Morning, everyone. Well, after that very exciting music, thank you very much for joining us today at Temenos' 2023 Capital Markets Day. My name is Adam Snyder. I'm Head of Investor Relations for Temenos. I'd like to briefly walk you through the agenda and how we're gonna approach Q&A at the end of the session as well. We have a pretty packed agenda today, covering a wide variety of topics, as you can see, strategy and vision, industry trends, our approach to our products, clients, and technology, our North America strategy, our people agenda, our approach to ESG, both for our clients as well as for Temenos, and our financial drivers. There will be a coffee break about halfway through the event and then a networking lunch at the end of the event.
Q&A will be done at the event, end of the event as well. Given the record attendance both in person and on the webcast today, we're gonna be managing Q&A through Slido. For those of you joining us via the webcast, you can submit your questions through the portal. For those of you joining us in person, there is a QR code on the back of your name tags. Please scan that, and then you can submit your questions directly, or you can download the Slido app and enter the event number 7800150. Any problems with the Slido app, please let myself or one of my colleagues know. With no further ado, I'm gonna hand over straight to Andreas Andreades, our Executive Chairman and Acting CEO, to kick us off.
Thank you, Adam. Good morning. Thank you for being here today, and thank you to everybody who is joining on the webcast. I'll take about 30 minutes to walk you through our strategy, the fundamentals of the business model, clarify a few things, dispel a few myths, and hopefully, walk you through what the team is actually working on today, and what we're aiming to achieve. With that, I wanted to start with this, and to position what Temenos is all about. If a company is to achieve leadership of a market over a 50-year period that we have been, and indeed go forward and achieve leadership for the next 10 or 20 years, the number one element into that is delivering value to our clients.
This is what it has always been about. This is what it is today, and this is what it will be in the future. It is about enabling the banks to handle and treat their customers better, provide a better customer experience, onboard them faster. It's about being agile, being able to launch products, cross-sell. It is about scalability. Scalability both horizontal and vertical. By the way, these numbers are coming from our Value Benchmark, which we've been updating you every year. Today, the Value Benchmark or CEO Navigator, as we call it, consists of data, 60,000 data points from 125 banks that are Temenos clients globally.
It's the most comprehensive, strategic value benchmark in the industry and we derive a lot from there that actually drives also our product strategy and go to market. I'll come to that. Kanika will come back to that after my session and talk a little bit about the Temenos CEO Navigator. It is about value. If you do this for 30 years, this is where you get to. You do really become everybody's banking platform. 3,000 clients, the smallest at 500 accounts and the largest at 150 million accounts. A very significant ecosystem of partners in truly being global, more than 150 countries.
The blurb at the bottom is really telling our top-performing clients achieve half the cost-income ratio of the industry and 3x the returns of the industry. This is what it's all about. It's the snowballing effect of growing and delivering this kind of value proposition. Typical client slide for Temenos for those that know the Temenos story. We look at clients across retail banking, corporate, and wealth. Within corporate, we also have small- medium enterprise. The most mature and impressive reference, if you like, references in the industry. I truly don't know where to start. We'll share some case studies today. PayPal with their buy- now- pay- later business, 150 million loans in two years, 20 million customers.
Nordea doing the most pioneering transformation across four countries, four different retail banks, four currencies, four regulators actually running on a single platform, or Commerce Bank in the U.S. That is our flagship reference in the U.S. that proved that our software can actually handle a large U.S. bank. First Abu Dhabi Bank, when we started working with First Abu Dhabi Bank in 2004, it was a tiny small bank. With the product, they've become the largest bank in Middle East, North Africa. Even down in wealth, where we have by far the best reference client base in the industry, whether it's a JPMorgan or a Mirabaud or a Credit Suisse. Credit Suisse we've been working since 1999, and so on and so forth.
It is about creating successes that help us propel the business forward. Without these successes, it's very tough to grow the business. It's always been about being pioneers, but not in any way. There are different ways to innovate. We have our own particular way to innovate, which we believe is one of the clever bits of how we do stuff. We disrupt ourselves from within. We don't say, "Okay, we have a product, and now this product is dead. Let's build another product." We disrupt it from within. We change the platform from within. We abstract the business logic from the tech. We work on the tech independently of the business logic. We bring the business logic with us, and that's the only sustainable way to deliver to big banks.
Otherwise, by the time you change the tech, you need to rework, rewrite the business logic, the opportunity is gone. We've been pioneers, whether it was upgradeable packaged, or when we started banks where the concept of packaging and upgradability was really novel in banking. We brought it in. We brought in 10 years later, the 24 / 7 banks had batch processes, and they were shutting down in the evening and opening up in the morning. Of course, the whole channel development and internet, and it forced the banks to look at business differently. We were the ones that brought it. We were the ones that were cloud-ready first, more than 10 years ago. Cloud native since 2020, for our main stable of products in 2021, for all our products.
Of course, our open platform for co-composability. We've been able, by working from within the platform, to have the most advanced technologically modern product, cloud native, while we are able to implement complex banks. Today, we are probably the only ones in the industry that can boast that. It's been about investment. We put 20% of revenues in R&D. We did that for 30 years, so it snowballed. It is about growth, so it is about being able to invest more. Yeah. The market. A significant market, $23 billion is estimated to be today, what banks spend with third-party vendors like ourselves. This is across, if you like, the areas that our products cover. It's not a theoretical market. It's what we cover.
If you think about it at $1 billion in revenues, that's something close to 5% market share, which also feels right. It's 10% or 15% in some areas. It's less than probably 1% or 2% in other areas. It is a market that has been evolving into consuming software in addition to the traditional on-premise way through software as a service. Software as a service is a faster growth, if you like, component within that market. It's a market that has also grown by the rise of non-incumbents, digital banks, fintechs. The important thing is that it is a growing market. Yeah. Substantial growth.
The total, if you like, addressable market, if you were to include what banks spend in in-house developments, is much bigger than this. The beauty with our market is that it has a lower level of saturation than a traditional ERP market. In an ERP context, this would be probably 70%. In our case, it's probably around 30%-40% of IT spending representing third-party software. A little bit more about how that market gets reflected in our business and how we monetize. We show... I want to clarify something that we also talked about a little bit last night on the results call. Have the rise of cloud as a main driver in our business, in the tech business for banks.
The rise of cloud manifests itself in two different ways. One is that we provide the software as a service, and this is our SaaS business. The second way is that the banks themselves decide to run our software within their own premises themselves on public cloud and take advantage of the benefits of cloud adoption. For example, the Tier one deal we announced in Q4 with a leading U.S. bank selecting us for its wealth management business is an implementation of our software on AWS, but run by the bank. What we are showing here is we are splitting the growth of the market because of, if you like, cloud into two. What is coming through SaaS and what is coming through as on-prem software.
Myth number one is that our on-prem software is a legacy business. It is not. It is driven by the same drivers that our SaaS business is driven. Banks are going to adopt our technology to implement it on cloud. They will choose to do so themselves. What this slide shows is that the subscription business has two components. It has the traditional on-prem and the cloud, if you like, element of that. Ultimately, all two lines, both lines, SaaS and subscription give ARR. This is what is common between them. Very different in terms of how you book the revenues, very different in terms of cash flows, very different in terms of margins. Where they are common is that they contribute to ARR growth.
Moving on from there, what I wanted to share is how that is done in practice and the operating model of delivering and our software being consumed by banks. Over on the left side, you have the traditional on-prem business, where banks still elect to run the software on technology stacks that run in the bank. There's still a lot of that. There's still a lot of that in jurisdictions that are not so advanced in terms of public cloud adoption. It's in jurisdictions where perhaps privacy and security are understood in a special way by the regulators. In general, there is still a preference for doing it ourselves. The second column, if you like, is banks adopting cloud.
They run it on public cloud, but they will run it themselves, as I explained before. The third column is a partner is running the software, our software, and delivering the software to banks that want to consume it. For example, an IBM through their IBM Financial Services to offer Transact, if you like, on IBM Financial Services cloud. What the advantages you get there is that you have, if you like, more direct access to the IBM ecosystem, the knowledge of IBM in the banking space and so on and so forth. This could apply to most big providers. It could be an Accenture, it could be a Cognizant, it could be pretty much anybody that would like to offer SaaS services to large, relatively large financial institutions.
In fact, we have a large deal in the pipeline that this is what they want to do. Finally, over on the right is our SaaS business. These are banks that they come to us, and they want to consume the software from us. In addition to us delivering the software to them, we deliver the service. Smaller banks will do that, fintechs, neobanks will do that, but also some larger banks. We have some very large banks in the pipeline that are going to go down that route. This is why I cannot put hard lines between them. It will really depend on the bank. These are four models that I love them all. We love them all. They are wonderful, all of them. They contribute to ARR, profitability, and cash flows.
That's how we go to business. When you see in our revenue lines, subscription and SaaS, cloud is behind, perhaps partners are behind, but ultimately, the bank will choose which way they want to go. SaaS does have benefits and typically it's larger deals. When we sell a SaaS deal, it's typically like for like between 2x and 3x the equivalent on-prem deal. Okay? The reason it is that we are not simply running the software and therefore, if you like, incorporating the Azure component of the cost into the service. We do that, but it's not just absorbing a cost. There is a significant value here. This value is what drives it 2x-3x. To be more specific, it is about providing continuous upgrades and updates.
By far the biggest element in the cost of ownership, the total cost of ownership of a bank is the upgrading, if you like, from one release to the other. We take care of that within the SaaS offering. It is about resilience, being able to offer resilience across clouds, across geographies. Always on. It is about the governance, the security, the risk, privacy regulations. Another more complex area of the SaaS business. It is about delivering a lower TCO for the bank. The infrastructure, the scale, scaling horizontally, so adding new countries. Scaling adding new countries, adding new businesses, scaling vertically, going from zero to 150 million loans in two years. For example. This applies to anybody, new customers, existing customers.
We haven't yet started migrating existing customers onto our SaaS business. What you see in our SaaS business is not a migration, it's not a shift, it's not cannibalization. This is myth number two. It's all incremental new business. We are only starting now to position the migration of existing customers onto SaaS. We see this as a positive event, and we see this as positive because it's an opportunity to generate more value. You might say, "Well, yeah, but there is a margin for sure." The dollar margin from the SaaS business is bigger. Even at a 70% margin, it's bigger than the equivalent on-prem. In addition, it's working capital positive, it's cash flow positive. The SaaS business is generating upfront cash, we feel very good about that. Yeah.
Just progressing a little bit the business model, and explain why this has been leader and will be leader. We are the only people that have a single platform, a single code base. Yeah. We are segment agnostic, so we do, we do it across retail, private wealth, corporate, small-medium enterprise. We do it for challengers and established banks. Within six years of starting Temenos, we sold and implemented software for Credit Suisse, one of the most complex private wealth organizations in the world. The platform approach and the snowballing approach allowed us, within six years, to have the functionality to go to tier ones and run their business. It's size agnostic, the smallest bank to the largest bank. It took us years to get to the scalability that we have today, but we got there.
It's deployment agnostic, as I said, four different ways, SaaS, on-prem. It's of course, location agnostic. What this does, it gives us the largest addressable market for a banking software company. The addressable market is significant. It's growing, as I said. If you put that together with our 20% R&D year- after- year, this will only get better. I know you are thinking, well, you know, you are saying this after an odd year. 2022 was an odd year, and we had odd years before, but this hasn't stopped us delivering leadership for the market. That's what it's all about. This is the clever stuff. This is what we do and others don't. This is also the reason we win. This is new information.
We've never published this before. These are our win ratios against both the established traditional vendors but also neo vendors. They've held very well for 30 years. Different competitors, probably now we are in the 3rd generation of competitors. The reason we win, the themes are common over the years. It's packaging, it's upgradeability, it's breadth of functionality, it's extensibility, it's being modern, it's being cloud native. This would apply to both existing vendors and traditional vendors and new vendors. It's localization. We have Model Banks for pretty much every country we do business. We have local expertise. On our strategic initiatives we talked to you last year, we wanted to give you an update. They represent the strategic priorities also for this year. We're being consistent here. It is about SaaS acceleration.
It is about focus on North America. It is about a partner approach, a partner-centric approach. It is about increasing penetration in larger banks, clearly. I talk a little bit about the case of significant exponential growth that the SaaS model gives. Yeah. This is from a key client that is using the platform for its buy now, pay later business. These are the statistics there. The most successful business within that organization, this is an actual quote. Nothing to say more than that. This is quite unique in the market. I don't know anyone else doing this. It is about profitable growth in SaaS.
We've got a track record of improving margins, and we will be improving margins in the medium term. It is about scale, it is about automation and efficiency. It is about making the product more efficient. A lot goes on into that and Prema and Tony will talk about that later on. It is about the United States, a snapshot of our client base. We have a session today, Philip is going to take you through that. We've done a lot in the United States. We still have a lot to do in the United States, but we are, I think, in a good place with a very targeted strategy. I was asked the question last night.
I still believe these are the right priorities and the right focus in the market. At 37% share of the business, it's starting to mirror, if you like, the share of spending of the U.S. within the banking software space. It is about partners. We've been shifting a lot to partners over the last few years. Over on the left, you see there, and it's the first time we talk about it, we've exited pretty much the customization business for our clients and, you know, we talked about what it means in terms of in terms of numbers yesterday. Our services business is not necessarily an objective for growth in its own right, even though it will grow over a period of time, but we've been shifting more to our partners. Why?
Because we win, better if we work with our partners. We can scale better if we work with our partners. We've got sales partners, localized sales partners, resellers. We have the big system integrators, delivery partners, and of course, Temenos Exchange, where people put their apps to be working together with the Temenos software on Temenos Banking Cloud, for example. It is about the larger banks. We are pleased to say that we've restored, if you like, the mix from larger banks in the revenues back to 2019 levels. It is about larger banks. You need larger banks to grow the business. I mean, you know, let's not, you know, shy away from it. It cannot just be about small banks. It is about larger banks.
We feel we have the products and the investment to address those, especially larger banks have been shifting their spending towards wealth management, towards corporate, if you like, banking. Both of these have better margins today than retail banking. Retail banking is being attacked from all sides. You have the disruptors, you've got the fintechs, everybody's looking at retail. The money is elsewhere, though. We see that this is where the spending goes, and correspondingly, this is where the investment goes from our side. We have a good, a good base, a superb competitive advantage in wealth, a good base in corporate on which we are, we are building. Again, Prema is gonna talk about it later on. It is about being sustainable. We started this journey many, many years back.
We received the industry's best ratings for our ESG credentials. The ESG program is very significant within Temenos. It is about integrating ESG in our operations. It is about creating business opportunity about ESG. ESG is big for banks. ESG is big for the bank's clients. By being ESG alert and by being at the forefront of ESG, you are really offering banks an opportunity to do business with a different type of organization. We've made massive progress, whether it is efficiency of code, whether it is having carbon calculators and enabling SaaS to reduce carbon footprint up to 95% for our target banks, for our clients. So very, very proud part of the Temenos story. Finally, it is about values.
If you want to lead the market for 30 years, you need to have values. If you don't have values, even if you have strategy, it's not gonna work. It is about Temenosity, it is about a certain pattern of behavior, which we are very proud to have. It is about caring, it is about collaborating, it's about committing, it's about challenging each other. Yeah. A very healthy set of set pattern of behavior and value system that is a strategic asset. I believe that values will continue to propel Temenos in the future. Very, very quickly, it's all about delivering value to customers. It is about customer references. It is about innovation and disruption from within, but in a way that you protect your heritage. It is about a robust competitive position.
It is about the rise of cloud and the broadest monetization of that rise via different models. It is about the efficiency of a single platform that leverages across segments, across sizes, across geographies, across delivery models, across types of bank. And that leverages, if you like, the R&D investment. It is about the larger banks, it's about the U.S., and building a sustainable SaaS business. Finally, it is about sustainability and culture. For the leadership for the next 10 or 20 years, that's for me as critical as the strategy. Jayde is gonna talk a little bit about that and how it impacts our people strategy. With that, I would like to thank you very much for listening.
I'm already a little bit late, and I'd like to pass on to Kanika to talk about the case for digital transformation. Thank you very much.
Thank you, Andreas. I'm gonna take you to the market, to the environment that we operate in and how it informs our strategy and how it informs both the way product is built and how we go to market. All of that is basically just justifying, sorry, justifying the case for digital transformation. These are the six trends that defined last year and are gonna accelerate in the coming year. Digital transformation. Banks have been relatively resilient in this very turbulent macroeconomic and geopolitical climate. Both revenues and IT spend has steadily gone up, and obviously notwithstanding the dip in 2020 and early 2021, and are projected from all industry analysis to grow steadily in the future.
This means that banks have a fundamental need to transform. They are ongoing digital transformation journeys that structurally need them to invest in technology and in core modernization in order to deal with the ever-evolving needs of customers as well as new competition. SaaS and public cloud. Software as a service is a trend that is gonna accelerate, Andreas mentioned it, and this is because of the increasing acceptance of public cloud by both regulators and banks alike. Banking as a service. Embedded finance and banking as a service continue their exponential trajectory in disrupting the banking value chain, particularly in retail and SME. Challengers are entering uncharted territory in this rising interest rate and macroeconomic environment, with tightening funding and greater investor scrutiny on profitability rather than just growth. ESG.
ESG is becoming an absolute top priority for banks, particularly sustainability is getting embedded into the entire banking value chain. This is again driven by regulators and customers alike. Finally, a little bit of a futuristic look at central bank digital currencies. This is a trend that has accelerated in the past year. It's not imminent immediately. It is something that we have to watch out for because it can have a fundamental effect on the banking business model as we know it. We need to be prepared. Basically, central banks all over the world are locked in technology and regulatory competition to co-opt crypto assets for their national currencies. As many as 105 banks are experimenting in various sort of, you know, levels of intensity. Technologies.
Technologies are continuing to drive banking, as they always have for the last many, many years. You have cloud, big data, AI that are already seeing widespread adoption. You have blockchain, which is changing the way cross-border payments are done, changing risk and compliance, trade finance, and is the foundation indeed of the CBDCs. You have technologies like quantum computing, Internet of Things, and digital engagement areas like augmented reality, like biometrics and wearables that are much more nascent, but will potentially completely transform the way banking is delivered and consumed. We don't have use cases yet. They are still maturing, but we are watching out for them. All these technologies, the widespread adoption is exacerbating the banking pressures that banks have always felt. Demanding customers, new competition, regulation, all in very, very tough macroeconomic conditions in the aftermath of the COVID-19 pandemic.
Customers are getting more demanding. Retail customers want immersive, embedded experiences. They want values. They are very values driven these days, the younger generations, but also across the board. ESG has become really, really important for retail customers. Corporate clients, their needs are converging with retail as millennials come to the helm of these institutions. They too want digital augmentation. They want straight-through processing, they want seamless experiences, as well as sustainable banking. Wealth customers want a digitally augmented but extremely intimate experience. They're talking about hybrid experiences. When you come to competition, we know that the payment e-commerce giants, as well as some of the fintechs, the neobanks, and the banking-as-a-service providers, have been chipping away at the most profitable segments of the value chain for several years and are continuing to do so.
They are able to co-opt these new technologies very effectively to build compelling propositions for their customers. Regulation is not just about risk and compliance. It's about innovation, it's about competition. Regulators are actively encouraging collaboration with fintechs, sandboxes, digital identity, open banking. They are focusing a lot on cybersecurity. As I mentioned, central banks are obviously toying with blockchain on CBDCs. What we can say is that digital transformation is a necessity for banks to survive. There are those who are advanced in the journey. There are those that have a long way to go. The macroeconomic situation is expected to improve towards the end of this year. What we can see is that banking revenues are expected to rise steadily, as I said earlier.
My team does an analysis, a bottom-up analysis of 3,700 banks every year, and in 2020 we found that as many as 76% of the world's banks earn returns below their cost of equity. This number improved significantly in 2021. Went down to 66%. We also find that there's a positive correlation between revenues and IT spend. You can see that banking IT spend grew at 6%, and we expect it to grow in line with revenues. Therefore, again, this reinforces the fact that the market is out there for us. What are banks spending on? Digital engagement in all its flavors across retail, across corporate, across wealth. In retail, it's all about those embedded immersive experiences, so basically digitizing the customer journeys on their own channels and enabling embedded finance on external channels.
For corporate, it's about building industry scale, digital platforms across their product lines. It's about automating the process, making it seamless, particularly in the areas of virtual accounts and cash management across the lifecycle of the corporate client. In wealth, it's about robo-advisory, it's about enabling your relationship managers. It's about complex products like ESG or crypto. All banks are investing in data and analytics and in migrating to the public cloud. This is from Celent research, and it tells us it's totally in line with what we're seeing in terms of what customers are asking for banks. Public cloud adoption is expected to continue to grow, and this indeed is driving the requirement for software-as-a-service. Software-as-a-service, as we saw earlier in Andreas's presentation, is gonna grow at six to seven times the on-premise market.
When I say software service, I include public cloud there. It's a very, very accelerated growth. It's significant. The reason it's happening is because of these factors. Security. Cyber threats, as you know, have gone up significantly since the COVID crisis. There are so many attempted data and identity thefts, cyberattacks, and cloud providers are industry leading in this regard. Secondly, multi-cloud. Regulators are increasingly concerned about the resilience of the industry and about dependence on a few cloud providers. Cloud agnostic SaaS providers mitigate this. Artificial intelligence. Artificial intelligence in software-as-a-service enables banks to have better security, more personalized services, and more efficiency. ESG. Banks are looking at SaaS providers to first of all help them understand their carbon footprint and then to actively reduce it.
SaaS providers are using their own, the way they develop their own software, as well as their partnerships with the hyperscalers to help banks with ESG. Finally, modularity. Modularity of the software allows SaaS to be consumed in packages that are customized to the bank's needs, that are tailored to the bank's needs, and it allows more of easier upgradability and easier maintainability in the future. Let me now come to banking-as-a-service. This was built on the foundations of open banking and has really come into its own since the COVID-19 pandemic. What is it? It's the consumption of banking services, deposits, loans, payments from cloud native API platforms that source the regulated and secure infrastructure of license-holding banks to provide banking services at the point of need, i.e. embedded finance. Yeah.
There are three parties in this, and this is a classic textbook value chain. You have the brand of fintech, which is the customer-facing entity. They own the retail, the SME or the corporate customer, and they have their own digital proposition. When they wish to embed banking services, they do so by sourcing from a number of BaaS providers, either the specialists or it can indeed be the banks themselves directly, where they do this in a plug-and-play mode and don't have to go through the cost and time of securing a banking license. You have big brands, you have the Amazons, you have the Shopifys, and you have fintechs that don't have a license and want to augment the offering with licensed products that fall into this category. The BaaS providers are the intermediaries.
They are orchestrating an ecosystem of fintechs on one side for the banks, they are partnering with multiple banks, and they're providing that host of banks and that ecosystem of banks to the brands. They are augmenting it with modern technology and data and analytics, and this is something that we are seeing a lot of this in the U.S. and also in Europe. The license holding bank is basically renting its banking license. They are providing that regulated infrastructure either to the brand directly or to the BaaS provider, depending on how modern their technology is, depending on which markets they operate in, depending on the strength of their brand. This is a huge, huge opportunity in the world. Whatever you read, you find that it's predicted to be an exponential growth.
The market value, the market capitalization of organizations engaged in some form of embedded finance is expected to reach $7 trillion by 2030. In the U.S. alone, BaaS revenues are expected to be $25 billion in the next three years. This is happening because of embedded finance. Customers want those immersive embedded experiences in their daily lives. They are happy to basically buy financial services from the brands. The trust, the sort of trust advantage that banks had is narrowing. Innovations like request to pay or real-time payments or wallets are all sort of facilitating embedded finance. You have the need for embedded consumer lending like BNPL, the example that we saw earlier, which has really seen a huge rise. In that particular case, the balance is shifting towards incumbents as opposed to unregulated fintechs.
There is a huge opportunity for BaaS. COVID-19 has accelerated digital journeys, as we know. Open banking is driving the use of standardized APIs and access infrastructure. It's being driven by regulators. It's also being driven by infrastructure providers like Tink or Plaid, who aggregate and provide APIs at scale across geographies. We have a partnership with Tink on our exchange as well. The demand from fintechs and neobanks. It is incredibly hard to get a banking license, as we know. If you go through BaaS, it's generally accepted that you can source that banking service in two, three months as opposed to, say, 15-18 months, and with a very low initial investment because the business model is a pay-as-you-go model. With very low initial investment, you're able to scale the business as you grow.
It makes a lot of sense for fintechs, particularly in the U.S. The U.S. has specific conditions which make this a very, very lucrative market for the banks, because it's extremely hard to get a license in the U.S. and also because of certain interchange regulations that favor banks who do this. You have the declining profitability of banks. I just mentioned that 66% of the world's banks earn returns below their cost of equity. They are looking for growth. They are looking for balance sheet expansion, and they need to do this at low cost. The brand offer a channel where they can acquire customers on the strength of the brand at scale and allows them to collaborate rather than compete with the fintechs. Challenger banks entering uncharted territory. We all know that challenger banks have been extremely successful.
200 challenger banks have sort of thrived and come to market in the world roughly in the last few years, because of their superior digital experience, because of their niche propositions, they're able to target underserved segments, and because of competitive pricing. On average, they have grown or doubled every 18 months, at least the profitable ones. Now that we are entering this macroeconomic climate, they are being tested. Funding as well, the number of deals as well as the absolute amounts have reduced by 30% in 2021. Investors are looking at, as opposed to just growth and customer acquisition, looking at underlying drivers of cash flow and profitability. They are looking at customer retention. They are looking at share of wallet, operational costs, and margins.
Meanwhile, the incumbents who always had the advantage of being the main product provider, as in owning the current account, continue to offer a holistic offering across all the client needs, across a broad range of products, particularly profitable products like lending. They have always been superior in risk and compliance and KYC, et cetera. There have been a number of high-profile cases recently of the challengers failing on the risk and compliance front. You have the Monzos who are being investigated by the U.K. Financial Conduct Authority. You have the German regulator that has imposed a very hefty fine on N26, which is a fairly large player, 7 million customers across 24 countries, and they are having to answer for breaches in AML and such like reporting.
What we can say is that banking is an industry which has very high barriers to entry even today, despite healthy competition from the fintechs. Yeah. That's something that has really sort of 2022 has brought home that point. Let's come to ESG. As I said before, regulators and customers are both driving banks to embed sustainability in every part of their business, whether it is client propositions or whether it is sustainably running their own operations. When you look at client propositions, the most basic use case is to be able to provide a carbon calculator. NatWest does this very well. They have a calculator that allows retail customers as well as SME customers to track their carbon footprint and nudge them towards reducing it.
You have Greenly, which is a B2B player that offers banks a carbon footprint API, particularly in the SME space. They have a methodology where they calculate the carbon footprint based on account and transaction data, based on cloud computing usage, based on travel costs, to be able to calculate the carbon footprint of an SME. And they have a partnership with Tink, whom I mentioned earlier. They want to take their carbon footprint API across Europe. Very interesting sort of use case there. You have sustainable lending. One of the most innovative and interesting use cases is Ant Financial, the Chinese giant.
They are collaborating with the UN to provide loans to the most sustainable farmers, the credit decision is made not just on traditional credit data, but on data from sensors on soil use, on satellite imagery, on the sounds of animals. you know, this is, this is really going into the sort of innovative world of technology and Internet of Things feeding into a credit algorithm. Yeah. Finally, about running own operations sustainably. I'll talk about GoCode Green. That's a ClimateTech company based in London that measures the carbon footprint of software, either in banks, Fintechs or indeed software providers like ourselves. They've recently been nominated for The Earthshot Prize, really sort of making a name for themselves in this space.
We have been working with them, they have worked with Tony on assessing the carbon footprint of our software, and we've had some early positive results. Tony will talk more about it. What is also interesting is that we can partner with them to assess the carbon footprint of a Temenos implementation at our clients. We can say that this is an independent third party, and they can calculate the carbon footprint of the project. Yeah. Diversity and inclusion is another very important area within ESG, and some very interesting use cases are coming in the market. First one is about underprivileged, disadvantaged groups. HSBC has just launched a no fixed address current account, which is basically addressing the needs of the homeless. It's in conjunction with local charities. You'll see the adverts on the tube.
Openbank Santander in charitable giving, they have a charity marketplace which allows their clients to select a charity, to set up a payment, to manage the tax around the charity all in one place. You've got the needs of vulnerable people through the carer card program, where Santander issues a carer card for up to two carers for a vulnerable person, and they can access a limited amount of funds that are ring-fenced from the main current and savings account. These are all products that we as Temenos should be able to help the bank take to market. And finally, AI for removing the bias from credit decisions, not having any socioeconomic or racial factors affecting those decisions. Zest AI is a bank in the U.S. that uses AI for credit decisioning that is free from discrimination.
CBDCs, as I mentioned, slightly futuristic, why is it happening? 105 banks, central banks in the world are experimenting, the idea behind it is that they want to essentially improve the efficiency of cross-border transactions. They want to increase financial inclusion. They want more traceability. They want to curb the power of private players who are dabbling in stablecoin, which is unregulated. Last but not the least, they also want state control and to be able to monitor the spending habits of their citizens, as is the case with China. Banks are an integral part of the CBDC ecosystem because they have the liquidity, they have large customer bases, and they have the AML and KYC capability. It is natural as deposit holders for them to be the initial distributors of the CBDCs when the time comes.
What they get out of it in terms of their business model, it offers them the opportunity for value-added services. They could go into wallets, they could launch custodial services. Risk and compliance. It will have an effect on risk and compliance. They would have to have measures like caps and limits, et cetera. It will affect their balance sheets. It'll affect their capital reserves. It'll affect their liquidity reserves. There could be cannibalization of cash, of normal currency into the conversion, as well as a reduction in fee income from card transactions, for instance. They will face new competition in terms of newer digital wallet providers, in terms of new custodians and even sort of mobile telcos who could enter this space with payment rails.
I will now give a very brief update on a topic which is very close to my heart, which is we used to call this the Temenos Value Benchmark, and I think for the last several years I have updated you on this. We renamed it the CEO Navigator for good reason. Because we have so much data now, we are able to provide a dashboard for a typical banking management and board team, and that is why we renamed it. Essentially the program remains the same. It's a strategic survey-based program where we, together with our clients, explore the drivers of banking performance, how technology is enabling banks, and how banks are performing against their peers and best in class. It's a very, very consultative approach, and strategy consultants from our teams go to the client. They sit there for two days.
They interview stakeholders from across the business, across the value chain, over a two-day period. They produce a 100-plus page customized report with recommendations, comparisons, insights, all kinds of sort of trends that we are able to analyze. Thirdly, it's a long-term relationship with our clients. It's not a one-time show. We want to be able to do this at a regular interval, either every one or two years, depending on the bank's needs, or at a significant business or IT event at the bank, either a merger or a go-live or an upgrade. Last but not least, it is completely confidential, as you would expect in an exercise of this nature, and subject to very strict terms and conditions. We go direct to the bank. We don't have any third parties on either side.
We are delighted to say that we have 125 banks, more than 60,000 data points across five regions. It's a wealth of information, we are able to use this internally now for our product strategy as well as for our go-to-market strategies. We've obviously got a lot of client credentials. Banks use this at the board level, because it gives them real significant inputs into their IT investment strategies. Thank you. I will now pass on to Prema, who will talk about product.
Thank you, Kanika. Good morning, everyone. My name is Prema Varadhan. I own now product, services, which is client delivery, global support and SaaS as well. In my role, from my experience of running all these functions, I can tell you why what Andrea said is the only way to be the leader in this industry. It's all about the value, yeah? It's all about how we build value, how we deliver value, how we unlock that value to our customers. It has a very simple formula. We have a very simple formula. It's all about this. It's leading functionality, leading technology. That's the winning combination. Yeah? Some of our competitors focus on just functionality, parts of it, some segments. Some of our competitors focus more on the technology-specific areas, not all of it comprehensive. Yeah? That's the difference.
When you need a winning combination, it's the right combination of technology and functionality. Let me describe what this really means in terms of leading functionality. It's about nearly 30 years of investing, building, delivering, getting the feedback from the banking industry. Yeah? It's about the focus that we have in entirely banking. It's the focus that we have in all of the different segments of banking, which is retail, SME, corporate and wealth. When we talk about what is packaged, what is upgradable, what is available out of the box for banks to immediately unlock that value, it's about these pre-built banking business processes. Yeah? Full value chain front, middle and back office all put together and banking processes. We have about nearly 1,800 and about every month this adds.
You know, this number goes up because we are delivering more of these capabilities out of the box. It's also for us about the independently deployable capabilities, independently upgradable capabilities. Yeah? As we started going into the cloud native journey, as we started providing the composability, we not only provided composability at the level of value chain, that is banks can take the digital capabilities but not the back office or only take the back office capabilities and not the front. We also went deeper into that. We said, if banks would like to take only onboarding, that's an option. It's an independently available capability for the banks to upgrade and then incrementally add more. If they want to buy only lending, you know, back-office capability, that's perfectly possible now with our applications, and they don't have to migrate all of their customers.
They don't have to have payments on the same platform as lending. It can all exist as different capabilities in the ecosystem through our distributed architecture, which Tony will talk about a bit more, and composability, we are able to let the banks orchestrate and compose this themselves. It's also about product as code. It's flexibility at the heart of it. It's about, you know, multi, multi. Everything is multi for us. We run multiple time zones, multiple entities on a single platform, single instance of the platform or multiple instances, if that is how the banks would choose to run it. We support them all. It's about that complexity that comes with banking.
We understand it, we have it as part of our platform, banks are able to leverage and set up the system the way they would like, yeah, as per their legal entity structure. We spoke about regionalization and why it is important. It's about understanding the geographical needs, the regulatory complexities that come with different countries, then to be able to package it out of the box, whether it is taxation, whether it's accounting, whether it's different charging capabilities or just the policies itself, yeah. It's about open APIs. We have been talking to you all about the open APIs. Everything that we do is API first. All the capabilities we build are first designed with APIs in mind and then exposed to anyone in our ecosystem. I'll talk about it in another slide as well.
Thousands and thousands of banking parameters. This is again, goes back to a design principle. It's one thing to build a platform, let banks leverage it, extend it to their heart's content, and forget about it. It's entirely another thing, which is our method, which is to provide this as a set of configurable parameters, so anything that you build, it actually is built on the platform. It's brought into the platform. The next customer that you are working with has that advantage of starting from scratch without having to extend, without having to customize within a particular country. This thinking, this design principle of not sticking to a toolkit approach, you know, just do the minimum thing and allow banks to pretty much do whatever they want, that's not what is going to help us win.
It's also about how frequently we release software to our customers and the choice of releases they have over a particular period. Our banks can take any of our monthly releases. They can go live. We continually update our SaaS platform as well. All these new feature function are available to our customers pretty much instantly. Leading technology. I'll be brief on the technology part because Tony is going to take us through a lot more details. It's about cloud native. It's about cloud agnostic. We have reference architecture, certified architectures. There are some of these cloud providers on which we run our software, Azure and AWS. Others, we certify our software. We provide a reference architecture for banks to be able to take the automation that we supply, and use it themselves if they choose to run it themselves, yeah.
It's quite an important aspect now for us. It's everything that we do on technology. Pretty much cloud native, cloud agnostic work takes care of, you know, more than 70% of all the investments that we do on our technology. API first microservices. I spoke about the independently deployable capabilities. It's written around APIs. It's written with the distributed microservices architecture. That's how we deploy composability. That's how we enable composability for our customers. Another point I would like to talk about is non-destructive upgrades. It's one thing to continually update and upgrade. It's another thing to do it in the most non-destructive way. This is something I think most vendors don't get. Core banking systems or digital systems have to be always on. They have to be available all the time.
You can't bring down systems to do your upgrades or to do data migrations, and you can't say the digital operations are closed for a period of time because some code is always getting upgraded all the time. Yeah. For us, it's about non-destructive upgrades. We have demonstrated both in our labs and in a client environment that we can achieve non-destructive core banking upgrade. What that means is the system, the core banking system is always available throughout the period when the upgrades are done. Yeah? It's a very important point. I think people miss this. As you do more customization, if you take a toolkit approach and you are a bank who has extended the software to your heart's content, upgrades become immensely complicated.
There are vendors, there are neo vendors who haven't demonstrated upgradeability at all, who haven't demonstrated that they can do successful migrations, and add to all of that the complexity of the multi-entity structures and multi-structures that I spoke about, it gets very complicated. It's about for us the extensibility as well. As we scaled our business on SaaS, one of the key things that we identified was the need to provide the same level of flexibility as we did before, but to be able to continually upgrade our clients, all of our clients on our SaaS platform. That can only be guaranteed if we have the discipline around how those customizations and flexibility is provided to our customers. We do it via a set of frameworks called Extensibility Framework. It's written around our plate platform. This allows extensibility at all levels.
It's about APIs. If you want to extend the data models, if you want to extend the business process, you pretty much get all of that extensibility as you did before. It's done in a smart way that it doesn't interfere the continuous update of the core banking software. Very, very important. If you are running core banking on the cloud and as a SaaS service, this is a very important feature. Not many of our competitors get this. Right. I think we may have showed this a different version of the same slide before. For us, it's about the characteristics.
No matter what banking or what business model a bank is following, whether it's a traditional digital transformation they are going through, or they want to apply a sidecar approach to banking-as-a-service or launching a banking-as-a-platform capability, the characteristics on the right-hand side remain the same. Yeah? It's about hyper-personalization. It's about openness. It's about that multi-layered security. It's about data aggregation and the quality of the data to power that personalization. Yeah? It's about the flexibility via no-code/low-code extensions, extensibility. It remains the same. It's about DevOps. It's about how quickly can you bring new features into the market, time to value, time to market. Right. This is our platform. If I were to summarize pretty much everything that we do in a single slide, this would be it. It's our platform for composable banking. I'll walk you through this slide.
There's a lot going on. All of the users, you know, have access to the platform. Banks, our clients, have access to the platform. They can explore the APIs themselves. They can, you know, launch sandboxes on our platform. And there are partners who are collaborating with us, build their own IP, extending the capabilities via our APIs and launch their apps via Temenos Exchange as well, and we help them monetize that. We collaborate and sell via the same platform. There are system integrators. There are individual third-party developers as well who are constantly working and getting the support from us through the Basecamp and the community around it. There are two sets of services that we offer to our customers.
What you see on the left-hand side, the composed banking services, these are point solutions that we offer to our customers, like digital mortgage as a service or virtual account management as a service. Yeah? Buy- now- pay- later as a service. Point solution, you buy it only for that capability, and that's it. It works out of the box. The enterprise services are more the composite services where banks buy a broad variety of capabilities from us, and these are pre-integrated by us as well. Composability is at the heart of it. Banks can set up pretty much any product. You buy enterprise lending capability, you set up any type of lending loan product. Both these services are made up of the same set of banking capabilities. We only ever have single code base. We don't confuse our customers.
We don't duplicate capabilities. We write a functionality once and once only, and we reuse wherever it is applicable within our ecosystem. The banking capabilities are those BIAN-compliant, semantically modeled, domain-specific capabilities, and you'll see some examples there. These are the capabilities which are also available as independently licensable deployable components. Banks can just buy a set of capabilities, and we allow them to orchestrate these within their ecosystem as well, either run it themselves or via our SaaS capabilities. Underpinning all of these are the technology capabilities. It's about cloud native. It's about being cloud agnostic. We have always been database agnostic. We offered our services or our applications to run on multiple databases, and they work natively on all databases. We are performant on all these databases. It's about the distributed architecture as well that comes with the microservices pattern.
That's again going deeper into the cloud native technology itself. It's about CI/CD because as you take your software natively on cloud, it's about how continually you can incrementally, you know, take your features and capabilities into production. As you go deeper into that, Tony can talk about it. It's about serverless container-based solutions. Everything that we deploy is containerized. Everything that is natively written is also serverless by default. All the APIs are REST APIs, industry standard again, and we provide industry standard workflow orchestration capabilities as well. The characteristics of the platform, I described this in a lot more detail earlier itself. It's about composability. It's about extensibility, low-code/no-code, personalization, multi-entity, smarter capabilities powered by AI. Yeah.
That's what is underpinning this platform. It's applicable to all of the capabilities: digital, core banking, financial crime, data hub, wealth, you name it, vertical segment, all of these capabilities. Yep. Just a snapshot of how the banking services looks like on our Temenos Banking Cloud portal. You know, organized by segments. You can see the capabilities. Just to give you a visualization of what this is all about. I spoke about retail, services, accounts, deposits, lending. Banks can choose any of these, multiple of these. Yeah? We would love them to choose more of these. Corporate banking, same as retail, you can see the different set of products and the capabilities broken by value chain as well. Payments, yeah. A little bit on how we make the product investment decisions, yeah. Kanika and her team do fantastic research.
You saw the insights that we get by working with our customers, understanding with banks who are not even our customers. We understand where they invest, how they invest, and we understand it to a level of granularity that gives us directly inputs into what we should be investing, what we should be building. We go to the extent of, you know, understanding from the CEO Navigator that product building capability with this kind of simulation or what-if scenario or analysis is what banks are looking for. That's what is driving the most value for most of our banks. We know, you know, what's the maturity of that capability we have on our platform. If we need to enhance it further, we do it. Yeah? It's not the only input that we apply. We do our own.
We do have the industry bodies with whom we work quite closely. We get lots and lots of insight. We have fresh talent coming from the industry all the time in the form of product strategists. This gives us all of the data and analysis that we need to build the roadmaps per vertical, per segment, sliced and diced. Where did we invest in 2022, and what benefits did we get from the platform investments? These are the four main areas I would pick. This is not an exhaustive list, obviously, as you can imagine. We have had successes throughout, we have been leaders in so many of these markets already. Wealth reinforced our leadership, Andreas spoke about it. Top-tier U.S. bank chose us because we are cloud-native. They were looking for cloud-native technology provider only.
They did a POC, four, five months of rigorous POC, taking our software, deploying it all by themselves, using the same level of automation, going through the same type of CI/CD approach, screening for security and vulnerability at all times, every time they receive the software, pushing us hard on that. Guess what? We came out with flying colors. They are implementing Mirabaud, a flagship wealth client as well. Great success. I have a demo from, in fact, Mirabaud app, digital wealth app, which they have built and launched it with their friends and family right now. It's a fantastic, you know, use case for our platform, and you will see why they chose us and the value that we provide. U.S. strategy, again, reinforced our U.S. strategy. We are being selected by a top 20 bank.
Phil will mention and talk about it a bit more. Challenger bank segment, we are very much the leader. We have always been. 80+ challenger bank have chosen us, and we have been mostly running most of these banks on our SaaS, and also with the composability at the heart of it. We have been constantly acquiring new logos since the last few acquisitions we have made in the U.S. Phil will mention a good few of those. SaaS business, tremendous growth, massive scale. Yeah? The learnings that we have been getting from that SaaS business itself, so much of that feeds into our product and technology strategy as well. We have achieved unparalleled scale with our buy now, pay later product with our one of our flagship clients. They have about 150 million accounts.
Black Friday weekend saw massive spike in their volumes. Without an incident, the platform scaled, performed to all of the NFR requirements without an incident. Banking-as-a-service, our platform already is enabled for banking-as-a-service. I have another demo where I will show a banking-as-a-service use case, an airline industry use case, bringing banking as a functionality, as a service into the ecosystem itself. There are banks that are exploring the sidecar approach with us, meaning they have their own digital transformation strategy. That's brilliant. That's the same characteristics as required for the banking-as-a-service. It's the same platform, same technology that we offer for them to launch their banking-as-a-service technology as well. It requires that scale, it requires that hyper-personalization, it requires the open APIs, same as, you know, what is required for digital capabilities, for digital transformation.
Mbanq partnership, Phil will talk about it a bit more. In the interest of time, I will move forward quickly. Kanika spoke about CBDC, central bank digital currency. It's more than a trend, I think. It's definitely here. It's going to speed up. It's going to accelerate. We have a lot of banks, our clients, who are central banks as well. We work very closely with them. We are getting ready for what you see on the right-hand side. It's about the digital currency, central bank regulated digital currency. It's about tokenized bank money. It's about whether or not there will be alternative payment networks, which we believe there will be, and it's about the regulated stable coins.
We have demonstrated already that our technology works with the blockchain technology, which usually is what is powering these CBDCs or tokenized systems. We also have proven digital wallet capabilities. We have a number of thought leadership pieces on that. This is a trend, and I would say a thought leadership that we are very much focused and hands-on involved. Looking forward, these are the four main areas. Banking-as-a-service is here to stay. It's not in one segment. Banking-as-a-service, though you will see a retail demo now, it's not just about retail. There are use cases, valid use cases coming up already in SME, already cases established in wealth and corporate as well. Banking-as-a-service is one big area of focus for us. Corporate lending. Corporate is where banks are seeing higher margins. There is a shift very much in that trend.
We have been investing a lot in corporate, the last, I would say four, five years. We have started to see the benefits. There are plenty of banks that are working with us in shaping our corporate roadmap itself. We have proven value to them by successful go-lives. We will continue to invest further in corporate lending. Payments, a big shift in the market in payments. Instant payments, the faster payments, the ISO 20022 migration across the board, across, I would say, globally, I think is making a massive, bringing about a massive shift in payments itself. As a result of that, we see a lot more payments modernization programs coming up. Temenos is powering number of those payment hub platform transformations.
Digital wealth is another space where we have continued to invest, and you will see with that example why we are the leaders already there, and we will continue to invest in that space. Here is the wealth demo. Right. That was the digital wealth demo. Mirabaud had done this using the digital platform capabilities from Temenos. It's with the friends and families now. It's friends and family app. The next one is a BaaS example, Banking-as-a-Service example. I'll do a little bit of a voiceover and narrative to this because it's a slightly lengthy demo. I'm conscious of time. I'll speed it up.
This example is an airline journey, meaning I'm booking a ticket, airline ticket, and as part of that journey, how we are able to not only offer different payment options, which is again, banking capabilities, banking service, but it's also going to show you how we can onboard and generate cards, and create a multicurrency account and a card linked to it, and it operates like any other banking product, any other banking card. This is quite powerful because it shows how different aspects or different banking capabilities come into now coincide with the digital journeys across different ecosystems outside of banking. You will not see a bank user or a directly the customer interacting with the bank as part of this journey at all.
This is, ladies and gentlemen, this is Temenos platform entirely built on our capabilities, and you will see how this works. Yeah. This is the airline app, let's put it this way, Discovery. I'm looking for flights to go to Paris. I'm in Chicago. I'm looking for, searching for the right flights. It should come up with the options, different flight options. There you go. I think I'm gonna pick the middle one. Yeah, looks good. I'm going ahead, there it comes with a number of options. This is the first point where banking comes in. Yeah. This comes directly from Transact core banking platform via APIs. You see the options, different options, presenting different ways in which you can make the payment. There's a Visa card, my own card.
There's a payment with PayPal or with the new debit and credit card. That's the option I'll go with. Let me go through the journey of looking at the Discovery card. How does it look like? I think I should click the next one. There you go. This is how this is these product features. This is the second intersection with the Temenos platform. Using the enterprise product management and pricing capabilities, we package a product which has got a card, $200 bonus, $4,000 dollars up to $4,000 draft, overdraft, and then a good number of non-financial services. That's what I think I will proceed with. Very good. It's asking me to authenticate myself because I'm onboarding as a customer. This is an onboarding journey because I have chosen to get this card. Yeah.
I'm reconfirming, authenticating myself again. There's my card. Yeah? At this point, we have an integration to our part platform, partner solution Marqeta who manage the cards. Interestingly, it's come back with a multicurrency account because I'm a traveler. Yeah? This is my card. I have been onboarded. Now I can proceed with my booking with using this particular card. Yeah? This card, if you can see, this has now come up on my airline app. I'm not in my banking mobile app. Yeah? I'm going ahead. It's allowing me to basically upgrade, choose my seats, notifications coming up as part of the journey. I'm gonna choose my seat. There you go. Lovely. Now, at this point, my card has been added. Yeah?
The new multicurrency card has been added, which is a Discovery card, and I have the available balance as well, and I will go ahead with this card for my booking. There you go. My journey is done. I have a trip. I have a multicurrency account added. For the next part of the demo, I'll show how this card can be utilized for practically anything else, my purchases, Starbucks, whatever. This is my card, all visible within my Discovery app. I'm able to operate it like a normal bank account, bank card. I can make payments. I have a cashback as well. I can send money. I can do typically what I would do normally with a multicurrency account in my banking mobile app. You can see I have made some purchases using this card. Starbucks, spent some money. Balance has been drawn down.
Interestingly, I was given an option to purchase an overdraft up until $4,000. I'm eligible for that. I'm going to try that option. Yeah. You can see within the Discovery app, from within the app, there's again an integration to the Temenos banking platform. We're able to bring the terms and conditions of this overdraft, and then you are able to choose what amount, what rate, and the journey is complete. The overdraft is complete. You have seen multiple onboarding origination journeys as part of a completely different ecosystem, a different digital ecosystem, and you are able to operate this card, this account, as if it was a banking account. Yeah. This is the power of Temenos platform, ladies and gentlemen. It's not complex for us. It's because we have those technologies and the capabilities.
We have the APIs to expose these product conditions, to allow for the products to be packaged, to allow banks to onboard multiple entities, multiple brands on a single platform, and to be able to operate the same account and card like you would do any other banking account and card that you maintain with a bank. Yeah. A little bit of, I would say client credentials, and I will pause with that. Great story with Nordea. Yeah. I don't think there is any other bank in the world that is doing what Nordea is doing. Four different countries, they are the leading bank in the Nordics. They have been doing the core transformation with us. All the different types of products, banking products, retail, corporate SME as well. They chose us because we had the right technology.
We were able to prove to them time and again that we are performant and we are scalable for their needs. They have been launching products quite regularly every few weeks. Multiple countries are now on that platform in production. We have proved true to them non-disruptive upgrades as well. It was one of their conditions that we had to meet, you know, to be able to continually upgrade their production system without any disruption to the services. That's what we do with Nordea. Another, I would say, a great customer credential is ABN AMRO. We run all of their international business. It's corporate international business. They have multiple products from Temenos. They chose us because we are the market leading provider, and they continuously work with us.
They influence our product roadmap and technology, and they have been on a cloud journey also with us. Yeah? They moved all of their innovation teams onto our cloud using the Temenos continuous deployment. They have been seeing a massive increase in their efficiency, general developer efficiency. Therefore, they're able to launch new feature functions pretty rapidly onto their production. They have seen massive growth in the business as well. The development costs have come down, and they are on a continuous journey with us on cloud. Last but not the least, I would say the large client that we signed in Q4, the wealth client who chose us for the cloud-native credentials, they were struggling. They are implementing our platform now. Before choosing us, they have been struggling with a fragmented platform. Yeah? Not at all cloud-native, very inefficient.
They were not digitally enabled in that particular wealth segment. They chose us because not only we were leading in functionality in wealth, but particularly on technology as well. Yeah? All aspects of cloud-native architecture, they had the highest standards, and they are still regarded as the standard when it comes to security. They say that themselves. They're extremely complicated, complex. We had to go through all their checks on the technology and the cloud-native architectures, and we passed every single one of those. This is the outcome. We are therefore giving them the lowest cost of ownership. They are supported by our platform on their future growth and the potential expansion. I'm pretty sure this platform is going to power more of their business in the future. With that, ladies and gentlemen, that's it for me.
I'll hand over to Adam. Thank you.
Right. We're inevitably running a little over time, so we're gonna have a very quick 10-minute coffee break. Can I ask you to be back in the room at 10 to 2, and we'll crack on. Thanks very much.
Great. Welcome back everyone. Just very quickly to remind you, please do use the Slido app to submit your questions through the session so there's not a mad rush at the end for everyone to get their questions in. I'm gonna hand straight over to Tony Coleman to talk about our technology. Thanks, Tony.
Thanks, Adam. For those of you who don't know me, my name is Tony Coleman. I am Temenos' CTO. As is tradition, after the coffee break, I do only have now a few minutes to try and catch up for you. Let's get going. Everyone's banking platform is that tagline. A lot of what I was gonna talk about, I can happily skip a little bit because Andreas, Kanika, and Prema have mentioned. Really, if you think about the colors here, it's this idea that there's been almost these waves of innovation, if you like. That very fundamental traditional way that we've always built the business in the blue, the single code base, the breadth and depth of functionality, and that key package, upgradable software.
That move into SaaS, cloud, and cloud-like, or as I now term it, SaaS-like, the idea that our customers can choose to deploy and run the software however and wherever they like. Cloud native and cloud agnostic. Now, I'll talk a little bit more on the cloud native piece later, but the cloud agnostic piece here is really key. It enables our clients, especially those that are running it in the cloud themselves on those public hyperscalers, to avoid vendor lock-in. We've done the hard work, and we continually invest in that cloud native technology to leverage all of the constant innovations of the hyperscalers so that our clients don't have to. It means if they need to, they can pick up and move very easily.
It gives them great negotiating stance with the hyperscalers and obviously for things like the EBA's exit strategy requirements and so on and so forth, it gives them this really great option. Then sort of on the right-hand side, moving into some of the more recent innovations around composable banking. Yes, everything is API first, but it is this loosely coupled event-driven architecture which is the heart of everything that we do now in terms of that composability and in terms of the underlying piece, which is that infrastructure as code. As Prema was saying, how that's deployed, whether that's containers, serverless, we choose the appropriate and pragmatic technology choices for the business case at hand. The areas that we're investing in probably doesn't shock you that it mirrors much of what my colleagues have gone before and mentioned.
I'm not going to spend a lot of time on here. I just will reiterate, though, that this is about securing the entire platform, not just the security piece, but around scalability, efficiency, and so on and so forth. It's a key part of scale. This isn't just the perhaps what you're expecting me to talk about, a big number, about number of transactions per second, but also the scalability of the organizations as a whole, their ability to operate more accounts, more loans, more regions, more entities for Temenos to operate more clients on SaaS through automation and scale rather than throwing bodies at it. I'm not going to talk through all of that big list. I'm not going to talk about how we're running our cloud-native solutions for our own SaaS business.
I could talk about this at length, but I don't have the time. Prema's mentioned just previously about the top tier US bank and the rigor that we've gone through. Really the proof of our cloud-native technology and our ability to stay at that forefront is not whether we comply to a theoretical list, it's whether our clients adopt and go live on that technology, and that we've proven out. Here I'm going to touch a little bit on what that composability side means. Prema talked about the idea of our Temenos banking capabilities that are encapsulated, that have their own data, and you have the option to deploy those embedded in a traditional sort of transact stance or a single deployment.
You have the option to take a wider business service and choose to deploy only the business capabilities you require to underpin it, and each of those underlying services can be deployed either serverless or in containers or again, embedded or distributed. This comes back to one of those fundamental choices, excuse me, of allowing our customers to choose how to deploy the software, not only from a logical functional grouping point of view, but also from a technical deployment point of view. We prove that out at scale. There is some concern around the industry that taking such a distributed architecture approach has an impact to performance, to latency, to carbon efficiency. Last year, we ran the benchmark on AWS with some of our database partners to prove out that distributed architecture.
Not only running but running at scale, with low latency. The numbers we got out of there you've seen, and we talked through how we measured the improvement in the transactions per second per core. A measure of efficiency. We wanted to take that a little further, and I'll talk about some of the green piece in a moment. Coming back to that idea of cloud native. WeLab is a fantastic use case for us. It's a good example of a third-party bank taking our cloud-native technology and deploying it not only on a single public cloud, but in WeLab's case, actively across two clouds. Very, very resilient architecture, very, very resilient deployment. Really proving out what we talk about when we say those reference architectures that Prema's mentioned.
Not only this idea that we have the reference architectures and the work that we've done on single hyperscalers, but running on multiple hyperscalers and in this instance actively across two regions, across the two hyperscalers. Another good example, again talking to cloud native, Diners Club International in Ecuador. This is another instance where the bank are running the software themselves. Again, it's kind of a little easy for me to talk about how we run our cloud-native solutions on Temenos Banking Cloud. It's a little marking our own homework. We thought this was a more interesting way of looking at it for you. Diners taking the solution this time on AWS, running it through on that platform. Switch gears very slightly and talk a little bit about the ecosystem and our exchange partners.
Here, this is not only about the Temenos software, it's about embracing the idea of an ecosystem and allowing third- parties to work on the platform, and to integrate and be deployable composably through the Temenos Banking Cloud. The Exchange network is a growing network, so we're looking by the end of this year to have doubled where we were in 2021. These are not just logos on the website. This is real integrated software and through our composable platform. You can take a solution from our Exchange partners, and it's a first-class citizen on the Temenos Banking Cloud. The experience that our customers have, and indeed of our own, engineering teams of building out these solutions, it's a first-class experience. I'm not gonna touch on this much 'cause in interest of time.
This is essentially a touch point to what Kanika was saying earlier about some of the disruptive technologies that we see coming through. As we move from open banking to open finance and to the open economy, we see disruption around sharing of data and so on and so forth. I can talk about that at length. Anybody who wants it, grab me during lunch. Little touch here on the phrase hyperplex architecture because it is something that gets mentioned and comes up. Here, really this is a little bit of a catch-all term for a variety of technology initiatives that we see across the industry. It's a little bit of a blueprint really perhaps of where Temenos will be investing and actively playing themselves, and where we would expect third parties to handle those sorts of things.
As a for instance, central bank digital currencies, blockchain, et cetera, certainly the space where we will partner, but we will make the changes to the underlying platform to allow those digital assets to be represented. Perhaps another example is AR/VR or Metaverse, and what we would expect to do there, and I've talked about this a few times on various other channels, where we say we don't believe that people will be building virtual branches in the Metaverse, but it's more about how you facilitate and access banking services within those online experiences. Whatever that looks like, we would partner for the AR/VR part, and it's the underlying platform again that surfaces up the APIs, the events, and the underlying business capabilities.
I am just gonna take a couple of minutes or maybe maybe not, but 30 seconds perhaps just to talk about the results here. Previously we've, and Kalliopi will talk about a little bit about this, emphasizing the sustainability of the cloud. We've also done a lot of work on our software for the sustainability in the cloud. This is taking our footprint, and to Andreas' point about making the entire code base more efficient, removing elements of the architecture, simplifying the deployment. This also has a positive upside to margins and the cost base of course. We're really pleased that working with GoCodeGreen, the results of that independent assessment is an improvement of 32% at runtime from 2021 - 2022.
This, again, it's one of those areas around investment, around efficiency and scale that we're looking to improve further, and you'll see results hopefully that we'll have time for TCF where we can talk about another level of improvement, not only in scalability, but in terms of efficiency. With that, I will hand over to Philip to talk about the North American strategy.
I had hoped to stand up here and say good morning. I found myself saying good afternoon, which tells you that we're running late. I'm gonna try and maybe summarize what I was gonna put into a number of slides and I think some of my colleagues have already covered some of the key points. Let me try and do that. We talked about the fact that we got some good heritage, obviously in North America, and in the Americas. I think we showed this slide earlier on in Andreas'. This is really the summary of this is to show that two things really.
One is there's significant momentum in the market, significant momentum for Temenos, and the amount of revenue, and licensing that's been driven from our American organization, and then particularly to show that there is demand in the areas where we've chosen to compete. We've got demand across segments, particularly at the high end of the market in the regional banks. These are the organizations that are looking to transform and looking to do it in an incremental fashion. Starting with line of business, wanting to take advantage of cloud, offloading that onto capabilities that Temenos has. We talked already about the tier ones that we have in there on the wealth side. The second point, this is really about our investment in our origination, onboarding, and collections capabilities. Huge demand in the U.S.
We're being very successful with a lot of the players in that space, particularly large credit unions. Massive demand for consumer lending. Actually, some of the credit unions in the U.S. have a bigger portfolio in that area than the banks. We're having extreme success in that. Obviously, the challenger is a traditional market for Temenos, and we get about 6- 8 organizations coming to the U.S. each year. We're being very successful with those. I guess another business as usual for us is in the international side of things. We had some new wins this year. We had some expansions with existing clients like Bank of China this year as well. BaaS, which I think everybody talked about BaaS. We have a particular strategy with BaaS, which is really twofold.
One is we wanna be able to offer direct capability to the organizations that want to be directly in the BaaS market. Examples of that for us are people like Green Dot. There's a lot of tier three banks, I think as Kanika mentioned, that see the lucrative interchange fees and the revenue that they can drive from banking as a service, and we can offer them sidecore capabilities to be able to compete in that. The other side of it is really giving us access into the fintechs, which traditionally Temenos would have no direct access to the fintechs, but through our partnership with Mbanq, we're able now to offer that conduit between the fintechs and their sponsor banks. Leveraging our platform and enhancing that with the compliance capabilities that Mbanq bring as well.
This is just a quick summary of, if you like, opportunity. Why is it paying off? I think we covered a lot of this already, particularly between Prema and Kanika. Obviously, we've talked about the cloud capabilities, the fact that we have that proven scalability, and obviously that's appealing to that top end of the market. Packaged localized capabilities is very appealing as well. Time to value, whether that's in the challenger space, whether that's in this collections, originations, onboarding, it's all about speed. Obviously on the, on the international, I think these are our heritage, this is our credentials. We've got those localized capabilities. Tony just touched on the fact that for BaaS, you've really got to have those discrete composable capabilities in order for these fintechs to be able to take advantage of them.
On the competition side, I think, and this is really not anecdotal, this is coming from the reach-out that we're getting from prospects, the reach-out that we're getting from partners, and just our own maturity, if you like, in the market. We're seeing that that gap is closing significantly. We have, I think we've emphasized it a lot. We've got a single core, single code base. That's where we leverage all of our investment. We don't have to offer eight different versions of the truth to an organization. That's very appealing as we're seeing with the prospects and the opportunities that we have in market today. I think as well, the maturity in our Model Bank, which we've been able to build out in conjunction with some of our leading clients.
Started with deposits, and now I think we touched on again some real areas of growth in the U.S. Is around payments, and we're moving forward with commerce around instant payments, FedNow, real-time payments. That's giving us, if you like, much more capability within our localization in a very big demand market in the U.S. These are just a couple of the factors as to why we feel that gap has narrowed. Just to really cover off the opportunity, and I think there's a couple of ways that we could probably look at this. This is data, and it goes back to I think what Andreas said at the start. This is data that's been sort of done bottom-up between IDC, McKinsey, clients, prospects, that has built up really a segmentation of the market.
When we look at the market opportunity for Temenos, we're looking at it specific to where we have matured capabilities to compete. It's not theoretical opportunity, this is actual opportunity. It's about an $8 billion opportunity for us in the U.S. market specifically. If you look at where the spend is, as we'd expect, it's skewed towards those larger players. Particularly in the tier one and tier two, which is where we're having a lot of traction at the moment, obviously in the tier threes, and then it declines as we down the scale. Therefore, from a Temenos perspective, in order to capitalize and maximize our returns, we're very much focused on those three pillars at the left-hand side, where over 60% of the spend, this is on third-party software, is taking place.
From a strategy point of view, we're very focused on the regional banks, very focused on the tier ones. We're able to participate with the tier threes. Whilst, yes, we offer capabilities in the lower tiers, particularly in the challenger segment and also with the credit unions, we really need to focus our efforts. We've chosen to do that in the strategy in the North American market by targeting those areas where we can maximize our returns given the level of maturity we've now reached. I got to the summary slide within the time frame, so Adam is looking happy over there. Just a couple of things and just to emphasize, I think, you know, a couple of key points. One is just maybe I'll just touch on the leadership. I guess most of you haven't met me before.
I'm not new to Temenos, almost 20 years in Temenos. I've worked around most of the regions. In truth, over the last two years, I've been running a global portfolio of prospects, clients, and partnerships. A lot of that has been focused around the Americas and North America in particular, stuff that we've been doing on the banking-as-a-service, some of the key accounts that were presented earlier on. It's not a new market to me. I've lived and worked in the U.S. before as well. That's very familiar territory.
I guess to deal with the topic of, you know, what's gonna be different about the U.S. now, I think we've got a good balance now, if I look at the team that we have in place, which bring with it that domain expertise, the local knowledge. I've brought a team with me that bring that deep Temenos DNA, real understanding of our products, our offerings, our services, how to position them, how to win business. That's what I've been doing for most of my career here. I think the blend of those two things, combined with the other third ingredient, which is really critical, which is our partners. We've really got some great traction with some of the high-end partners who are facilitating the access that we need into our target clients.
I think that's the combination, if you like, that we've got working on the Americas market that I believe will give us the success, because it's not about momentum in the market. We're seeing that. It's not about credentials for Temenos because we've seen, and I hope you've seen as well, that we've built out those credentials. It's purely about focus and execution. And that's what I'm looking forward to doing and being here with you guys next year and telling you about the progress in 2023. Thank you very much. I'm gonna hand off to Jayde on the people agenda.
Thanks, Phil. Phil's given you a tour of the Americas. Kanika's taken you through the market. We've been under the hood of the technology. I'm gonna bring you inside the house and talk about what really happens inside Temenos on our people agenda. I'll talk a little bit about engagement, our culture, and what we're doing around skills and recruiting and some of the programs that we're rolling out. Before I bring you inside, I think it's really important to just consider the market context in which we operate and this acute and enduring talent shortage that we face, and how this informs how we retain, acquire, and develop our skills internally. The war for talent is clearly not new. It's been spoken about for a long while, but it really is accelerated post-pandemic. We see our people strategy showing success.
In November last year, we did our annual engagement survey. Our metrics were up across the board. That's engagement, connection to Temenos, and importantly, intent to stay across the board and against the global data benchmark that we compare ourselves to. What is important for our people? These are the factors that drive connection, engagement, and intent to stay that are important but also are rated highly. Broadly speaking, that's related to leadership, behavior and values, strategy, the future of the company direction and where we're headed, and the opportunities for our people to learn and develop. Personally, I was also really happy and proud to see this culture and the elements of Temenosity coming out really, really strong. We heard from nearly 6,000 Temenosians who are telling us what we're doing right and where we want to see improvement.
That's about 82% response rate. Elements like, "I can be myself at work," "I trust my manager," "I can say what I think even if my opinion is different from others," all rate really high for us, and this is the essence of Temenosity. Of course, we have work to do in some areas as well, even if we're making progress, but areas around meeting career goals and open and honest communication is where we're also focusing. Our people strategy. Clearly the market, the business inform the talent and the skills that we need. We acquire great talent, develop great talent, and keep great talent, and this is underpinned by a new but also evolving employee experience. A clear purpose and vision. Why are we here, and what do we stand for, and everybody coming on the journey with us is really important.
An open, flexible, and inclusive culture. We've always had this from the beginning, and we are absolutely committed to it now and moving forward. Clearly, competitive pay and benefits goes without saying, and offering continuous learning and development opportunities and career opportunities for all our Temenosians all over the world. All this put together creates the best version of Temenos. I'll skip this in the interest of time. When we talk about acquiring talent in the context of a scarce talent market and answering the call from our people rather, about career opportunities and continuing those development opportunities that they're already enjoying, we prioritize our internal talent. These people get Temenosity, they are engaged, they are connected, they want to stay and grow with us.
If we have people that have the baseline skills, learning agility, curiosity, and want to do more and different things, we'll always facilitate this. Of course, we will always go externally as well to accelerate that skills development, to bring in new ideas, new perspectives, and new ways of working, which we relish. We'll do that with Temenosity in mind, with cultural alignment so that work styles and work preferences match and that people can thrive with us, and that we do that with a diverse and objective viewpoint when interviewing. We've clearly spoken a lot about banking, and banking expertise for key roles is absolutely critical for that learning runway and diversifying, of course, our sources of talent at all levels of the talent pipeline.
Given that market context and that learning and curiosity from our people, reskilling and upskilling is fundamental to our people strategy, and we're seeing this paying off with our metrics. What are we doing that's tangible? We've done a lot last year, and this is continually evolving by really intently listening and ensuring that we're living up to the expectations of our employees. I've spoke a lot a bit about learning and career opportunities, not as much as I would have liked if I'd had more time, but we're really focusing on SaaS certifications, on peer learning programs, developing our female talent, competitive rewards, clearly with niche and in-demand skills in mind. Our culture, we value it so much, and particularly wellness and wellbeing is clearly top of mind for us all.
Living that value of care, so making sure that we're looking after our people at work and outside of work so that they can thrive, something that's very dear to us. Finally, taking everybody on the journey with us, that everybody knows where we're going, why we're going there, and the part they play and the impact they can have. I'll just close to say I'm really proud of the thousands of Temenosians collaborating all over the world. We have an amazing group of people here, and they're all united by this concept of Temenosity, which is a real thing, and they're all delivering value for our clients now and in the future. Thank you for listening, and I'll hand over to Kalliopi.
Hello to all. I am going to speak about our environment, social, and governance strategy. Andreas, Kanika, and Tony have already mentioned what we are doing, I'm going to be really brief and focus on certain areas. As you already know, and you have heard me before, our goal is to deliver value to anyone associated with us. How we do it, we do it by managing our operations responsibly and sustainably, while at the same time helping our clients transform into smart, inclusive, and sustainable organizations. We do it by integrating ESG into our operations as well as our product offering. We are leading in the IT sector in terms of ESG and we are very proud of it. Last week we received the highest distinction by S&P, the gold-class distinctions in ESG. We're leading the IT sector.
We are at 1% globally. At the same time, Dow Jones Sustainability Index, we are leaders within the IT sector. We have a true commitment to climate change. We have set science-based targets, and we have managed to have them externally validated by SBTi. We have also worked and developed the Temenos Carbon Emissions Calculator on the back of the Temenos Banking Cloud. We are leading in terms of gender and racial diversity. We are 10% higher than the IT sector, with 36% gender diversity within our workforce, 41% racial diversity in the U.S., and also 30% gender diversity within our board. We have the know-how, and we are helping our clients transform into sustainable organizations. How we do that? You heard before that regulation as well as customers are driving the ESG agenda.
We have the know-how, and we can help banks comply with regulation and with climate- stress tests. At the same time, we help them address and reach their energy and emissions targets. We're very well positioned as an ESG leader. You have seen it in all the indices and ratings that Andreas showed in one of his slides before. We have set science-based targets, so it's not about greenwashing or rainbow washing. It's about facts, and it's about real and serious targets. At the same time, we're pioneering within our industry because we have the know-how. We have the ESG know-how, but at the same time, we have the digital transformation know-how, and we have managed to combine them both, and all the benefits go to our clients.
Kanika mentioned before, and she talked a lot about the ESG trends. I'm going to touch upon briefly the three key ESG trends that we see within banking. Banks are interested, driven by regulation. They're interested in running their own operations sustainably and efficiently. They need to comply with regulations, so direct operations. They also are driven by the needs of their customers who would like to have insights into the carbon impact of their own transactions, so indirect operations. At the same time, banks need to know the emissions they finance and drive decisions in terms of their investment and lending portfolios.
The Temenos Banking Cloud, as we mentioned before and as Prema mentioned before, powered by the hyperscalers and due to the composability of our open platform, with third-party applications from the Temenos Exchange partners, we give that option to our clients to address direct operations and indirect operation needs. At the same time, with our Temenos Wealth suite, we have the ESG investing part where we help banks create products in terms of investment that are driven by ESG criteria as well, and they can also match their own values. As you can see, the transition to net zero is driven by finance and capital markets by the banks itself, but it's also empowered and enabled by technology and data.
This is not something that we are just saying for the sake of saying that. We, Temenos Banking Cloud, as we explained before, is a true climate-related opportunity. As Tony mentioned before, he mentioned about the greenness of our software, which has been externally validated by an external independent third party, GoCodeGreen. You can see that 32% carbon impact reduction of our software. At the same time, the sustainability of the cloud and the sustainability in the cloud, which is what we are passing all these efficiencies to our clients. We have two examples here with EQ Bank in Canada, as well as Flowe in Italy.
Two purely digital banks working on the Temenos Banking Cloud powered by Microsoft Azure. They can see these true benefits in terms of annual savings in their emissions. They can comply with regulation. They're both carbon neutral banks. They can also address the needs of their customers. Last but not least, this is something that we do not just say that we are doing. We have the data to prove that. Last year, on the back of the Temenos Banking Cloud, we launched the Temenos Carbon Emissions Calculator. This is not one of those calculators that are in the market. These are true insights from using our products. We provide our clients with true carbon and energy insights from using our products.
This is actually how it helps them address the needs of the clients, at the same time comply with regulation and the climate stress test. This is the way how we are working internally, and this is a true example of how we have managed to marry sustainability with digital transformation. Thank you very much.
Okay. Just me between questions and, you know, nothing else. I guess, I'm gonna pick up where we usually end, which is with financials. We've heard quite a bit from, you know, Andreas already, and you're gonna hear more about, and I think it's been two hours since you last heard about ARR and cash. I'm gonna refresh, you know, some of your memories. I mean, as you have seen, we have a clear strategy, and the team presented in all the angles how to drive sustainable growth of our business over the medium term. We announced new midterm targets today to reach more than $1.3 billion of ARR, non-IFRS EBIT of more than $570 million, and free cash flow of more than $700 million.
You know, over the next couple of minutes, clock is ticking, I'm gonna show you how this drives and comes together. Now, it's not something completely new. You know, we started talking about ARR some while ago, and clearly, you know, there was less focus until last year when we introduced, you know, the subscription model. If you look on the right-hand chart, clearly ARR has been growing quite nicely over the last couple of years already at, you know, double-digit pace, 13%. You know, clearly there is a 12% growth forecast for this year.
What we see, you know, for the future and how do we get to the $1.3 billion, clearly there is both subscription and, you know, subscription ARR and, you know, ARR coming from our SaaS business obviously driving this going forward. Free cash flow obviously is gonna benefit from several angles. On the one hand, clearly there is an increase in profitability, which will drive that. You know, above all, it's not just the increase in profitability, it's the strong growth of our SaaS business driving, you know, massive growth in deferred revenues and this is how we're gonna reach more than $700 million in the medium term. What about EBIT? Clearly we're gonna drive this forward in a very profitable way.
I think we have seen in the past that, you know, recurring revenues drive profitability. You know, sometimes there is a bit of a time lag. Clearly, you know, this will happen much sooner than everybody expected. Going forward, and I think this is the main driver for the profitability increase, it's gonna be, you know, the substantial expansion of our SaaS gross margin, which will drive, you know, the overall profitability. Now, as you know and you've seen in the past, we have clearly a lot of, you know, operating leverage embedded in our business model, which obviously will also drive this forward and still leave ample room to, you know, deliver the substantial targeted investments we plan.
Putting this all together, you know, that should drive $570 million in the medium term. If we look at this, and again, coming back to predictability of the financial performance, which clearly want to improve even further, you know, we now sell, you know, subscription contracts to, you know, every client who wants to run the software themselves. As Andreas mentioned, SaaS is, you know, for those who want us to run it. The market had already been moving to subscription before, our timing, you know, and clearly driven by client demand, was the right one, you know, when we introduced this in 2022. Today, you know, clients across all tiers and, you know, business models, you know, are sold subscription contracts.
In 2022, you know, the $626 million of ARR reported, that was already making up 78% of our product revenue. Clearly, you know, if you look at the midterm, the $1.3 billion, once we get there in the medium term, that's gonna be, you know, more than 97%, you know, of our product revenue. Clearly, I think there is a strong acceleration, which is ultimately driving a more predictable financial performance. What we see here is, you know, the three components of ARR. That's maintenance ARR, subscription ARR, and, you know, SaaS ARR. Clearly, as we grow our subscription revenue base, you know, this will make up an increasingly large contribution to the ARR mix. And this is projected to be around 25% in the medium term.
This effect is even more pronounced in our SaaS business, which should contribute, you know, 55% roughly, and, you know, doubling from what we already achieved last year. We can see, you know, subscription ARR and SaaS ARR will become the dominant contributors to our ARR growth. Coming back to what I mentioned before, that clearly how, you know, can you derive from our ARR growth, what the profitability will be. We had put out some, you know, some mechanics, and I think we go here one step further, because that's, you know, even more in terms of visibility. As we have already seen, and this will be even more in the future the case, ARR will become a large percentage of our product revenues.
What we say here is, you know, ultimately the SaaS margin or the margin of the SaaS component is expected to expand considerably over time. What will happen then at the point where, you know, the margins of both SaaS and subscription are fully optimized, then you will see, you know, sometime in the midterm that actually the ARR growth and the EBIT growth will be aligned. This will, you know, happen probably around, you know, sometime in the future when ARR is, you know, say, comprises more than 90% of product revenues. We said, you know, 78% was last year. If you do the math, you know, that will, that will happen clearly over the next few years, rather in the short term than in the midterm.
Then you're gonna have a very good predictability. Ultimately, you're gonna see that, you know, driving ARR growth is benefiting, you know, the predictability of forecasting, you know, EBIT growth. I think this is something very important. Nice chart here. We got arrows moving from bottom left to upper right-hand corner. Now, with a shift to subscription last year, we already reached a trough for our free cash flow in 2022, and expect an acceleration from here with at least 12% growth in 2023, when we complete the shift to subscription. We announced this already yesterday with our results.
Now, our growth in SaaS is more than offsetting, you know, the remaining headwind from subscription, as Andreas explained already yesterday and on our results call, as well. Beyond 2023, you know, I think free cash flow growth will sustainably accelerate, as there will be no more headwinds from, you know, the subscription shift. Term licenses will be, you know, largely gone and, you know, you will have the strong growth of SaaS, you know, moving deferred revenues substantially higher, and this is what will drive this acceleration. Let us now briefly look at, you know, some of the underlying drivers of growth. We heard a lot, and I'm just gonna pick two of them, which are always on investors' mind.
I think what we see is the evolution, and we've seen that with Andreas from tier one and tier two clients. The history, 43% in 2022 and, you know, 50%-55% is the target. Clearly this is something if you deliver, you know, the strategy as we have outlined, you know, this should increase. You know, tier one and tier two banks, not just in the U.S. as Phil has explained, but also obviously in Europe, where we have seen, you know, some improving traction that should contribute to that. The other one is North America. Again, moving towards, you know, the midterm target, 45%-50%. 37% is already a pretty good number.
What Kanika explained today and Andreas was, okay, the U.S. market is maybe 40% of the total. You know, we're almost there. Clearly the U.S. is a big opportunity for us because our market share in the U.S. is smaller and should definitely, you know, increase. Overall, you know, the total software licensing business out of the U.S. should clearly continue to grow faster than the rest. We have discussed, you know, simplifying our financial communication, and while we continue to provide, you know, disclosure on a range of metrics, as you can see, the key KPI for us going forward will be ARR. Given the importance to our business and also for, you know, predicting the future financial performance.
As we have shown, you know, ARR is something, you know, which is very important for ourselves. Because, you know, there is not a direct link between ARR and, you know, the P&L metric, we know the accounting, IFRS 15. Basically, you book the license portion upfront. Because of that, you know, as you see on the annual guidance, we'll continue to give you some more disclosure, we've seen here on total software licensing, but also some of the other, you know, metrics. Clearly, we're aware of this, you know, mismatch, but clearly this is why we try to give you more disclosure. Now for the medium term, I think, three main KPIs should help you know, with modeling and understanding.
Ultimately, they show the health of our business, which is, you know, still ARR. You know, the profitability is clearly has to be there and ultimately, you know, free cash flow. I think these are clearly the best metrics to prove, you know, the performance and how you can track whether, you know, our business is doing well or not. 2023 guidance, this is for the ones who didn't join the results call yesterday. Just repeating, you know, it's at least 12% growth ARR, at least 6% growth total software licensing, at least 7% for EBIT, EPS 6%, and, you know, free cash flow in line with ARR growth at least 12%. You know, clearly focusing on at least and, you know, given the past experience we want to be.
We think this is the right guidance at this point in time. We want to be prudent. There is still some, you know, uncertainty out there. I think, we feel comfortable with this one. Midterm guidance, just repeating, you know, where we want to go. This is, you know, doubling ARR, doubling EBIT, and, you know, more than tripling free cash flow, and, let's see how we get there. For ARR, you know, we have those three components, SaaS, subscription, and maintenance, which drive this. The largest contributor is coming from SaaS, and you will see that as well with cash. What Andreas explained today and the team has shown, you know, the SaaS capabilities and the SaaS advancements, you know, have a direct, you know, positive impact on our business.
It's not just, okay, we want to be SaaS as well. No, that's real numbers behind. Subscription as well, and clearly, you know, the maintenance part obviously will continue to grow. If we look at EBIT, I think the two key levers you see here on the chart, as I mentioned, you know, expanding the SaaS gross margin. I'll get to that in a minute. Over the coming years, clearly there is still some investment to be done, but we have already shown some very good track record. Clearly there is operating leverage, you know, in our business model of selling, you know, packaged upgradable software as we have proven in the past. Clearly this will help offset some of the investment plan. You know, this is illustrative, okay?
Investment, if I look over the midterm, we talk here about a triple-digit number. I think some people believe, you know, we have been under-investing. We have been not, and we'll also continue to invest what is necessary to drive this growth. This will be, you know, targeted obviously, with a main focus in sales and marketing and product, to enable us to, you know, deliver that kind of growth going forward. What is also reflected here, you know, we're obviously not agnostic in what environment we're in. Clearly there is wage inflation baked in. There is clearly an assumption of inflation in general, so increases in the run rate of our costs, and the investment is obviously, you know, on top of that. This is on, you know, SaaS gross margin.
We've seen where we have come in the last in the last three years, already 10 percentage points. There is still, you know, some contribution in there from, you know, non-core or legacy products. If you remove that, then we are already at an exit run rate in 2022 for around 64%. To the midterm, we want to get to, you know, 80%+. There are three main levers for this. You know, firstly, clearly the unit economics of, you know, hyperscaler infrastructure improve as we purchase more. Yeah. I think that's clearly one big driver. Then it's basically passed to the clients through the contract. Secondly, we continue to invest in automation, which is also, you know, helping us a lot.
ultimately, we want to implement, you know, the right tooling for us. And we'll also, you know, have a follow the sun model. There's still investment to be done. And this should all help, you know, for, you know, getting the margin there. I think, you know, when we get to 80%+ then we can really say and comfortably say then it's, you know, optimized. This is also a bit coming back to in terms of, you know, are we investing enough? This is how we had the cost lines as a percentage of revenues in 2022 and, you know, what we see in the midterm. Yes, there is leverage on G&A. I think we have a well-invested infrastructure there.
R&D, you know, yes, looks to go down to 21%-22%, but I think the 23 number is quite artificial because we continue to invest, and it's more a result of, you know, revenues being just flat. If you go back to 2021, which was a more normal year, the percentage is rather 21%. We're definitely, you know, keep investing a lot. Clearly services shifting to the partner model and, you know, improving the profitability as we have mentioned already this year and in the future will drive will help drive the margin. Sales and marketing, you know, there is more investment to be done, and I think this will help then, you know, for the growth going forward. This one I shown yesterday. This is, you know, basically the moving parts.
I think the important one is clearly to show what is happening here. If you put those three bars here together, you see this is the negative impact, you know, from term license. From subscription, we get now the second year of cash, and this is, you know, basically deferred revenue growth. You see the transition, if you wanna call it transition, to a recurring revenue model is already generating, you know, positive free cash flow. Clearly impact from services improving. We're gonna invest as we said. You know, tax is gonna be a headwind. And this is how we believe we get to at least 12% growth for this year. For the midterm, and this is simplified, I think you have just two drivers.
We'll forget about the working capital movements and tax. It's profitability, which is basically a substantial part is the SaaS gross margin and deferred revenues from, you know, the strong growth in SaaS. If you imagine, you know, you have a several hundred million of SaaS revenue, let's say $400 million-$500 million, and you get $500 million cash up front, and you sign another $100 million of ACV. You also get the cash up front. You know, that's massive. This is how you generate, you know, those $700 million eventually. I think what we have here, and clearly there is a lot of uncertainty out there, and, you know, the trend towards SaaS and subscription is structural, as we have discussed.
Whilst we have made, you know, a sensible forecast based on what we think are the expected growth rates of, you know, the two revenue lines, you know, SaaS and subscription, you know, the actual mix may be different, you know, ultimately. So we cannot with, you know, 100% certainty predict, you know, what ultimately the precise trajectory of this will be. What I've done here is providing a set of scenarios. What would happen, yeah, in the midterm? Midterm is basically here, the baseline. What will happen if, you know, SaaS versus subscription shows a different, you know, evolution?
The way to read this is, you know, for ARR, okay, if SaaS growth, you know, the mix in SaaS is 20% more versus what we have here, and the mix, you know, of subscription is 20% less in total software licensing, the impact would be, okay, we got $130 million-$150 million more ARR always versus the baseline. That would mean this is $1.3 billion. If the mix of SaaS is 20% higher in the midterm, you have an ARR of $1.43 billion-$1.45 billion. Same for EBIT. Now obviously more SaaS means, yeah, you can't book, you know, the subscription license up front, so it's ratable. This will mean four months to reach, you know, the $570 million baseline target.
I think this is something we say, "Okay, you know, you have to accept it." Ultimately it's, you know, you're still gonna get there. Yes, it will take a bit longer because of the accounting treatment SaaS versus subscription, but you're gonna get there. Finally, reflecting a bit the previous chart, you know, free cash flow, again, if the mix in the total software licensing in the midterm is 20% more SaaS because of the, you know, upfront cash you get paid and because of the de-deferred revenue mechanics, again, you will have not $700 million, but $825 million-$860 million, sorry, to $840 million. This is why we say the structural trend is there. You know. Yes, there may be different growth rates, but I think the numbers show that you ultimately will reach your goals.
Okay, just quickly, running out of time. This is, you know, capital allocation, what we have seen, you know, in the past. We've done quite a bit of acquisitions. The leverage at 2x , if we don't do acquisition, you know, that will come back obviously below. Average interest rate is quite attractive. The message is here we have ammunition to do M&A if the opportunities arise. Andreas mentioned, you know, valuations have been, you know, very high for the last two years. We have seen, you know, some of that improving, some of that what is happening in private markets moving into public markets into private markets as well. There may be opportunities out there. This is what we have done in the past.
Clearly, you know, the last one was in 2019, Kony, you know, which added, you know, a lot of, you know, product to our platform. Also increased the footprint in the key U.S. market and, you know, gave us cloud operational cloud operations excellence. The final one, I think this is very straightforward. We said, okay, either we can, you know, accelerate our R&D roadmap, you know, through an acquisition, you know, or we can increase scale or with lower priority, you know, you go into adjacent markets. We mentioned areas, you know, where we think the market will be very attractive. You know, wealth and corporate were one of those, but ultimately comes down to, you know, is it the right opportunity? Is it a good fit? And is it at the right price?
The conclusion, the same three slides, and I think the arrows, you know, show where the journey goes. With that, thank you very much and thanks for listening.
Great. Thanks very much, everyone. If you can just give us a couple minutes to get the Q&A set up with chairs and what have you. Any more questions, please submit them through the app, and we'll dive straight into Q&A. I guess we'll aim to probably wrap up 10 past, quarter past at the latest, okay? Just to give everyone an idea of timings. Just to say, other executives in the room as well, if you do have questions you want to address to people not on stage, we can of course, do those at the same time. Let's dive straight in. I've tried to group questions a little bit by theme, but bear with me because I'm going through an app as they come in live. The first few are on competition, neo vendors and win rates.
I think probably Andreas, over to you. Is it safe to say the majority of neo vendors you compete with are selling SaaS to neobanks, and not competing against you in tier one and two tenders, or is that not the case? Where do you see them in the tender process?
We see them in two spaces, really. One is at the very basic entry level of electronic money institutions, EMIs or basic wallets or, at the, if you like, digital end of the market. That's one, if you like, area. Then the other we see in larger banks, people approaching the space through a toolkit approach. Toolkit is not a new approach. We've had toolkit business models for 40 years in banking, and we know where those end. They end in a large customization exercise and Prem articulated the challenges of upgrading and keeping it modern and so on and so forth, let alone that they result in very small deal sizes.
Because the relationship between the vendor and the bank over the long term becomes tiny. In actual fact, at some point, banks in prior incarnations, if you like, of the toolkit model, they take control of the technology, they branch out, and they stop even any kind of commercial relationship between the vendor and the bank. So these are largely the two areas that we see neo vendors. Some of them are not... I mean, we call them neo vendors. Some of them are actually not neo. Some of them have been around for quite some time, 10, 12 years. They've been around the place for quite some time.
Okay.
Yeah.
A continuation of that from... Charlie very kindly said that our best slide was the one on win rates. Thanks for that, Charlie. He said the win rates are good, but lowest against neo vendors. Is there a shift in your pipeline away from traditional competitors to these neo vendors? What needs to be done to protect your market share given the lower win rates in this area?
Sure. Very good question. What we today see, if you like, in that grouping, represents probably a little bit more than 10% of our competitive, if you like, effort. It's not really been growing. And if anything, our win ratios, as we start to penetrate those two areas, are improving. We don't really want, and we will never compete as a toolkit. Let's put it out there. We'll always go with a package proposition. It's one we believe delivers value over 30 years, and this is what you'll see us competing with. If a project seems to be like an exercise in creating bespoke applications, you'll probably see us pull out. You'll also see us not necessarily. I talked about profitable SaaS growth.
We want our SaaS customers to engage, they go live, and then they grow volumes. I showed the trajectory of the, of the buy- now- pay- later story. These are the... this is what we... this is what excites us. This is what it's all about. We can go out there and compete in every money exchange or EMI type of opportunity or neo opportunity that after a few years is gonna run out of runway, but that's not what we want to be doing. Yeah?
Great.
It is about profitable SaaS growth. Yeah.
Okay, great. I think that leads us nicely. There's a number of questions here around SaaS and cloud, as you'd expect. Prema, first one for you. Are there any hard data points telling us that from conversations with customers or regulators, regulations for large banks and public cloud usage is becoming looser? If not, do we expect this to change and be a meaningful driver to start migrating existing customers to SaaS?
Okay. The regulations are not becoming looser at all. If anything, the regulations are becoming more complex and tighter. Yeah. Which is why I talked about that complexity of having not just the banking processes, but when you run SaaS, when you offer all of this as a service, you almost become the advisor on regulations as well and how to help banks remain compliant. For example, there is an European regulation that's coming up called DORA that affects every SaaS vendor. We are already doing thought leadership and interpretation and whatever is needed on to be compliant on our side. But to support banks with how they should interpret and how they should be compliant when they consume our services or for that matter, run it themselves on SaaS. I don't think that's happening.
It's not going to happen. They are going to get tighter. The hyperscalers are actually investing a lot on this space as well, and we work with them because they know we understand banking and financial services. We do work on that a lot. The second question, on-prem or existing customer base to SaaS. For us, that's absolutely the case. As Andreas mentioned, today, you know, a lot of new logos that we have or all the majority of the SaaS clients are new logos for us. Naturally, as these existing businesses are looking to modernize further, looking to upgrade, looking to roll out perhaps a new geography, new brand, new product line, whatever that is, they come to us and naturally we recommend SaaS to them, and they are absolutely happy taking SaaS capabilities. A great example was ABN AMRO.
We talked about innovation, how to set their team up, they came to us and said, "Look, let's go straight onto your cloud." Yeah? Consuming your cloud deployments, enabling our innovation teams to do that. It could be anywhere, you know, it could be any of those events. For us, it's just happening all over the place now, and it's the natural evolution of our existing business to move on to SaaS.
Okay. A follow-up from that is, within the SaaS business, what contribution is coming from upsell or cross-sell?
I can't put an exact percentage on that, but we have seen both, I would say. A lot of our existing core banking clients have gone on to buy digital applications on SaaS, taking it end-to-end from us. This is again, the strength of that pre-integrated, pre-configured solution. You are naturally enabling when you have one platform, all of those common characteristics, naturally you can, you know, cross-sell and upsell. I would say it's an integral part of our business.
Okay, great. Takis, just following up from that then, can you talk a little bit about the level of existing customer migration to SaaS factored into the midterm targets?
We're not gonna give the precise number, but as you know, probably have seen with given the strong growth we're projecting and what Andreas and Prema just said, yes, when, you know, existing, especially the smaller ones.
Banks, you know, come up for renewal, you know, out of their term license or eventually then also from their subscription, you know, they will likely move to SaaS. Clearly that's, you know, one of the drivers. I think the SaaS growth we have projected in our midterm plan, you know, reflects both, you know, the contribution from new logos and, you know, this, you know, if you want migration of existing customers plus obviously, and don't forget that, you know, the volume growth from consumption of the existing and new logos. There are actually three underlying drivers for the SaaS growth projected in those models.
Okay. just following up then 'cause I've had the question about seven times, what time frame does midterm mean?
I'll let Andreas answer this one.
No, this is, this is clearly Takis' space. Come on.
We practice a lot and, you know, what we agreed on is it's more than three and less than seven.
Wow.
It's much more precise now.
Okay.
Ultimately, you know, there is a level of uncertainty. If somebody has a very bullish view and, you know, okay, soft landing and 23 we'll go back to, you know, strong growth rates and there is not gonna be macro impact, yeah, you know, clearly a lot of things will happen faster if, you know... You know, you're smarter than we are on these economic things. If there is eventually a recession happening, yeah, maybe then it will take one year longer. I think that's. This is why we've given also these scenarios. We can't predict on a, you know, 4- 6 year frame exactly the growth rate in whatever year out there, but we can show you how sensitive this is to our P&L and cash.
I think that's a very important point that when you think about SaaS in banking, we are creating SaaS for banking. SaaS banks did not consume software through SaaS. Things like evergreening and upgradeability. You think about running 100 banks in one jurisdiction running on our, on Temenos Banking Cloud. We upgrade 100 banks same day, same minute. The regulator is going to have a heart attack. They are not gonna let us. You have to come up with the structures that are applicable to banks. You don't mix the data. Each bank needs to have separate data structures and segregation and across jurisdictions. We are creating the industry here, the SaaS industry for banks.
Inherently in that you do have some uncertainty on how fast this will develop or how slow. What hopefully Takis' modeling is showing is that it really doesn't matter that much. It might take a year longer to get there, but the fundamentals of the model will get you there at some point. So. That's the message we wanted to share with the community today, that it's about the business model and it's about the creation of a new industry, a new way of consumption for software for banks.
Great. Thanks, Andreas. Phil, for the U.S. market, do you need to invest more in your product offering than other regions? Is the standardization of the offering to extent a limitation as incumbents offering BPO services around the software?
Good question. I think on the maturity, if you like, of our localization, I think we've reached a very good point in that with some of the projects that we've been running out. We've got some sponsorship from some of those clients to get us the last part of the way, mainly around the payment side, which is an ongoing project. I think from a product investment side of things, I think on a maturity, I think we're in a very good place. A lot of the demand that we're seeing in the market at the moment is replicating what we've already delivered in some of our, in some of our clients. It's a very good sort of fit for us. The second part of the question, Adam, was just about competing with-
Yeah, with BPO.
the large incumbents.
Yeah.
Yeah. Listen, I think that's something that is very normal in the U.S. market. Our strategy for that is through our partnerships. What we plan to do is to wrap partnerships around our technology capabilities so that they can provide those added value services. We have a number of those discussions ongoing at the moment. I think that's what will get us a level playing field, if you like, in terms of those vendors that offer that particular service, which has a tendency to be at the lower end of the market, but is also prevalent in other parts of it as well.
Great. Thanks. A number of questions now on margins in the different revenue models that you showed on your slide, Andreas. How do we expect the margin evolution between SaaS, subscription, public cloud, private cloud to evolve over the coming years?
I think Takis kind of addressed it with one of his slides. Clearly on the SaaS side of the business, we have a 64% margin exit rate going out of 2022, which the aspiration is to take it to at least 80%. Over on the subscription side of the business, clearly the margins are higher. As I said in my presentation, we love them all. We provide choice to banks. Banks will choose to do different things. Yeah.
Okay, great. While I'm with you, Andreas, so, another one on, large banks and their willingness to engage in core migration in 2023, given macro uncertainties.
It's what we said. What we saw actually in 2022 was larger banks actually coming back to the market with some significant projects after the pandemic. If you think about the pandemic, most of you work in large banks, people went back to their offices in September, and even that. We saw banks committing, and we saw our share in Tier one tools go up to pre-pandemic levels, 2019. Our pipeline includes a number of large Tier one deals for 2023. We see good movement, if you like. At the same time, we do recognize it and some banks have travel freezes and some banks consider 2023 a tough year for them.
We are also aware of that macro uncertainty. This is why we said last night that banks continue to be cautious. There is stabilization in the environment. There is more clarity, if you like, compared to Q3 of last year when 2023 was highly uncertain. Economies are giving us the confidence that it's less uncertain than it was. Nevertheless, it's a bridge year in many ways.
I might just add to that as well. I mean, I think there's a report came out just in February, actually, from the American Banker, citing the fact that the larger banks in the U.S. are the most dissatisfied with their core vendors. The longer they stay with their core vendors, the more dissatisfied that they're becoming, yeah? I recognize that dissatisfaction doesn't always lead to decisions. But I think what we're seeing, certainly in the U.S. lens, is that a lot of those banks are embarking upon the incremental renovation of their core. Slicing off parts of the core, whether it's deposits or lending or other aspects, and taking advantage of moving them into more contemporary technology, cloud capabilities.
I think we're seeing that trend very much in the U.S., and certainly that's what we see in the pipeline today, just to add to that point.
Great. Thank you. Takis, you're gonna be in the hot seat now for a couple minutes, if that's all right. A few questions on investments, organic and inorganic, as well as capital allocation. Apart from geographic client build-up and expansion in the U.S., what other priorities do we have for investments in the midterm? Can you also talk a little bit about capital allocation priorities, and would any of the Finastra business be of interest to us?
Okay. I think capital allocation and, you know, we were running out of time, the priorities are still, number one, invest into, you know, our organic growth. I think this is what we both have reflected in our guidance for 2023, but also what we said to the midterm, you know, because we spend an awful lot of money, not only just on the product, but clearly also on sales to drive this. Organic, number one. If we, if we look then to priority number two, that's, you know, inorganic, clearly we've shown, you know, some of the reasoning behind this. Number three would be, you know, manage, you know, the balance sheet, you know, through share buybacks.
Number four is then, you know, maintain our dividend policy, you know, steady to slightly increasing. We increased the dividend 10%. This is, you know, I think in a nutshell, in terms of, you know, capital allocation. Inorganic, I think the priorities and we, you know, again, we don't wanna push prices up. Some of the things we're looking at clearly in the space, you know, Kanika explained and also Prema. Then the Finastra.
Finastra is selling their banking business. Any of it of interest to us?
Okay. you know, it's like the market rumor thing with the PEs. You know, we can't really comment on this one. I think they have been trying to sell it for a while, so let's see.
Okay, great. One more for you. Midterm ambitions are showing straight line progress. Are you assuming progress coming from SaaS to 55% of ARR coming from SaaS is linear? If that is the case, EBIT and FCF will increase quite linearly too, or will the progress for EBIT and free cash be back-end loaded?
Okay. First, you know, on SaaS, clearly Andreas shown, you know, if you modelate the way it was shown, the ± 30% CAGR. I think this is, you know, clearly what will drive, you know, you know, revenues. On profitability, I think once we reach this, you know, 90% threshold level ARR of product revenues, which is, you know, you can do the math, depending what will happen. It's, it's either gonna be 2024 or 2025, you know, we're gonna have a bit growth catching up to ARR growth. This year, you know, it's still below. We're not gonna be there. I think it's gonna happen in the next 18-24 months.
Okay, great. I'm just take two last questions, and we can wrap up. Prema, one for you. We talk about providing a single code base. Some of the competitors, particularly Neo vendors, may argue the same. We have thousands of APIs on our site. Does that not complicate things for developers?
Absolutely not. Banking is complex, yeah? The depth of functionality, the breadth of functionality, if you were to expose all of those capabilities, key capabilities to be consumed via multiple channels, third-party channels included over the Internet, it is complex. It requires thousands of APIs. Yeah? The things that you saw in the Banking-as-a-Service demo, there were many, many APIs that are hitting the core banking platform. Yeah? You have product features, you have packages, you are onboarding, you are validating, you know, every step of the way. As long as these are offered in a simple, secure, easy to consume and as responsive as it is needed to run a bank in terms of non-functional requirements, this is not at all complicated. That's exactly what we do. Yeah?
Great. Thank you. Very last question for you, Andreas. I think this is an important one. Most new CEOs want to come in and bring their own strategy and ideas, and they don't just want to execute on inherited financial targets. With that in mind, why did you decide to announce new midterm targets today? Why are they credible? What is the scope there will be for a new CEO to update these targets?
Very good question. First of all, setting strategy is a collaborative process. Yeah. This is not the CEO standing up and saying, "This is what we're going to do." It's a process where the team, the executive team, and you have most of the executive team, present today. There's a couple of other very important people, part of the team. This is very much their strategy. Yeah. It's not about this is what Andreas wants to do, or it's not about what Prema wants to do, and certainly is not what the board would like to do. The board is also part of the strategy-setting process, and ultimately you come up with a strategy which fits the business.
You know, we can all think of different ways to do it, of course. You know, somebody might say, "Well, I'm gonna invest a little bit more there or a little bit less there, or I'm gonna grow faster, or I'm gonna grow slower or whatever." Ultimately, though, the fundamentals of the business are such that almost get you to the strategy answer in its own right, the business itself. Of course, as a company, we've always been providing midterm outlook every year. We have a rolling basis of updating our community with our strategy and with our targets.
Therefore, it's something that we felt was also important to do this year and this is what we have done. Of course, a new CEO, once a new CEO is in place and a handover, will have every opportunity to challenge this and she or he would come up with perhaps something different, but that is for the future.
Great. Thank you very much, Andreas.
Pleasure.
Just for me to say thank you so much all of you joining us today in person, out of the webcast. Networking lunch now. Please take the opportunity to talk further with our executives. Thank you.