Head2Head: Using Technology to Keep One Step Ahead

by Bruce Meuli, Global Business Solutions executive, and Jonathon Traer-Clark, Head of Strategy, Global Transaction Services, Bank of America Merrill Lynch

JTC How to get the best from financial technology is an issue in which treasurers have been engaged since the first banking and treasury management systems were launched in the early 1990s. We all know that as business models have changed, so too has the role of treasury. To fulfil this role successfully, treasurers not only need to leverage new technologies but importantly, be one step ahead.

BM I completely agree – these days, corporate treasury operations are increasingly complex, and in a highly competitive marketplace, treasurers are constantly tasked with finding new ways to create strategic advantage and facilitate business growth.

JTC So the question is, with so many technology solutions to choose from, how does today’s treasurer make the right choice that positions their business for success?

BM There’s no easy answer. A common question I hear from corporate treasurers is: enterprise resource planning (ERP), treasury management system (TMS) or both? Our industry is full of acronyms but these are amongst the most common for treasury teams seeking to automate their processes. Ultimately an ERP is an integrated suite of applications that manages core business functions. For some ERP systems, this includes cash and treasury functionality.

JTC Yes – and in contrast, a TMS specifically focuses on executing, managing, analysing and reporting on core cash, liquidity and risk management processes. But I would argue that the presumption that large, potentially complex businesses always require a specialised, highly sophisticated TMS is not necessarily true.

BM Correct, and given the rapid rate of technology innovation, ERPs used either on a standalone basis, or in conjunction with applications that supplement core functionality, may meet a treasurer’s system requirements. It’s no longer a given that a TMS is the only way for a maturing treasury to attain operational excellence.

JTC Do you think that this is governed by a corporate’s mindset? So much investment goes into implementing and maintaining an ERP, and it’s often no easy task for a treasurer to convince their IT department that it’s worth making substantial investments in new, unfamiliar external applications. However, there is key functionality that a TMS provides that may not be available in an ERP, particularly for more advanced analytics and managing more complex transactions. Whether measuring FX volatility or handling complex financial derivatives in real time, arguably a TMS becomes essential.

BM Sure, but a corporate will always require an accounting or ERP system, but not necessarily a TMS. If we accept your argument, then the need to maintain both an ERP and a TMS creates further complexity. For example, how do you integrate the two, as well as communicate with your banks? What’s more, the boundaries between a TMS and an ERP treasury module are blurring: for example, where do you manage your in-house bank?

JTC For me, the issue isn’t only whether to implement a TMS or ERP system, or a combination thereof. With SEPA and the wider use of XML ISO20022 standards for example, the opportunities to streamline integration between internal and external counterparties, standardise processes and create sophisticated rule-based automated processes such as reconciliation, are now considerable.

BM So then if you look at the growing range of financial technology solutions from both new and established players, where does the bank portal fit in? Achieving simplicity can be complex, and we’re seeing solutions emerge that manage specific treasury functions such as mandate and bank account management, in addition to comprehensive cash and payments platforms.

JTC So the conundrum seems to be no longer about whether technology is valuable in itself but rather on deciding which systems will best support optimised treasury processes and analytics, enabling treasury personnel to spend more time on value-added tasks, and leveraging the company’s balance sheet to greater advantage.

BM I think you’ve hit the nail on the head...after all, we know that you only create real value through strategic thinking and it’s in this way that technology – dare I say it – is disruptive.

JTC So perhaps we need to start thinking of ’disruptive’ technology as an innovation that fundamentally changes a market or function through the application of a different set of values? After all, most disruptive technologies are the culmination of many evolutions, and a touch of marketing. So do we think that ’big data’ and ’the cloud’ are examples of disruptive technology?

BM Both concepts certainly create further opportunities for the treasurer to consider but are the result of many evolutions of IT innovation and improvement. There’s always more than one path to a destination and as that destination is always changing, so technology evolves. I think we both agree that it’s vital for treasurers to ensure their knowledge and awareness of technology options and implementation pathways keep pace with innovation, so that their function stays relevant and is aligned to their business’ objectives.

The TMI Verdict - by Helen Sanders, Editor

Bruce and Jonathon have touched upon a number of elements that many treasurers are dealing with.

Firstly, looking at the ERP vs TMS debate. Very often, as Jonathon notes, the decision to use an ERP for cash and treasury management is part of a wider corporate decision, but the specialist functionality of some ERPs has also developed significantly in recent years. At the same time, TMS have become increasingly cost and resource-effective, particularly through the advent of SaaS-based solutions. Some TMS are now available exclusively as SaaS-based solutions, while in other cases, clients have the choice of installed, cloud or SaaS-based systems.

Bruce also discusses some of the opportunities for automation, and the standardisation that ISO 20022 offers. This is becoming an important consideration for treasurers, both ERP and TMS users, by enabling them to create sophisticated rule-based processes such as automatic reconciliation. These developments reflect the vital relationship between treasurers, technology vendors and their banks. While ISO 20022 is a technical standard, the way in which it is adopted, and the richness of information that banks are able to provide, are critical to its value. In addition, solutions such as virtual accounts are becoming more prevalent, leveraging ISO 20022 formats that allow treasurers and finance managers to identify and reconcile incoming flows more easily.

As Jonathon suggests, the concept of ‘disruptive’ technology is a difficult one. Like many phrases that gain currency in the media, it has become a term with a wide range of associations, from simply describing new applications through to technology that fundamentally changes the way that people think or behave. The ability to use GPS in cars was disruptive, the shift from buying albums to buying songs, and latterly streaming music online was disruptive, as were social media. In the treasury space, the value of technology in the past has typically been to enable rather than disrupt or invert treasury tasks and processes. This by no means downplays the contribution of technology in treasury, far from it, but perhaps represents its contribution more accurately. There are some exceptions. SWIFT is one, by replacing point to point corporate-to-bank connections with multi-bank communication through a single channel globally. Similarly, dealing portals for FX, money market instruments and money market funds could be considered disruptive. There are also disruptive technologies that are having a significant impact on the payments and cash management space, which in turn will affect treasurers and finance managers. Specifically, the use of mobile technology for payments and collections, such as mobile wallet and mobile payment solutions in emerging markets, and the development of mobile-to-mobile technology more widely, is evolving. Over time, these technologies will increasingly change the way that companies collect cash (as an example), and in some cases, the way they interact with distributors and retailers. One outcome amongst many is that the cash collection cycle, and therefore the supply chain as a whole is accelerated and becomes more secure.