Published: September 01, 2011
We have reported extensively in TMI how liquidity and risk management are now firmly established as treasury priorities, with treasurers now taking a more prominent role in their company’s management team. We also know that their relationship banks have an important role in facilitating the information, transaction flows and financing solutions that treasurers need to fulfil these responsibilities. Less attention has been given, however, to the tools that treasurers are using to realise their treasury objectives, specifically the treasury management system (TMS) that typically forms the core of their infrastructure.
This article features the views of three of the key TMS vendors: SunGard, IT2 and Thomson Reuters on how client demands and opportunities are evolving, and the likely functional and technical future direction in the TMS market to address these.
Putt’s Law states that, “Technology is dominated by two types of people: those who understand what they do not manage, and those who manage what they do not understand.” Since the financial crisis in particular, treasurers are trying to prove this law wrong, by managing what they truly do understand. As the need for effective liquidity and risk management has been accentuated, this in turn has led treasurers to seek greater confidence in the data that forms the basis of their decision-making. This has been the fundamental driver behind many technology projects over the past year or so, as Paul Bramwell, SVP, Treasury Solutions, SunGard explains,
“We are still seeing the fallout from the global financial crisis as clients go ‘back to basics’ to optimise visibility and control over their cash and risk. Large and smaller companies alike are putting rigorous processes in place to consolidate data and processes to ensure that decision-making is based on integrity and timeliness of information.”
Putt's Law states that, "Technology is dominated by two types of people: those who understand what they do not manage, and those who manage what they do not understand."
Yan de Kerland, Head of Product Management, Corporate Treasury, Thomson Reuters agrees, and emphasises too that as exposure and cash flow data is generated across the business, there needs to be a robust and convenient means of accessing this data,
“Cash flow efficiency and working capital management are amongst our clients’ key priorities. Since the global financial crisis, easy access to credit has become a distant memory, so it has become even more important for treasurers to ensure that the right amount of cash is available, at the right time, in the right currency and in the right place. Consequently, treasurers are seeking better visibility and control over cash, which often means providing remote access to business unit users, using a tool such as Thomson Reuters’ KTP Web, so that treasury can manage cash at a group-wide level, such as acting as an in-house bank.”
Kevin Grant, CEO, IT2 Treasury Solutions emphasises treasurers’ focus on risk management,
“Over the past year or so, risk management has become a major focus of demand amongst corporate treasurers, who are using new metrics, e.g., credit default swaps, for measuring counterparty risk. To support this, we have opened up our reference data for risk management, so that our clients can integrate whatever metrics or reference data they wish in order to manage their counterparty risk effectively.”
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As Paul Bramwell, SunGard discusses, however, treasurers’ risk management emphasis is less on sophisticated techniques than it has been in the past, and more on ensuring that they have a robust basis for decision-making,
“Before the crisis, larger companies in particular were introducing complex risk management practices, but since then, the focus has shifted to more transparency and control over the underlying data.”
Treasury technology also has a vital role in facilitating centralisation of cash and treasury management activities, which continues to be an important trend, as Yan de Kerland, Thomson Reuters outlines
“Cash pooling and centralisation has been a trend for a number of years, but over the past three to four years, we have witnessed an acceleration. While in the past, treasurers may have focused on developing efficient integration across major treasury hubs and subsidiaries, they are now seeking to connect all of their business units so that they have a global view of cash and risk.”
Kevin Grant, IT2 agrees that the nature of centralisation has changed, with technology facilitating a more regional approach, whilst maintaining a single, complete view of cash and risk,
“Clients globally are seeking to federalise their treasury activities into regional treasury centres, so they can take advantage of local expertise. This trend differs from that of the early 2000s when treasurers were typically seeking to centralise treasury on a global basis. Now, they are using technology to normalise their business processes and allow regional autonomy, whilst ensuring complete transparency over global treasury operations, cash and risk management.”
While many of the functional requirements remain the same as five years ago, clearly accessibility of data has become a far greater priority. Historically, many treasurers’ project objectives centred around operational efficiency; today, while this remains a major factor, treasurers increasingly recognise that efficiency drives greater data integrity and therefore facilitates strategic rather than purely operational goals. As Yan de Kerland, Thomson Reuters suggests,
“Large treasury technology projects with sizeable budgets are clearly more likely to attract senior management attention, involvement and objectives, whereas smaller projects are typically more operationally driven. However, increasingly, treasury technology projects are delivering the tools that enable treasurers to protect the company’s balance sheet, touching on liquidity, funding and investor relations which therefore also involve accounting, consolidation and tax departments.”
Bearing in mind the increasingly global nature of treasurers’ treasury management requirements, and the growth of new multinationals headquartered in regions such as Asia, it is perhaps surprising that there is such a small number of TMS vendors active in Asia. Apart from addressing the mature markets of Australia and New Zealand, and supporting regional treasury centres in Hong Kong and Singapore, few TMS vendors have struck out into other Asian markets. Kevin Grant, IT2 exemplifies,
“While China and other parts of Asia are very important to us, our ambitions are more to support our global clients in these countries as opposed to pursuing new sales opportunities in the region. We continue to invest strongly in our Hong Kong operations with a view to completing successful regional implementations and securing a strong reference base for other multinationals with a global presence.”
Clients globally are seeking to federalise their treasury activities into regional treasury centres.
Others, such as SunGard, which has had a wide geographic footprint for many years, are actively engaging new clients not only in China but other emerging parts of Asia. Paul Bramwell, SunGard explains that these companies often see the implementation of a TMS as a key element in their international growth strategy and the development of best practices,
“In central and north Asia, such as China, companies are seeking to accelerate the development of their treasury departments and the technology on which they are based. Without the legacy systems of many of their North American and European peers, these companies are often able to ‘leapfrog’ these companies and adopt highly sophisticated systems and automated processes. Consequently, we are seeing significant growth in China and other Asian markets both amongst foreign multinationals and companies headquartered locally.”
The diverse background and business environment of companies in Asia leads to a slightly different approach to technology adoption than that of companies headquartered in North America and Europe, as Paul Bramwell, SunGard continues,
“While the functional needs of companies in China are similar, their priorities may be different. For example, while reducing headcount or redeploying resources from manual to more strategic tasks may be an objective for many clients, this is less frequently the case in China where there is a greater emphasis on maximising employment for a large population.
“Control is an important consideration, however, and it is often necessary to implement 10-15 levels of approval prior to a transaction and a further seven or so post-transaction, as processes often replicate existing manual processes. However, visibility of cash, cash flow and risk management efficiency remain priorities, particularly as companies expand internationally.”
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Most companies operating across regions work with multiple banks, particularly in countries that have a less developed financial infrastructure, where it may be necessary to work with local banks for regulatory or coverage reasons. It has been a long-standing challenge for these companies to reduce the cost, complexity and inconvenience of maintaining different interfaces for each bank, and supporting the various file formats that each bank requires.
We are seeking significant growth in China and other Asian markets both amongst foreign multinationals and companies headquartered locally.
In recent years, there have been significant market developments to address this challenge. For example, SWIFT connectivity is now becoming popular amongst larger multinational corporations, as illustrated in the TMI SWIFT Connectivity for Corporates Guide, published this month. While there are options available to support smaller companies, such as AllianceLite, progress still needs to be made to enable a wider spectrum of companies to take advantage of SWIFT.
In addition, we have seen the introduction and refinement of a new technical standard, ISO 20022, an XML-based format on which SEPA payment instruments are based. This facilitates greater standardisation of file formats for payments with growing consensus amongst banks and vendors about how the standard should be deployed. However, while most TMS vendors are now experienced in supporting SWIFT connectivity, some banks have indicated that not all vendors are yet able to support ISO 20022 beyond SEPA, and argued that this has been one of the factors hindering adoption. Kevin Grant, IT2 argues that this is not the case,
“XML has been an important requirement amongst our clients for a couple of years now. IT2 has been designed as a hub for the consolidation of global financial information, so integration has always been important; consequently, we work closely with SWIFT and ERP vendors. We encourage our clients to use secure integration wherever possible rather than manual import or export routines.”
Paul Bramwell, SunGard suggests that there is probably still more talk than action regarding ISO 20022, and that it is banks, rather than vendors, that are not always prioritising standardisation,
“ISO 20022 is on the cusp of becoming a relevant issue for corporates, but this has been the case for some time. A standard format will clearly deliver value, but to be successful, it needs to be a priority for all of a company’s banks, which is not yet consistently the case, despite the regulatory push towards adoption through SEPA.”
Vendors also argue the same situation for eBAM (electronic bank account management) with a number of providers now promoting eBAM solutions, but they stress that there is not yet sufficient momentum from the banks to realise the concept. Paul Bramwell, SunGard summarises nicely,
“Everyone is ‘Ready’ – SEPA-ready, eBAM-ready, XML-ready, but being ‘ready’ is not the same as proactively pushing functionality out to clients.”
Just as companies from a wider geographic reach are demanding sophisticated TMS functionality, so too are smaller companies for whom liquidity and risk management are important, but who lack the budget and resources for major systems acquisition and implementation. As Yan de Kerland, Thomson Reuters says,
“Smaller companies in particular are seeking more flexibility from a technology deployment and licensing perspective which enables them to take advantage of sophisticated technology that may have been out of reach in the past.”
Paul Bramwell, SunGard illustrates that there are now more options available to these companies, with various deployment alternatives now offered by many TMS vendors; however, it is important to understand exactly what a vendor is offering,
“Barriers to entry are lowering, particularly with significant ASP deployment. This acronym is often misused and used variously to refer to hosted or multi-tenant solutions, or a combination. As software as a service, or software on demand, clients typically pay a monthly fee as opposed to an upfront licence fee, which is often easier for treasurers to justify rather than applying for capital spend. This approach helps smaller companies in particular to take advantage of treasury management functionality that they may not be able to access otherwise.”
For example, a hosted solution is one where the vendor manages the server and database on behalf of the client, but the company still has its own database, and could insource the management of the system if required. A multi-tenant solution, often licensed for a monthly subscription, and typically accessed via the internet, means that a company shares the database with other companies (although this is segmented in terms of user access and reporting). This means that if a company decides to change systems or insource the system management, they will need a new system and licence, and the database cannot be transferred.
Kevin Grant, IT2 continues,
“We adopt a consultative sales model to design solutions for our clients that meet their functional, technology and commercial requirements. There is significant talk about ASP, SaaS and cloud solutions, but with no clear definition for the industry, use of this terminology can be confusing. Consequently, while we provide a range of technology deployment options, we prefer to design specific solutions based on clients’ needs, whether hosted by IT2, self-hosted or hosted by a trusted third party.”
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He continues, however, by urging treasurers to be realistic about a deployment and licensing model that is appropriate,
“Subscription-based licensing has a place, particularly amongst smaller companies that may have longer-term aspirations, but effectively a supplier is financing its clients’ acquisition of technology; consequently, clients should not expect preferential licensing terms. Furthermore, this model is typically not suitable for larger, more complex treasury departments where the supplier relationship and support terms are important. Suppliers also need to be cautious about the licensing model they employ in order to ensure sufficient ability to invest in their product in the future.”
Technology can no longer be monolithic, but must support flexible deployment as well as licensing.
While TMS functionality has not developed significantly over recent years, data accessibility and control, technical deployment options, remote access and integration have been major elements of vendors’ investment plans. As Kevin Grant, IT2 explains, much of this is due to the fact that although the emphasis and priority may have shifted, the fundamentals of treasury remain unchanged,
“Although the immediacy of the issues of liquidity and risk management has increased, treasury is still governed by the same principles of preservation of cash, ensuring accessibility and securing a return. Consequently, while functional priorities change, the fundamental needs of treasurers remain relatively constant.”
Yan de Kerland, Thomson Reuters notes the importance of timely, robust and easily controlled data in achieving treasury objectives,
“To manage liquidity and risk effectively, our clients are demanding more advanced reporting tools that allow them to manipulate data, enhance workflows and systems that run background processes to highlight exceptions in real time. Consequently, we are investing heavily in flexible, dynamic reporting tools and dashboards.”
Paul Bramwell, SunGard adds that on-going technology evolution will continue to drive business changes, not only in the deployment of solutions within a business, but also the way in which services can be accessed and delivered,
“Looking ahead, the trend towards centralisation is likely to continue, leveraging new thin client technology to facilitate streamlined deployment. In the past, many companies were satisfied with different systems or databases in regional treasury centres with data then consolidated, but treasurers now want common systems, processes and immediate access to global cash and risk information.
“Risk management will continue to be a priority, and treasurers recognise that timely, high-quality data is essential on which decisions are then based.
“From a technology perspective, cloud computing will continue to grow in importance: SunGard is unusual in this industry as we have our own cloud. We also see outsourcing of certain tasks becoming increasingly popular, such as retrieving bank balances, reconciliation, sending payment files and managing user profiles such as resetting passwords. With considerable interest already in this type of service, we expect it to expand further in the future.”
Yan de Kerland, Thomson Reuters concludes,
“Looking ahead, treasurers’ functional priorities are likely to continue on the same trend i.e., cash and working capital efficiency, and risk management, including commodity risk management. The quality of reporting and cost efficiency of treasury technology solutions will also remain important. What is likely to change is the way that this functionality is delivered, with vendors moving from the delivery of systems to provision of services. Technology can no longer be monolithic, but must support flexible deployment as well as licensing, so that adoption can be tailored closely to the functional, technical, integration and commercial needs of each client.”
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