A key client of Avaloq provides a revealing glimpse at the financial onus on banks and wealth managers in modernizing creaking infrastructure.
A four-year technology renewal at Apobank [Apotheker- und Aerztebank] reaches a crucial juncture this week: the German bank is due to migrate onto the Avaloq software it chose three years ago, according to «finanzszene.de» (in German).
Apobank represents a key milestone for Avaloq as it major shareholder, Warburg Pincus, sizes up its exit options. The German bank is the second major migration since the private equity house snapped up its stake in 2017, after Swiss retail lender Raiffeisen two years ago.
Creaking Utilities
Apobank’s experience reveals a lesson for other small- and mid-sized banks who are forced to modernize their decades-old technology infrastructure with standardized software like Avaloq, Temenos, or Finnova. The German lender was shocked to see its bill for the four-year renewal skyrocket to about 500 million euros ($548 million), the German banking and technology outlet reported.
The investment is especially eye-watering in its increasing progression: three years ago, Apobank was budgeting a small triple-digit million euro sum for project costs, then another low double-digit million in-house to get itself into shape for it. The project was also delayed for undisclosed reasons to the second half of this year (Apobank was originally planned to be migrated by mid-year).
Suffocated by Spending
Apobank illustrates how technology changeovers are costly, cumbersome, frequently beset by delays – and nonetheless unavoidable. Swiss private bank Falcon is an example of a small wealth manager – it manages roughly $10 billion – to be suffocated under technology spending.
In 2018, Raiffeisen wrapped up «Rainbow», the migration of 253 of its cooperative member banks to Avaloq. The two firms severed their ties when Raiffeisen agreed to buy out a technology venture it shares with Avaloq, a move that cost at least 69 million francs ($71 million).
Flouting Crisis
As for Apobank, the retail lender isn’t done in June, when it goes «live» with Avaloq: it is forecasting a «tangible» rise in its general and administrative spending (where IT costs are booked) for this year, it said.
Avaloq, which recorded revenue of 609 million francs last year, didn’t comment on what it earned off Apobank. «The cost of implementing client projects can vary widely because of client requirements and complexity,» a spokesman said. The Zurich-based software company's deal with Swiss wealth manager Banque Syz fizzled, as finews.com reported.
