Published: May 01, 2010
The past two years have thrown up some popular themes in treasury: manage risk, preserve liquidity, reduce costs and increase efficiency. But there need to be more than platitudes and policy revisions to achieve this: treasurers also need the tools to turn goals into reality.
Lack of technology is a frequent complaint amongst treasurers, with both banks and software vendors often bearing the brunt of client criticism. But are these complaints fair? In very many cases, I would say not. There are plenty of reasons why the tools a treasurer needs to tackle the particular challenges s/he faces may not be required. It may be that the functionality genuinely does not exist. Ten years, or even five years ago, this may have been a valid complaint, particularly when working with smaller banks or vendors. Today, I continue to be surprised at the number of treasurers who are not really aware of what the banking solution, treasury management system (TMS) or enterprise resource planning tool (ERP) that is sitting on their desk can actually do, or what other capabilities may be available from their banks or vendors. Instead of functionality simply not being available, there are more likely reasons that the functionality a treasurer needs is not accessible:
i) The necessary technology does exist, but not at a cost that can be justified for the volumes involved or priority of the requirement;
ii) The TMS or ERP has not been upgraded regularly, so a company cannot take advantage of more recent functionality;
iii) There is a lack of training and familiarity in the TMS or ERP capabilities;
iv) Systems have not been integrated in a way that enables data to be transferred efficiently, completely and correctly;
v) Treasurers have not updated or revised their processes, so they are not using the technology they have in an optimum way.
The most significant technology challenge for treasurers today is to reduce the total cost of ownership of their IT portfolio, whilst responding to changing dynamics within the business.
These are all significant issues, but they point to an important challenge that treasurers face. Putting the time and investment into treasury and financial supply chain technology is not always easy, and having made a considerable upfront investment in systems, finding resource and budget on an ongoing basis is difficult to prioritise. Just as buying a car without learning to drive it, fuelling it or looking after it, however, will ultimately result in a shiny monstrosity sitting on the driveway, buying technology without investing in it is a lost opportunity. However, life has changed since the lottery win-scale technology investments of the past. Treasurers are obliged to ‘do more with less’ with their technology as Ken Dummitt, President, Corporations, SunGard outlines,
“The most significant technology challenge for treasurers today is to reduce the total cost of ownership of their IT portfolio, whilst responding to changing dynamics within the business. For example, treasurers are seeking to maximise access to liquidity, both internally and externally. This includes tapping into alternative means of financing and unlocking receivables. While the trend until 2008 was to rationalise banking relationships, often to a single global bank, this trend has now reversed, and companies are seeking to work efficiently with a diversified panel of banking partners.”
There are a number of important points here. Firstly, as the domain of treasury has spread beyond the ivory tower of a group treasury department, technology needs have also extended across the business to facilitate centralised management of exposures, cash management and funding requirements. Many treasurers I speak to bemoan their lack of ability to communicate information efficiently with business units; however, web-based tools that provide treasury transaction, request and reporting capabilities to business units have been available for ten years from some suppliers (try singing ‘e-Treasury’ to the tune of ‘YMCA’ – it’ll be in your head all day!). The difference today is that internal communication and centralised management of cash, funding and risk has now become a business imperative rather than simply a feature on a vendor’s price list. Paul Wheeler, Managing Director, Wallstreet Treasury, Wall Street Systems exemplifies,
“One of the key challenges that corporate treasurers are seeking to address is how to automate communication between subsidiaries and group treasury. While treasury may have achieved considerable automation within the department, the transaction process is only as efficient as the weakest point. This is the concept behind eCash, which is an easy to deploy tool for two-way communication between treasury and business units, including netting, deal or payment requests, reporting etc.”[[[PAGE]]]
In his earlier quote, Ken Dummitt also emphasises that treasurers’ objectives are moving beyond the traditional domains of cash and risk management into a wider spectrum of activities across the financial supply chain, such as receivables. As treasurers take greater ownership of working capital, this issue is becoming a greater priority in order to enhance access and control over liquidity, source alternative financing and accelerate the cash flow cycle. Bobby Carney, Head of Information Services, EMEA, Treasury and Trade Solutions, Citi concurs,
“Treasurers are seeking to extend discussions on automation from topics such as payments and straight-through processing rates to areas such as reconciliation. Order to cash processes, as well as purchase to pay, require a combination of sophisticated tools and a banking partner that is providing high quality information, such as MT 940 and MT 942 messages, and their XML-based equivalents, in order to increase straight through reconciliation rates.”
Bobby makes a vital point here, however. While the functionality of a system is important, it is simply a conduit or processor of data; the value to the treasurer is the quality and richness of data on which to make financial decisions. There is an increasing focus on data quality and availability, illustrated by the growing interest in XML-based formats (see TMI’s SWIFT Connectivity Guide for more information) but information, rather than simply the tool that provides it, should be a central discussion with banks and vendors.
Anyone who has installed a large TMS or the treasury module of an ERP will sigh in a somewhat exhausted and resigned way if they are asked to do it again. But does addressing today’s business challenges require whole new systems to be installed? Frequently not.
i) Adding services or modules
The first way of enhancing access to system functionality is to make better use of existing system capabilities or add new system modules or services to the technology infrastructure. For example, with internal liquidity becoming a greater priority, more companies are looking to intercompany netting, as Paul Wheeler, Wall Street Systems explains,
“With liquidity at a premium, intercompany netting becomes even more important. This process has often been managed in a bank-provided system which is not integrated with other systems used in treasury. With 10-20% of idle cash caught up in intercompany mismatches, it is vital to integrate and automate the netting process as far as possible.”
Information rather than simply the tool that provides it, should be a central discussion with banks and vendors.
A crucial example of where technology can assist significantly without the need for major investment or implementation effort is hedging, for which many treasurers still rely on spreadsheets, as Ken Dummitt, SunGard illustrates,
“The crisis illustrated the inadequacy of many companies’ hedging programme, with many treasurers finding themselves over- or under-hedged. This has led to treasurers refining their hedging strategies in favour of a more active and specific approach. FiREApps [a specialist tool distributed by SunGard] helps treasurers to identify hedging inefficiencies, by illustrating the root causes of exposure, and can deliver significant value by demonstrating the most cost effective and efficient way to reduce FX costs and risks.”[[[PAGE]]]
With financial supply chain optimisation becoming increasingly important, there are new solutions available beyond the straightforward payments systems, as Ken Dummitt, SunGard continues,
“There has already been significant focus on making payments and to a degree, collections. However, there are further opportunities across the financial supply chain. AvantGard PayNetExchange solution will now offer Check-to-Card Migration Services powered by Virtual Card technology, helping organisations to execute card payments with integrated rebate programmes. In addition to helping companies increase efficiency and transparency in their payment processing, virtual cards offer the potential for rebate accrual.”
ii) Importance of integration
A second key point is that often more important than the systems in place, and frequently a more complex proposition, is to ensure that business processes are appropriate and can be supported using technology already in place. In addition, disparate systems need to be integrated in a cohesive and easily managed way so that data is exchanged completely and accurately between systems. Bobby Carney, Citi emphasises,
“Technology is not an end in itself, but an enabler of centralisation, standardisation and automation. Efficient solutions require efficient business processes, as well as the right technology. Furthermore, technology vendors and banks need to invest and work together to facilitate integration between applications.”
Paul Wheeler, Wall Street Systems continues,
“Selecting and implementing new technology is no longer simply a matter of features and functions, but also of integration. For example, we see clients changing their FX dealing provider to 360T because they can access it through our SaaS [software as a service], even in situations where it adds no specific functionality advantages.”
The continued pressure on banks and vendors from the corporate community will fuel efforts to support and promote XML-based formats, and the major banks are already focusing considerable attention and investment in this area. As with any technology innovation though, the benefit of XML will be seen in its adoption; companies cannot complain on one hand that they do not have the ability to exchange data efficiently, whilst refusing to invest in the adoption of new standards on the other.
In addition to looking at technology within the corporation, another area of significant technology innovation is bank-to-corporate connectivity. SWIFT Corporate Access is proving increasingly attractive to corporate treasurers, not only amongst the largest corporations but to smaller companies that also have multiple banking partners. Efficient bank-to-corporate connectivity, including through SWIFT is another example of where the tools have existed for some time, but the business imperative has grown, as Bobby Carney, Citi outlines,
“Opportunities such as SWIFT Corporate Access and XML-based financial messaging have existed for some time, but over the past 6-9 months, we have seen a steep and trending increase in XML-based traffic and significantly more interest in SWIFT connectivity amongst corporates.”
To facilitate this, service bureaus are increasingly well-equipped to support corporate customers, and SWIFT Alliance Lite, which provides web-based access to certain services through SWIFT is now proving popular, with around 30% of new users this year selecting this option. Just as importantly, the range of services from their banks that are becoming available to corporate treasurers and finance managers is increasing, both for companies communicating with their banks through SWIFT, and those using their banks’ proprietary electronic banking systems. Bobby Carney, Citi explains,
“The current generation of electronic banking tools has ‘squeezed the lemon dry’ with respect to digitisation of basic payment instructions and information retrieval. In the next generation of electronic banking the digitisation frontier is extending to new areas such as electronic bank account management (eBAM) - replacing onerous, paper-based processes and enhancing controls significantly. The business proposition for eBAM is resonating strongly with corporates, and we are seeing a series of important developments in this area, such as SWIFT promoting standard XML formats for eBAM messaging. Citi is an early pioneer of eBAM and we are committed to its success.”[[[PAGE]]]
eBAM replaces manual processes for opening, closing or changing signatories on bank accounts with standard electronic messaging based on XML. There are benefits to both corporate treasurers and finance managers, who frequently spend huge amounts of time and resource on dealing with banks’ different procedures for doing this, and for banks, who can act on instructions more quickly. eBAM messaging is now available and banks and vendors are now allocating considerable resource to enabling this service through their systems. For example, Wall Street Systems recently acquired electronic bank account management system Speranza, as Paul Wheeler, Wall Street Systems explains,
“Speranza has been ahead of its time in automating bank account and mandate management. The concept of electronic bank account management (eBAM) has been held back in the past by a lack of standards. Now that SWIFT is focused on this area, in which Speranza has been closely involved, the discussions about rolling out eBAM capabilities has matured and corporate treasurers are increasingly becoming engaged. eBAM brings considerable advantages both to corporates and banks, reducing paper-based processes and providing greater control.”
The vendor community agrees that ways of using technology are becoming increasingly flexible and accessible.
Just as the ability to communicate with banking partners through SWIFT represents a major step forward in the way that corporates access their banking services, the way that treasurers and finance managers seek to interact with technology is also changing, as Bobby Carney, Citi outlines in Box 1.
The vendor community agrees that ways of using technology are becoming increasingly flexible and accessible, as Paul Wheeler, Wall Street Systems emphasises,
“We are seeing continued endorsement of our SaaS model by medium–sized corporates, but this delivery model is also proving attractive for larger corporates too, which we were not expecting originally.”
Innovations such as SaaS mean that treasurers and finance managers can take advantage of technology more quickly and cost-effectively, with costs more aligned with business value and less implementation effort. Furthermore, as the acceptability of new access models for leveraging technology increases, there will be new opportunities such as use of mobile technology, as Bobby Carney, Citi illustrates,
“Another future trend on which Citi has led the way is mobile enablement of key cash management processes, such as approvals, and we will be rolling out further capabilities to support collections processes.”
The trends that are influencing the corporate financial technology: a shared commitment to common financial messaging standards and integration; new deployment models for technology, bank (and vendor) independence and client-focused technology innovation, will continue to evolve. One way in which we see these trends culminating is in eCollaboration initiatives that combine banks, technology vendors and commercial counterparties through a single network, the extension of today’s portal model. Ken Dummitt, SunGard explains,
“The business-to-business ecosystem has often been described as the most inefficient market in the world. An inefficient market is typically characterised by lack of data and transparency and a high degree of transactional friction cost. The AvantGard EcoSystem Communication Service (ECHOS) is a technology infrastructure that links all participants of the corporate commercial ecosystem on a global basis. By leveraging the SunGard customer base, technology, and relationships formed around the AvantGard solutions for receivables, treasury and payments management, SunGard’s AvantGard EcoSystem Communication Service helps streamline connectivity between corporations, banks and other trading partners to create holistic solutions.”
This model is already building significant momentum, with SWIFT as a major partner.
Collaboration, ease of access and integration will be continuing themes, building on today’s technology requirements, as Bobby Carney, Citi outlines,
“In the future, the ‘more for less’ paradigm is likely to persist and probably accelerate. In a multi-polar global economy, organisations will increasingly be looking for technology to facilitate regional shared services and to enable business transformation and efficiencies. Vendors and banks will be obligated to deliver technology solutions more quickly, with the necessary functionality, flexibility and scalability, and across their clients’ global footprint.”[[[PAGE]]]
Ken Dummitt, SunGard continues, emphasising the benefits of a community approach to technology adoption,
“Looking ahead, we anticipate treasurers’ current objectives evolving further. Reducing total cost of ownership of software solutions will continue to be a requirement, and the need to deliver more efficient liquidity management globally. We will also increasingly see corporate treasurers and finance managers seeking to enhance the efficiency of the corporate commercial ecosystem. For example, we will see SunGard’s partnership with SWIFT continuing to reduce transaction costs and enhance access to liquidity.”
Paul Wheeler emphasises too that evolution rather than revolution will be key,
“During our recent user conference, the feedback from clients is that rather than making broad statements of change, they anticipated a progressive approach to implementing improvements. Integration remains important and in an environment where cost benefit and project success is vitally important, treasurers are seeking to reduce implementation risk. With portal technology emerging in treasury, we are likely to see continued changes to the deployment paradigm.”
Ken Dummitt, SunGard concludes, and also illustrates the importance of new deployment models. These are not easy to deliver and require banks and vendors to invest significantly in breaking down monolithic applications into smaller, more versatile components, but the benefits to the corporate community in reduced cost, easier accessibility and leveraging the size of the community to create economies of scale.
“In the future, vendors will have to step up and deliver full SaaS – while there is a lot of talk about this, current SaaS solutions are, in many cases, simply large applications delivered via an ASP. SaaS has the potential to revolutionise the delivery of software solutions, so that clients can take advantage of the components that they need without the need to install large monolithic applications. Currently, SaaS is being driven by the vendor community, but as a response to clients’ need to derive rapid value from solutions that are specific to their needs. As corporates become more familiar with the potential for SaaS, their requirements become more demanding, such as agency collections. In this example, SunGard has been able to leverage its client base of more than 2,000 blue chip companies to derive better value than they would be able to achieve by approaching the market individually.”
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
