Today Japanese technology firm NEC announced the acquisition of Swiss FinTech Avaloq Group for $2.2 billion. The company provides banking technology, particularly wealth management services to numerous major banks, including crypto-asset management services, and its tech is responsible for the asset management of more than $4.9 trillion. Avaloq will help strengthen NEC’s digital financial software position, supporting the firm’s blockchain and technology solutions. But NEC also said it would help to strengthen the Japanese firm’s business in the digital government field.
President and CEO of NEC, Takashi Niino, said: “NEC will be placing great importance on building long-term relationships with Avaloq and its customers, and aims to create new solutions that combine Avaloq’s software with NEC’s cutting-edge technologies.” NEC’s AI technology brand ‘NEC the WISE‘ and its blockchain solution were some of the technologies mentioned.
This acquisition comes when the financial industry increasingly seeks to incorporate technologies like distributed ledger (DLT) and blockchain as part of their digital transformation (DX) strategies. DX is an area where Avaloq positions itself. Digitalization has also been accelerated due to the pandemic. Apart from the apparent increase in NEC’s financial services footprint, the government rationale is that governments are collaborating with the financial sector to incorporate digital identities and tokens.
In terms of blockchain, NEC is currently working with Japan’s General Insurance Association to evaluate the technology’s efficiency. The eight un-named insurers aim to create an app for joint insurance policies where the cover for a single policy is syndicated across numerous insurers. Amongst other projects, the NEC is also working with the Tokyo Stock Exchange on post trade processing.
On that point, last week the Chairman of the U.S. Securities and Exchange Commission (SEC) Jay Clayton, commented “It may very well be the case that those all become tokenized,” referring to physical stock certificates.
Avaloq focuses on banking software, digital banking, and digital wealth management, providing SaaS and business process as a service (BPaaS.)
Some of its big name clients include Agricultural Bank of China, Barclays, Coutts, Deutsche Bank, HSBC, Nomura and Societe Generale.
Its solution currently enables financial institutions to offer crypto assets such as Bitcoin and Ethereum. The next step in its blockchain roadmap is tokenization. Avaloq aims to eventually offer financial institutions tokenization of non-bankable assets such as collectibles or real estate.
2019 was not the best year for Avaloq, recording a net loss of $32.47 million and a revenue increase of 6.4% from 2018 to around $663 million, of which 70% came from Europe. However, NEC’s chief financial officer, Takayuki Morita, justified the acquisition price by stating Avaloq is expected to have an annual growth rate of 15% in EBITDA.
Meanwhile, at the 2018 Banque & Innovation trade fair, Avaloq won the blockchain prize for its crypto investment solution, which enables users to sell and transfer cryptocurrencies and combine digital assets with other investment assets. In the same year, Avaloq acquired a 10% stake in Swiss blockchain and cryptocurrency firm Metaco, which offers banks and other financial institutions the chance to capitalize on blockchain and DLT.