Automation is making inroads into corporate treasuries – but according to Calastone’s Chief Revenue Officer, Ed Lopez, much more work needs to be done to modernise treasury management, reduce costs and human error, and meet new compliance and ESG standards.
Treasury management tools are now part of the fabric of corporate treasuries. Few dispute that the right TMS can be a huge asset to the treasury leaders. But critics say the technology still falls short in areas such as short-term investments and integration with counterparties.
Ed Lopez Chief Revenue Officer, Calastone
To discuss how treasurers, TMS vendors and financial services providers can work together towards a more integrated and automated approach to managing short-term investment needs, several industry experts recently participated in a webinar hosted by TMI.
An early poll question asked the audience what they thought the best investment tool for treasurers is, out of the following options: a full-featured TMS, a TMS add-on module, a solution using individual portals, whether from fund providers or banks – or none of the above? As the treasury world becomes progressively more automated, this is an increasingly pressing question, and one that different organisations are answering in different ways.
Whatever the solution, and despite the increasing sophistication of the TMS market, there is still more integration work to be done: integration to connect systems with processes for cash management and short-term investment, and integration with banking portals, and integration with banking and MMF portals.
Treasurers need to be able to trade and make settlements and get that data right back into the TMS. As much straight-through processing as possible is required. For most companies, the TMS ultimately needs to be the book of record.
Roger Comins Formerly VP, Product Management, GTreasury
Roger Comins, formerly VP, Product Management, GTreasury, echoed this view, adding that the key enhancement needed is what he calls “curated workflows” along with automated reporting and accounting. “We need workflows that will go from identifying excess cash, through to short-term investment options, placing a trade and then through to settlement.”
There were also defendants of the ‘none of the above’ option. Some treasurers don’t see the immediate need for an integrated investment process as part of their treasury technology.
Jeannot Jonas, Assistant Treasurer, Carrier, said one of the reasons was simply that market conditions don’t warrant it. “We don’t have the investment process automated,” he said. “We could have done it, but the fact is that the usual short-term instruments are not yielding an attractive interest rate – and as a highly leveraged entity we need some interest income to offset our interest expenses. So all our short-term cash is in timed deposits with US banks, as well as interest-bearing accounts.”
Outside timed bank deposits, MMFs are the most liquid of all short-term investments, and many treasurers do want an integrated and automated investment process, irrespective of market conditions. Which technology provider should they consider integrating with? And what will the structure and workload of such integrations look like?
Jeannot Jonas Assistant Treasurer, Carrier
When it comes to automation for the type of short-term investments that many treasurers in larger corporates are likely to need, Jonas stressed that value will come if the TMS can handle a two-way flow of instructions and information, and do it with minimal manual input. “A real automation solution means I propose an investment directly into the TMS,” he said. “It communicates with the relevant platform and all the confirmation data comes back into the TMS. Then everything resides there in a way that satisfies the auditors and guarantees the relevant postings are made in the journals.
“It’s about the best use of team time, maybe it’s only a few minutes at stake, but even if you are only saving minutes on a process those minutes soon add up.”
Alongside TMSs and portals, there are integrations with relationship banks to be considered if treasurers want a fully automated solution that will cover cash management and foreign exchange as well as investment. But should treasurers be building TMS integrations around specific banks, or is it better to be bank agnostic?
According to Jonas, that largely depends on how many bank relationships treasury needs to support. “If you are going to automate and integrate, you would have to put all your relationship banks in the TMS to provide everyone with a fair share of fees. It’s a large workload to set up those interfaces, so when it comes to FX transactions, large companies like Carrier are likely to prefer a bank-agnostic platform. That way, if you change your relationship banks you don’t have to give up the platform.”
Regarding successful integrations, all agreed that the quality of partnerships is critical – and many treasury professionals will know that integrating digital treasury management tools with existing internal infrastructure and with external providers can be a long and arduous business.
James Griffin Director, Head US Money Market Services, Calastone
James Griffin, Director, Head US Money Market Services, Calastone, reminded the audience that integrations don’t happen of their own accord: they demand strong partnerships and open IT architecture. Even if treasuries don’t have the most modern technologies in place, what really counts is being able to adapt and bridge what they do have through agnostic API connectivity, and overcome the barriers to integration.
Committed partners certainly go a long way to enable rapid and successful integrations. With the right partners treasuries can have automation and can create those curated workflows. As Comins said: “We’ve come a long way. This whole industry has been built on batch file exchanges, so you’d end up spending time on things like decisions about which file format is best. Today, all of that should be out-of-the-box, more like a one- to three-day implementation workload.”
That is a reminder that implementation barriers are not only a cost and time issue; they are also hurdles to innovation. Automating the investment process also reduces risk. If we can eliminate all those elements that we call the ‘swivel-chair’ steps – logging on to one system then logging on to another system, and maybe manually transposing those into the TMS – then we can reduce human error. We also gain real-time access to information and people can focus on adding value instead.
Comins agreed that risk and cash visibility are areas in which automation has to provide more value. “We need to be able to look at currency risks, interest-rate risks, and counterparty risks,” he said. “In the end, the TMS will have to bring all that together.
“In fact, what we should be aiming for is for treasury technology that delivers something closer to what we already have in our consumer lives: a world that can be managed by one or two clicks. We need to be able to reproduce the kind of functions that consumer APIs already deliver, things like real-time, on-demand access to data, and all done through very secure integrations.”
ESG is a huge part of the corporate conversation today. It has relevance across many areas of treasury, including in the short-term investment space, which was reflected in the discussion.
Griffin pointed out that ESG will increasingly be integrated into how treasury operates. “The first thing we must recognise is that ESG is no longer just a buzzword. Clients now have ESG commitments running right through their operations, and as treasury technology providers we need to look at how we can offer value here.
“Corporate clients want to integrate ESG into day-to-day operations and they need to be able to show the C-suite how they are adding value from a treasury perspective. I think we are going to see a lot more of this. I believe corporates are increasingly going to want to be able to screen out investments that don’t fit. It’s a very exciting area.”
The debate was rounded off with a strong note of optimism from the panellists about the emerging capabilities of the automated treasury. The industry may not be all the way there yet with all the integrations that treasurers need, but things are moving in the right direction. So many pieces of the puzzle are already in place, and the right partners can help minimise integration challenges.
Delivering what is needed is possible, and it is within reach.
