence by IT staff from management of complex legacy systems Empowerment of management and business managers Communications and network dependency: problem of the last mile Efficiency gains are notoriously difficult to measure The pain change must be less than pain of staying “same state”

5 CORE BANKING SYSTEMS: COMPELLING REASON TO CHANGE Expectation to be able to unlock value in existing portfolio Time to market shortened for innovation with product and service delivery. MFI’s and Banks with ability to adapt to changing competitive landscape will be dominant players MFI’s that cannot compete will be consolidated and marginalized Core Banking change is necessary to maintain competitive advantage WHY CHANGE CORE BANKING SYSTEMS?

6 CORE BANKING TARGET MARKET IN MICROFINANCE Commercial Banks Scaling Down into Microfinance Markets. Legacy systems too complex to adapt to microfinance requirements Costs of mainframe infrastructure defeat transaction costs Establishing subsidiary operations to focus on Microfinance New Starts – equity investors need world class information systems that meet local compliance requirements and provide confidence in the quality and security information provided Transformation MFI’s that need to achieve scale in their business. existing PC based systems cannot cope with the rigor required by regulators or demands for functionality require access to electronic payments systems and delivery channels that cannot be supported by smaller distributed systems Lose best clients to commercial banks if unable to service increased demands of client business

7 Transformation MFI’s New Start MF Banks Banks Scaling to MF NGO & Micro Small Credit Cooperatives Large Credit Cooperatives PC SystemsCore Banking PC Based Systems and Mature Core Banking

8 distributed client server network distributed client server network shared service distributed client server network shared servicefull service distributed hosted client server network shared servicefull service distributed hosted shared application client server network shared servicefull service distributed What are ASP / Shared Services? A continuum between discrete isolated distributed data sets and a virtual service Each branch or location has a stand alone system In-house centralized solution with branch software to interact with host Centralized service on-site but administered remotely Centralized service on-site but full bank IT outsourcedBank server hosted and managed off-site Shared application software with separate data base managed entirely off- site through a browser interface: Transaction based pricing <$0.05 per transaction model Land services anywhere 24/7 Bank costs are communications, project costs and training

9 Cost of Ownership In-house systems cost drivers: Sales transaction cost same large or small Use intermediaries / apex organizations Preconfigured to drop project costs Lease to shift from CAPEX to OPEX Hardware, production server DB server, Back-up servers Internal capacity building; technical and user Shared services cost drivers: Fixed burn rate on infrastructure leased facilities blade servers own DB Critical mass required for infrastructure Price based on volume Hardware costs minimized Capacity building limited to user training Standards built around homogeneous markets; MFI’s; credit unions; banks

10 Thank You Thank You…