Avaloq growth a pointer to shift in fintech digital business models

Mark Doherty. Picture: TSPL
Mark Doherty. Picture: TSPL
Promoted by Avaloq

The financial industry focusing on tech transformation means rapid expansion for one banking software provider, writes David Lee.

Swiss technology leader Avaloq is enjoying rapid growth in the UK – and is looking to hire more staff to meet strong client demand.

Do you want to keep investing in having the same back office for a branch network that’s no longer relevant? Is there value in retaining large teams for complex commodity tax and regulatory reporting and processing standardised payments – or be laser focused on growth with innovative services?

Mark Doherty

Mark Doherty, Managing Director of Avaloq’s development centre in Edinburgh, says Avaloq is succeeding because the firm is at the centre of a global shift towards digital business models by banks and wealth managers.

In total, Avaloq’s clients manage or administer in excess of $4 trillion in assets – underpinning just how significant the firm has become to the global financial ecosystem.

Doherty says: “Our clients are transforming their businesses to meet fast-changing customer expectations, and – in this highly regulated space – Avaloq leads because we are trusted local partners with unrivaled domain and market expertise,” he says.

It’s been a big 12 months for Avaloq, with significant expansion in the UK wealth management market, with the likes of Smith & Williamson and Brewin Dolphin becoming new clients. These join existing clients such as Barclays and RBS’ Coutts private bank.

Avaloq’s focus on SaaS (Software as a Service) and BPaaS (Business Process as a Service) is chiming perfectly with a deep cultural shift in the wealth management and private banking business.

“Businesses in this space are realising it makes sense not to do their systems and increasingly back-office work in-house,” Doherty explains. “Do you want to keep investing in having the same back office for a branch network that’s no longer relevant? Is there value in retaining large teams for complex commodity tax and regulatory reporting and processing standardised payments – or be laser focused on growth with innovative services?”

The transition from in-house systems and processes to partnerships requires a mind-shift, Doherty admits, but digital will wait for no-one.

“Over the years, existing systems and processes have been highly customised, and so we encourage an ‘adopt, not adapt’ approach to simplify and standardise where possible. The initial change can be difficult, but it will free up time for innovation and reduce costs and so it makes business sense; we pride ourselves on making this journey frictionless. A bit of Swiss efficiency delivered in the UK is a really attractive proposition.”

Doherty says this shift represents a real opportunity for the financial services industry to reduce the ‘drag’ of the ever-growing costs and risks associated with going it alone.

He continues: “Transformation business cases focus on IT simplification and cost reduction, which often leads to risky offshoring and prolongs the life of inflexible core banking systems and processes. In contrast, our clients benefit from a single platform delivered as a service, which allows the cost of commodity services, costly regulatory compliance, tax and ecosystem partnerships to be shared in a community approach.”

One way the firm is helping clients and fintech’s deliver new value is by launching the avaloq.one community platform, an ‘app store’-like platform of leading global fintechs available to Avaloq’s banking and wealth management clients.

Avaloq.one enables participating fintechs to integrate once and, for Avaloq’s clients, means they can focus on the customer instead of managing third-party businesses and technical relationships.

Driving Avaloq’s growth in the UK – and Scotland

A combination of high-end, in-demand products and services and the ever-growing cost of getting and staying compliant is driving Avaloq’s strong growth in the UK, with 110 employees in Edinburgh, 50 in London – and a growing number of new career opportunities in both cities.

Doherty says: “The UK is a key growth market for Avaloq and in Scotland the close proximity to clients and support of Scottish Enterprise and FinTech Scotland is clearly working.”

Avaloq expects further growth in numbers, as it aims to build on its footprint in the UK wealth management market.

“We see a really healthy pipeline of demand,” says Doherty. “When businesses like Smith & Williamson and Brewin Dolphin come on the transformation journey with us, it sends a strong signal to the rest of the market that our fresh approach works for UK clients of all sizes.”

That business pipeline looks strong with a growing trend towards job creation and ‘north shoring’ by financial services businesses, with Scotland benefitting from this trend.

Barclays announced last summer that its technology, functions and operations teams would move to Buchanan Wharf in Glasgow, doubling its Scottish workforce to 5,000 – with more institutions reported to be also looking at expanding in Scotland.

Suman Rao, Head of Product Management for Avaloq in the UK, says: “These businesses must consume regulatory change quickly and efficiently so that they can focus on differentiation.

“Clients tell us that the time, effort and cost for them to get and stay compliant is unpredictable and unsustainable. Compliance with the GDPR, MiFID II and PSD2 regulations have been a real turning point for many and have crystalised what going it alone looks like. Choosing the right partners is essential to meeting customer expectations and growth.”

Customer-centric design and empathy

However, products and services don’t tell the whole story, as Avaloq puts an increasing emphasis on customer-centric design and empathy.

“Design thinking is about asking different questions and putting yourself in the client’s shoes; not just the end user, but the client’s back office and operations team,” says Rao. “Instead of asking what new features they want us to develop, empathy maps inform us how they feel using our products.

“Wealth management and banking businesses were slow to adapt to digital transformation and they face an engagement crisis,” Rao adds. “How do they transform their processes and technology for a new generation? How do they make it relevant to Millennials rather than Baby-boomers?

“The competition in this area is fierce; it’s a fast-moving, constantly changing arena. If customers demand 24/7 engagement, you have to deliver that or they will take their business elsewhere.”