Looking Behind the Cloud: Understanding the Technology of Treasury

By Hugh Russell, Regional Sales Director, North America, BELLIN

How do you choose a treasury system? Understanding differing technologies is often outside of the scope of the treasurer so they turn to standardized RFPs which, for all their good intentions, are often clunky and outdated. I hope to shed some light on the technology surrounding treasury and how these affect your processes, security, and compliance, so you can make better decisions.

What is SaaS?

The current trend in treasury systems is Software as a Service (SaaS). Many of you have likely heard the term, but may not know the underlying differences between the various varieties of SaaS. I will do my best to explain these differences, as they can have far-reaching impact on the overall capabilities of the system you ultimately choose to implement.

SaaS stands for “Software as a Service.” But there isn’t just one type of “SaaS” application model. There are two main types, single-tenant and multi-tenant, and the argument about which is better has been a subject of debate online since conception.

You can see that a single tenant system makes sense in small volumes of highly specific clients, while the multi-tenant system makes sense in high volumes.

Cloud Environment: Rented vs. Vendor-designed Physical Environment

The next consideration goes beyond the application itself and looks at the architecture that lies beneath. Not all SaaS providers manage their own infrastructure, as it requires specialized knowledge and a significant investment to put in place. If a vendor rents their environment, the underlying physical infrastructure is managed and maintained by a third party. There are two major benefits to customers of vendors who have setup their own infrastructure:

• They can design it specifically for the application
  If the application needs more computing power, memory or storage, the whole environment can be tailored to fit.
  
  
• Greater data redundancy
  Most hosting providers don’t go to the extra step of ensuring all data is replicated in real-time to a geographically separate datacenter, but that is what’s required for a treasury platform that’s connecting to banks to execute hundreds or thousands of payments.

Such redundancy means each packet of data gets mirrored to an datacenter in a separate location in real time. This way, if something goes wrong, you won’t lose a byte.

Another consideration is where the datacenter is. If you’re a treasurer in Switzerland, you probably don’t want your data going into a system hosted all or in part in the US, and subject to the PATRIOT Act.

How will my TMS connect to other systems?

Do you want your treasury to be able to connect to your ERP systems? Trading platforms? Banks? This is all possible. To connect to ERP systems, most can use SFTP and have tools for transforming CSV files into whatever is needed. While there are no clear standards for connecting to trading platforms, tm5 provides direct connections to 360T, FXall, Bloomberg and more. Formats for connecting to commodity platforms include CSV, proprietary formats, platform-specific XML, and SFTP, FTP, proprietary transfer software, or manual file handling for transport. For bank connectivity, SFTP and ISO 20022 XML is quickly becoming the de facto standard. For multiple banks, SWIFT is your best option.[[[PAGE]]]

Here’s how our communication system works:

  Click image above to enlarge

Communication between treasury system users and the TMS happens over the web from the corporate office and from external/mobile devices. Communication between customer systems (eg. ERP system) and the SaaS treasury management system is normally file-based using encrypted files and SFTP.

For payments, we set up direct connections with individual banks, or leverage the SWIFT network, and can send/receive files through them directly into the treasury system.

We like this system because it requires no “holes” in the corporate firewall. The SFTP server routes files from/to the treasury application, information going to third parties are sent to a separate secured server, routing and format are determined via logical rules, messages are formatted and sent instantly or on a schedule. Simple, secure, and powerful.

Looking to the future

The “network effect” says that a network is more valuable with more users. We believe this also applies to treasury systems, and it’s going to be integral to the future of treasury. As treasury management systems add more and more functionality, the opportunities for collaboration between different users expand. If the goal is to have as much information in it as possible, in order to give a complete global picture as possible, you need to add more users to the system.

Unfortunately there has always been a barrier: Cost. Terminal based workstations make it prohibitively expensive to have more than a limited number of users. But, with a web-based system the cost to the provider is the overall cost of hosting the data, and the bandwidth required for all of the connections that are made, not the users.

The next step in treasury is going to come when we start thinking about the treasury as something that exists across the corporate group, not just a department in a back office at HQ. But we’re not going to see that until vendors finally see that the cost of having unlimited users is far outweighed by the benefit to their clients.

It’s not rocket science

Making a choice about a treasury system requires some knowledge of the technology available, so as to understand how technology affects processes, security, and compliance. There are a multitude of options available to you at varying levels of technological complexity that can enable, protect and assure that your treasury is on the right track. And, when moving from spreadsheets to SaaS, the technology you choose can limit the treasury department to the back office or turn it into the glue that binds your entire corporate finance department.