Time to Dump the Swivel-Chair: Embracing New Technology

The adoption and roll-out of innovative technologies in treasury operations is not universal, with many treasurers still functioning with legacy tools, including spreadsheets. While the deployment of technology should never be seen as a panacea, as we will explore, considerable improvements can be achieved with the correct set of upgrades.

From an investment management perspective, treasurers looking to enhance their activities may already grasp the value of cash segmentation, notes Daniel LaRocco, Director, Money Markets, Northern Trust Asset Management (NTAM) Yet, what treasurers may not realise is that assistive technologies are immediately available to help improve the process of ‘bucketing’ cash into operational, reserve and strategic segments.

NTAM’s cash segmentation platform, for example, enables clients to optimise their forecasting and cash allocations, with additional capabilities such as cash flow analysis supporting investors in finding their balance between risk and return.

“It means treasurers don’t have to have all their liquidity in a government MMF; it’s possible to still have a very high-quality portfolio with different sleeves of risk and return,” explains LaRocco. “These could, for example, incorporate government funds at the most conservative end, with a reserve bucket of a conservative ultra-short fund, and a strategic bucket using an ultra-short fund.”

Because allocations to different buckets can be optimised using the NTAM platform’s optimisation toolset, LaRocco argues that technology is already enabling the firm’s treasury clients to maintain a very high-quality portfolio and the best risk-and- reward profile.

But for many other treasurers, telephone dealing is still prevalent in the short-term investment space, notes Ed Lopez, Chief Revenue Officer, Calastone. And all the while this behaviour persists, they believe they can leverage relationships with their closest FI partners to drive the best deals, therefore change may be seen as unnecessary. Given the toolset now available, this is perhaps a missed opportunity.

Platform improvements

Automation in this market, from a treasury perspective, focuses on trading systems. These might be standalone tools provided by brokers or vendor enhancements to existing TMSs. The latter could be upgrades or workarounds for trusted legacy platforms, or part of a natively embedded solution set that deploys sophisticated tools such as APIs, and even AI/ML and blockchain.

Without these advancements, treasurers often have to adopt a “swivel-chair” approach to their short-term deals, comments Lopez. For most activities, the TMS is the system of record, with all decisions based on its data output. However, he notes, TMS functionality in the short-term investing space can be limited to vanilla activities such as cash deposits, “if they have investment capabilities at all”.

To make the most of the short-term markets, it often means literally swivelling to a different system – perhaps a banking or money market portal, or a phone call to a broker. The deal made has to be processed before pivoting back to the TMS to manually key in the data. The trade then needs to be settled, so it’s back to possibly another banking portal, before returning to the TMS for more manual keying.

Automation of some of these processes is now being delivered by some TMS vendors, with the need for access to different portals negated, and the ability to track settlements within the TMS now possible. Indeed, the level of progress so far by these vendors removes some of the swivel- chair steps through the application of discrete technologies, says Lopez. Other specialised providers, including Calastone, are now taking that journey to the next stage, enabling deeper connectivity between the swivel-chair solution set using APIs.

Risks vs opportunities

The adoption of new technologies must have an outcome that justifies the cost and effort of an exercise of this nature. The argument for these innovations is compelling, says Lopez. “Every time a treasurer makes a swivel-chair movement, there is a risk of introducing human error into the process. Instantaneous processing removes that risk, and it delivers process efficiencies that ultimately reduce the cost of a deal.”

Of course, change can bring its own risks – with new processes and systems often needing to be ironed out over weeks or months, and introducing new technologies to treasury’s short-term investment practices is not immune. But it’s only the implementation process that contains the risk element in this case, says Lopez. Of course, correct implementation is mostly a technical matter requiring knowledge and expertise in that area.

But because one of the main risks eliminated by automation is human error, once the tech stack is built, even processes such as reconciliations can be executed automatically. Correct implementation of technologies such as APIs will therefore ensure the benefits – such as real-time information and data delivered directly where it’s needed, leading to significant time savings – really do outweigh that initial risk.

The adoption of new technologies has, to an extent, a psychological aspect too. There has to be trust in that system once live, otherwise there is little to gain, notes Lopez. As issues go, this is far from a show-stopper. Indeed, he says, this initial phase, where configuration to specific corporate needs, and the deployment of effective monitoring tools, takes place, “is really the only hurdle that treasurers may encounter when moving up to an automated system”.

That said, confidence in the effective operation of any technology-based system must be tinged with realism: there are times when automation may be unsuccessful. For instance, failing to meet a settlement cut-off in treasury and money fund terms can be a significant negative event. “Ensuring the right DR [disaster recovery], BCP [business continuity planning] and failsafe monitoring systems are in place will help mitigate that risk,” assures Lopez.

In practice, however, anecdotal evidence suggests that the frequency of malfunction within a properly configured and monitored digital system will be minimal compared to the number of fails likely to be experienced where manual processing is still relied upon. The decreased risk of a material impact must therefore be a consideration when building a business case to move forward with new technologies and automation.

Making progress

In theory, automation tools, especially APIs, make processes more efficient and reduce the risk of events such as transition failure or file formats or fields being presented incorrectly. However, the reality of APIs is that they are not yet fully standardised. This may present a challenge because one bank or vendor’s published APIs may not align with those of another in a chain, so a treasurer may need to match a number of different formats. This is a technical pain point that requires effort to resolve, admits Lopez. He also notes that sometimes one of the participants in an API chain may not be able to devote the time or resources to developing API connectivity, and must resort to sending ‘old-fashioned’ flat-file data instead. In that chain, the error-risk is thus greater, and overall efficiency is reduced.

It’s worth noting that APIs are not a new technology. Firms such as Calastone have a long experience connecting any organisation using different APIs, and any other form of connectivity. Fundamentally, corporates need a partner with the expertise and experience in connecting different firms in the way they want, in the fastest possible time frame, and without the need for a technology project. Corporates should also make sure that – if a partner is delivering an API for them – it is fit for purpose, otherwise there could easily be time and cost issues later on.

In the end, to those who still believe the adoption of automation in the short-term space undermines the relationship between treasury and its FI partners, Lopez has a straightforward response. “Treasurers can still call up their banks, brokers and other FIs. What we’re trying to do with automation – on both sides – is limit the manual interventions around the trade; technology is only enhancing the relationship, not replacing it.”

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