I recently attended the Avaloq client conference in Zurich. The conference was well attended, with ~400 attendees. Avaloq is on a roll, adding clients across offerings and markets for the past several years. Here I outline how they are doing it and what their next steps are.

Background

Avaloq is a privately held vendor of technology-based solutions and services to the financial services industry. It was founded to provide a comprehensive core banking platform, the Avaloq Banking Suite, to banks and wealth managers. Avaloq uses its own banking platform with all its clients, and its banking suite has strong wealth management functionality, which has been extended over the past few years to deliver mass market wealth management and retail banking functionality.

BPS delivery capability was added in 2011, when Avaloq expanded its services into BPS by acquiring a 51% stake in B-Source, a BPS provider founded in 1995. In 2016, Avaloq acquired 100% ownership in B-Source. In addition to its own modules and APIs, Avaloq also has partnerships with ~60 external software vendors to extend the scope of its platform’s capabilities.

Unlike most software vendors, Avaloq has made a strategic decision to move into operations delivery. Avaloq perceives the market is moving towards combined technology/operations delivery because of mounting cost pressures, which limit or eliminate the ability to provide internal IT staff or software delivery or maintenance. Unlike in previous decades, when client banks’ platforms reach the point of requiring a major overhaul, most cannot apply the resources to modernize the platform. Even for banks with those resources available, the business case does not justify an internally-led modernization.

Technology Strategy

Avaloq’s core platform is a proprietary wealth management banking platform which it is modernizing and adding retail banking functionality to. Key components of its development roadmap include:

• Modularization of its platform: it is rearchitecting its platform into modules which can be integrated into any other banking platform. Ultimately, Avaloq expects to have a set of modules which can be integrated into any client environment as the client chooses
• As-a-Service delivery: Both BPaaS and SaaS are the types of delivery targeted. Partnerships with a large group of vendors are a core part of the As-A-Service delivery model for Avaloq  
• E-Bank: digital delivery for traditional banks and startup banks requires a core banking solution which is designed to be flexible so that new functionality can be enabled with minimal implementation effort  
• Mobility: enabling mobile access to banks’ proprietary platforms and integration to Avaloq partners’ mobile solutions and services. Avaloq’s goal in enabling mobile access is to support banks’ attracting new customers 
• Advisory: via partner offerings, accessing multiple options for automated advisory services
• Usability and CSAT: using design thinking methodologies, Avaloq is developing improved user interfaces and portals which can be adapted to individual bank branding preferences while delivering greater intuitive ease of use for customers.

To deliver platform modernization for its client base, Avaloq has a staff of 450 developers in 3 development centers in Europe and Asia.

Avaloq has already deployed modules for clients via As-a-Service delivery for:

• Automated advisory  
• Customer self-service
• Wealth management.

The goal-based wealth management module will go live at year end 2017. Also in 2017, Avaloq will launch new software functionalities including:

• Ability to do online software upgrades, with either hot or cold rollovers
• Greater security features, primarily user identification features
• New compilers to provide faster innovation (not a client-facing feature, but one that impacts clients)
• Division of module components into smaller modules.

In addition, Avaloq is experimenting with technologies including:

• Blockchain (more on this in a subsequent blog post)
• Web and mobile usage tracking
• Enhanced AI using the client’s own data
• Machine learning
• Chat bots.

Go-to-Market Strategy

Avaloq has focused its go-to-market strategy on selling a combined technology and operations offering. This has been informed by Avaloq’s experience with running operations for banks in its BPO centers. These banks provide Avaloq with best practices and business cases across a wide variety of customer segments and requirements. The ARIZON JV builds on this model and will be running the back-office operations of the 270 banks of the Raiffeisen Group in Switzerland, (Raiffeisen is the 3^rd largest banking group in the Swiss market).  

Critical to meeting the client project requirements is understanding and refining the business case for transition. Avaloq focuses on understanding and developing the business case for a client’s proposed project. Third party vendors can source an array of services to meet platform modernization projects, a task that banks often find distracting from their ongoing business. The combination of understanding the clients’ requirements and delivery of modular functionality with operations execution has allowed Avaloq to sell to the wealth management divisions of tier one banks.    

Avaloq’s current markets include 25 countries in continental Europe and Asia. The target markets for future entry include the U.S. and APAC.

Avaloq will not enter a new market unless it has a scale entry opportunity. In practice this means it will only enter a new market when an existing global client decides it wants to enter a new market using Avaloq software. Thus, based on conversations with clients about their intentions, Avaloq anticipates entering the North American marketplace in the next 24 months and several more APAC marketplaces in the next 12 months. 

Conclusions

Avaloq is focused on developing and delivering a combined technology and operations offering. The most frequent buyers of their offerings are wealth managers facing a major systems upgrade. They have developed their domain expertize with their own executives who have worked for industry participants, including clients; and they have developed solutions which are used by local Swiss wealth management banks as well as tier one banks and international banks and wealth managers.

They have broadened this capacity with a development roadmap for their offerings that includes:

• Technology: based on work with clients and customers that provide design thinking insights, and then they have modularized their entire platform to allow clients to consume whatever functionality is needed when needed
• Ecosystem of vendors: currently ~60 vendors which include best in market for certain key functionalities and many emerging functionalities
• Operations delivery: SaaS, BPaaS, and cloud (public and private).

Avaloq is targeting a fast-growing niche of the financial services market, wealth management, with a combined technology and operations set of offerings. Its large partner ecosystem allows it to provide a wide range of enhancements which clients can implement in unique configurations to create highly differentiated wealth management businesses. This capability has attracted tier one banks to buy a wide range of services form Avaloq, unlike the typical tier one buying strategy of buying unitary services to implement into the bank’s overall operations program. Because of this, Avaloq is well positioned to build a business that services all tiers of wealth managers in multiple geographies. That would be a unique business in BPS for the financial industry.