Published: October 01, 2013
Every year, we feature a cover story in TMI on the subject of treasury management technology and every year it becomes more difficult. In some years, speaking frankly, there has not been much that is new to say. This is by no means the case this year. One of the challenges this year is to distinguish between what technology is used for (i.e. the functionality it provides) and how it is deployed, particularly the use of cloud-based solutions. The growth of cloud-based computing is a positive development in treasury, in that we are seeing significant innovation that is facilitating treasurers’ expanding role; however, it is important not to get lost in the hyperbole surrounding ‘the cloud’ and focus instead on what each treasury needs to fulfil its strategic and operational role in a secure and efficient way.
So what is cloud-based computing (in a treasury context) and why has it become such a talking point? Essentially, cloud computing refers to web-based applications (in this case treasury management systems or TMS) that are hosted on a remote server, with storage, management and processing of data typically undertaken by a specialist third party. Cloud computing is not synonymous with web access: a system could be hosted within the organisation, but users can access the system via the internet or an intranet.
There are two types of cloud-based TMS. The first is a hosted or managed solution, which may also be referred to as an ASP (application service provider) solution. This is hosted and managed by the vendor or a third party, but treasury has its own dedicated technical environment and database. The system and interfaces to other internal and external systems are typically configured according to the needs of the individual treasury, with full control over the timing of upgrades and other system changes. Managed solutions reduce the amount of IT resource that is required compared to hosting and maintaining the hardware and software in-house, therefore making it more feasible for treasuries that require sophisticated systems but that wish to avoid the need for significant IT costs and resourcing.
A SaaS model takes the concept of a hosted environment further. The TMS is hosted in a common environment with a shared database, with each company having access to its own data. Upgrades are undertaken by the vendor, without considerable disruption, so users have consistent access to the most current version of the software. Links to other commonly used systems such as electronic banking, rates providers and confirmation matching are managed centrally, providing users with access to a range of ancillary tools without the inconvenience of managing multiple systems. SaaS solutions offer particular advantage to those for whom a TMS has appeared an unrealistic option in the past, or who may not be able to justify the cost and resource requirement to implement a system with the degree of efficiency, automation and sophisticated reporting and decision support that they require. As with hosted solutions, SaaS solutions are often considered favourably by both IT and treasury as the need for internal hosting and management is eliminated. Justin Brimfield, EVP, Corporate Development, Reval outlines,
“The relationship with IT and treasury is more aligned now than I have ever seen them on the best way to serve treasury’s needs, whereas in the past there has been some friction. SaaS technology meets the needs of both IT and treasury whilst supporting and facilitating treasurers’ expanding role and greater impact within the company.”
Furthermore, SaaS solutions are typically offered on a rental basis as opposed to a license fee, avoiding large upfront costs. Marcus Hughes, Director, Business Development of Bottomline Technologies emphasises,
“All of the functional developments we anticipate will take place in the cloud as this increasingly becomes corporates’ preferred deployment method. While banks have been a little slower to adopt cloud-based technology, corporates see the benefit of outsourcing systems management, hosting and data transformation to a reliable, stable vendor. Subscription based pricing models are also becoming more popular, removing up-front fees.”
The benefits of cloud computing are now emphasised by most TMS vendors. As Paul Bramwell, SVP, Treasury Solutions, SunGard Corporate Liquidity explains,
“Treasurers rarely have the time or inclination to focus on treasury technology, resulting in considerably more interest in cloud-based solutions, whether hosted or SaaS. This is a positive trend for many reasons, not least as treasurers can make their technology decisions based on the functionality they require and the level of service provided by the vendor, as opposed to the technical fit within their organisation.”
Vendors are distinguished, however, between the exclusive use of SaaS (e.g. Reval and Kyriba) and a choice of installed, hosted and SaaS solutions (e.g. SunGard). Put like this, readers will perhaps wonder why SaaS deployment remains such an emphasis amongst vendors, and I am inclined to agree. Paul Bramwell explains SunGard’s strategic decision to continue to offer customers a choice of deployment methods,
“While SaaS solutions offer considerable benefits, they do not suit every organisation, particularly if it is important to keep data within the company’s firewall. Consequently, at SunGard we enable customers to install our solutions if they wish, we can host and manage it on their behalf, or we offer SaaS- based solution. Users still benefit from web-based access to our solutions, whatever deployment option is preferred, but a choice of deployment methods offers far greater long-term flexibility than SaaS alone. An example here is a company that is acquired. Maybe they currently have SaaS-based software. Now they are acquired by a company that has strict policies on keeping certain data within their firewalls. This company would need to have the flexibility to pull that data in, or redeploy software that would be located on-premise. This is just one example of why we feel that flexible deployment options are so important.”
Vendors such as Reval that are pursuing an exclusively SaaS-based strategy argue that SaaS offers associated advantages that installed or managed solutions cannot, such as the development of a community, as Justin Brimfield, Reval details,
“Technology is a vital enabler of the major trends we are seeing in treasury: the expanding role of treasury, internal relationships e.g. with business units and procurement and the growing demands of regulation. The push towards SaaS-based technology is key to this, not only from a cost-effectiveness standpoint, but also from the perspective that companies stand to gain a lot of value in being part of a community of users that operates off the same, one-to-many model. New developments benefit all users, and as these are delivered promptly, rather than slowly, client by client. Treasurers don’t have to wait for major upgrades, but can take advantage of new opportunities quickly.”
Personally, I will be relieved when discussions about the value or otherwise of SaaS vs. hosted vs. managed solutions disappear. Bearing in mind that most vendors now offer a SaaS-based solution (either exclusively or as an option), it is becoming far less of a differentiator, and for treasurers for whom a SaaS-based model is not feasible or desirable, it is not relevant at all. Enrico Camerinelli, Aite Group explains,
“Cloud-based technology [referring to SaaS] has moved beyond the domain of early adopters to mainstream adoption; this is an intrinsic part of the TiMS (treasury intelligence management system) concept that Aite Group has coined. By accessing services in a cloud-based environment, treasury can add components as its needs evolve without displacing existing functionality and that it might not otherwise be able to afford.” [[[PAGE]]]
While cloud-based computing will continue to be a trend, managed or hosted services will continue to grow alongside their SaaS counterparts, not least as organisations have diverse IT policies, culture and degrees of treasury sophistication. What is likely to develop, however, is the concept of a treasury portal for accessing a wider range of services and functionality than is traditionally the domain of a TMS. Bank connectivity (whether through SWIFT or through direct banking connections) is one such service. As Enrico Camerinelli, Aite Group exemplifies,
“We saw two important announcements at Sibos that have implications for corporate treasury. First was that Bellin are now embedding a SWIFT plug-in to their application. Second, Kyriba announced a partnership with CGI to integrate trade solution CGI Trade360® into the Kyriba Enterprise platform. These are important illustrations of how TMS vendors are evolving, not just addressing ‘core’ treasury requirements but the wider challenges that treasurers are experiencing, particularly as their role expands into new areas.”
Martin Bellin, Founder and Managing Director of BELLIN GmbH discusses,
“The concept of a treasury workstation has become outdated in favour of a treasury portal that enables participants in treasury activities to access the system from wherever they are, and to integrate with a range of ancillary solutions such as transaction execution, confirmation matching and bank connectivity. At Bellin, for example, we recognise that we cannot be experts in every aspect of treasury technology. Consequently, we invite vendors that are expert in their field to connect with us, as we have done with PwC, for example, which provides its treasury analytics reporting tool through our platform.”
Treasury portals are not a new idea, but the concept of a portal is difficult to deliver if the core TMS is installed in a customer location as opposed to being managed by the vendor. Consequently, most portals that we have seen until now have been transaction-focused, such as online dealing portals and SWIFT’s Alliance Lite 2, as opposed to offering the workflow and analytic capabilities of a TMS. The ability to access multiple services through a single channel is often very appealing to treasuries of all sizes, not least to address the frequent challenges of integration. As Justin Brimfield, Reval discusses,
“There is barely a conversation in treasury that does not discuss integration. If treasurers had a magic wand to solve one treasury issue, it would very often be integration. In the past, concerns about integration related mostly to operational risk; but today, many treasurers are taking this thinking a step further, leveraging easily configurable, all-in-one SaaS platforms that come with key external solutions already integrated. With this kind of seamless connectivity, treasury groups have more time for analysis and strategic execution.”
The need for effective integration is not restricted to external partners: communication with internal counterparties is equally important, particularly as treasurers expand their involvement and influence into the working capital cycle. Martin Bellin, BELLIN illustrates,
“A philosophy we have had for a number of years at Bellin is to find ways that allow treasurers to collaborate more effectively with subsidiaries. An essential means of doing so is to provide technology solutions that support subsidiaries in their day to day business. For example, if all parts of the business are using a common payments platform, then it is easier to enable co-operation. To enable this strategy, we have connected a number of major international banks and formats to our platform, but we recognised that there was still limitations in connecting to local banks. Consequently, we engaged in discussions with SWIFT which have led to Bellin becoming the first vendor to be able to embed SWIFT connectivity within our application.”
Despite the potential to access multiple services through a single channel, a portal approach will not solve every integration challenge in the short term. Host-to-host bank connections, complex interfaces to multiple ERP systems etc. will all continue to create bespoke integration requirements. One initiative that is helping to standardise integration is ISO 20022, the format used for SEPA payment instruments. Marcus Hughes, Bottomline suggests,
“ISO 20022 is becoming pervasive in payments and is now well positioned for global adoption, rather than simply a SEPA standard. At the heart of this drive is The Common Global Implementation (CGI) initiative, under which major banks, SWIFT and software vendors are collaborating to make it easier for large corporates to streamline their bulk payments and cash management globally by using ISO 20022. This is proving an increasingly valuable tool for treasurers to standardise and streamline their financial processing and integration.”
However, there is no cause for complacency. Countries such as Germany, Italy, Spain and Portugal have already introduced variations on the CGI standards for SEPA payment instruments. Variations between countries, banks and payment types undermine the value of a regional or global standard. Without genuine commitment and practical efforts towards standardisation from all parties, there is a very real risk of fragmentation and yet another missed opportunity for easier integration and greater completeness and quality of data.
Integration has been an issue for as long as TMS have existed, but the need for effective integration has never been greater. Much is said about treasurers’ growing profile within the organisation. This is not to say that treasurers are suddenly leaping into the unknown. Rather, they are typically extending their responsibilities further into areas in which they already have proven expertise and systems, such as bank relationships and connectivity. They are also taking greater control over working capital levers such as payments and collections and optimising end-to-end processes. As Paul Bramwell, Senior Vice President, SunGard Corporate Liquidity outlines,
“As treasurers’ profile increases, they are becoming more involved in areas in which they have proven expertise, such as payments and bank connectivity. In some cases, they are advising and influencing projects such as payments factories; in others, they may sponsor these projects.”
However, they are not doing so alone, nor are they are using their existing TMS to manage all of these responsibilities. In most cases, the issue is how best to integrate solutions at different points in the working capital cycle and how to gain a central view of liquidity that will enable treasurers to make decisions and recommend improvements to the working capital cycle. The TMS has a central role in facilitating this central view. In some respects, this means that treasurers need access to a wider range of functionality and working capital analytics. On the other hand, although these areas of influence or responsibility are new for some treasurers, the need for fundamental data that has always been core to treasurers’ role remains, such as cash visibility. Marcus Hughes, Bottomline emphasises,
“The first challenge that treasurers are typically looking to address is cash visibility. This may seem basic, but it is a core requirement that many companies still lack. Visibility over cash globally is a prerequisite as treasurers extend their role into strategic areas such as working capital management. At that point, treasurers can then take control over working capital levers, such as DPO and DSO, particularly as financing is becoming more expensive under Basel III.”
It could perhaps be argued that technology has failed to deliver on this issue in that achieving cash visibility as a high a priority today as it was ten years ago. In its defence, one of the issues is that treasurers’ expectations (and demands) continue to increase. Justin Brimfield, Reval highlights,
“Looking at bank connectivity, in the past treasury professionals would be happy to simply get visibility into their major bank balances on a periodic basis. Today, they are looking for real-time or near-time visibility across all their accounts.”
Secondly, technology alone cannot create cash visibility; for example, decentralised treasury organisations, fragmented banking relationships, and inefficient internal processes all contribute to the challenge, as Martin Bellin, BELLIN says,
“There is considerable focus at present on integration and combining functions in a single platform to facilitate treasurers’ expanding role, and indeed this is a focus for us at Bellin. However, technology provision alone is not enough, treasurers need to be reviewing and revise processes to promote and enhance collaboration to enable the flow of information to increase understanding of this information.”
As discussed earlier, internal collaboration is just as important as external integration. Martin Bellin, BELLIN continues,
“The closer treasurers’ collaboration with group subsidiaries, the better the quality and timeliness of data that is exchanged. This supports enhanced decision-making which in turn improves the services that treasury offers to the wider business, creating a virtuous cycle.”
Justin Brimfield, Reval continues,
“The relationship between treasury and business units has formerly been burdensome to business units in some cases, but in a new risk management environment, local finance managers appreciate the value that treasury brings and the expertise it can offer. Similarly, we have seen a change in treasury’s relationship with other business functions such as procurement over the past 18 months or so, such as to collaborate on managing commodity price risk more effectively.” [[[PAGE]]]
Collaboration between treasurers and the wider business is essential to a centralised treasury infrastructure and/or in-house bank, and this has typically been addressed by TMS vendors through web-based access to the TMS for input or upload of information and deal requests. However, as treasurers’ remit extends further into areas such as working capital and enterprise risk management, the range of internal counterparties, and the nature of their collaboration continues to expand. The data itself is rarely new, but the volume and the number of sources is growing. As companies and their vendors become more adept at integrating systems, and the use of standards (hopefully) becomes more prevalent, the challenge is how to convert growing volumes of data into information that adds value. Dashboards, analytic tools and advanced reporting are therefore becoming increasingly important. Justin Brimfield, Reval emphasises this point in relation to risk management, but the same applies equally to working capital,
“As treasury continues to evolve, we are seeing a market trend towards advanced analytics. Treasury departments, partnering with business units, accounting and procurement, are taking data points from across the enterprise, and externally from the extended enterprise, to analyse information and drive more intelligent decision-making around financial and market risks.”
Developments in the use of treasury management systems are driven by evolving market requirements as well as internal transformation. Since the introduction of Sarbanes-Oxley section 404 in 2002, treasury has had an essential role in compliance and regulatory reporting, and this requirement is becoming increasingly demanding and complex as the regulatory burden increases. Paul Bramwell, SunGard notes,
“Compliance and regulatory reporting is an area in which treasurers have considerable experience, but as these become more onerous, ensuring that the right technology is in place is essential.”
SEPA is amongst the most pressing compliance requirement, affecting not simply reporting but the way in which payments are processed, with important ramifications too on collections, banking relationships and connectivity, cash and liquidity management. At its most basic, SEPA impacts on how payment messages are structured and the channels through which they are transmitted. Although some vendors focussed on SEPA later than others, there is undoubtedly an impact on TMS and other systems through which payments are created or transmitted. SEPA payment instruments and ISO 20022 are now supported by all the major TMS vendors, but treasurers should not assume that their vendors will be in a position to migrate on their behalf (although some can provide considerable support); furthermore, treasurers need to be using a version of the TMS that supports SEPA and ISO 20022, which may not be the case for older versions.
Like the banks, some vendors are expecting an increase in ‘phase 2’ projects that leverage the benefits of SEPA, as opposed to focusing simply on compliance, as Marcus Hughes, Bottomline explains,
“Many treasurers have not yet seized the opportunities that SEPA offers and have so far done the minimum to ensure compliance. In some cases, resourcing has been an issue, in others, there has not been the confidence that SEPA will happen. Consequently, we expect to see a growing number of phase 2 strategic projects including payment and collection factories, since there is strong potential to drive cost savings through standardisation and centralisation including SEPA B2B direct debits.”
Paul Bramwell, SunGard continues,
“The SEPA migration end date of 1 February 2014 is forcing all treasurers operating in Europe to revise communication channels and formats, despite a degree of apathy that has existed so far. SEPA is not simply a compliance issue, is a real opportunity, not least to standardise formats using ISO 20022. This has global applicability as opposed to being limited to Europe, and increasingly, treasurers are recognising its potential. Furthermore, ISO 20022 standards are not limited to payments, with opportunities for eBAM, statements and a range of other treasury-related activities. Once companies have completed their SEPA migration projects and we have passed the SEPA deadline, we are likely to see substantial growth in global ISO 20022 rollout projects.”
The TMS marketplace continues to change in line with changing market and regulatory practices, industry standards, and evolving functional and technical requirements. Furthermore, industry consolidation amongst TMS vendors has resulted in a narrowing choice of vendors. As we have already seen, issues that may have been differentiators in recent years, such as support for cloud-based technology, are less so today. This does not mean, however, that the market has become in any way commoditised, however; indeed, the choice of TMS is as important today as it has ever been, not least as treasurers’ priorities and evolving requirements need to be aligned with the strategy of a potential vendor. Justin Brimfield, Reval discusses,
“Looking ahead, treasurers using aging, installed treasury management systems will continue to review how their roles have changed and how their technology supports these evolving needs. Many have not upgraded for some time, and it is important to ask why this is the case. Reval has already seen many move to SaaS to take advantage of greater ease in accessing functionality and timely, convenient access to new developments.”
In addition, however exciting the technology may appear today, treasurers still need the confidence that his or her vendor will still be in business in five or ten years, with the ability and commitment to invest in their solution. Paul Bramwell, SunGard advises,
“Following further consolidation amongst treasury solution vendors, we have seen a renewed focus on vendor viability. Treasurers considering a new treasury solution are evaluating potential vendors’ 5-10 year product vision, long term support plans, financial viability and technology strategy before reviewing functionality of potential systems. Treasurers recognise that there is a real risk of product obsolescence, vendor failure or termination of support, and understandably seek long-term assurances and confidence in the stability of a potential vendor.”
Enrico Camerinelli, Aite Group concludes,
“When treasurers review and select new technology, requests for proposal (RFPs) should seek to highlight potential vendors’ future strategies to ensure that these are aligned with the company’s own strategic vision and evolving treasury responsibilities.”
Just as discussions about cloud-based technology are likely to dissipate in favour of conversations about functionality and tools that treasurers need to do their jobs effectively, they are also likely to be eclipsed by the ‘next big thing’ from a technology standpoint. For me, this is likely to be along the lines of the portal concept discussed earlier, which offers considerable potential to connect networks financial participants in new ways and enable these participants to access a far broader range of services than they have been able to do in the past. Mobile technology will undoubtedly have a growing role to play as a means of providing convenient access to capabilities, but so far, the full extent of opportunities that smartphones and tablets (and/ or their successors) could offer has yet to be explored or exploited. Some vendors are also exploring social media, as Martin Bellin, BELLIN explains,
“Looking ahead, one of the initiatives on which we are engaged at Bellin is to see how social media could be incorporated into treasury, particularly to leverage these tools for closer collaboration and networking.”
However these trends (and those that are not yet a twinkle in the eye) will evolve cannot yet be predicted, but treasury management technology will undoubtedly give us plenty to discuss in the years ahead.
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 […]
