Treasury Today Country Profiles in association with Citi

The growing popularity of vendor-hosted treasury solutions

Research shows that more and more companies are choosing vendor-hosted rather than client-hosted treasury management solutions. Vendor-hosted treasury management solutions now come in a wide array of models, each with its own advantages and drawbacks. In this article, Treasury Today looks at the services on offer and what you need to consider.

Companies are increasingly looking for vendor-hosted treasury management solutions to reduce internal IT resource dependency and cut costs. According to research from consultancy Aite Group, 66% of companies who bought new TMS solutions in 2008 chose vendor-hosting over a client-hosted offering, and that trend is increasing.

However, there is a confusing array of models out there, each with its own strengths and weaknesses. Choosing a treasury management solution that works best for a particular company will depend on a number of factors – including the treasury IT budget, policies on data housing and security; the complexity of treasury operations and who offers the functionality that is needed. Although dedicated treasury systems that are housed at the company – or client-hosted systems – continue to dominate the existing market, companies are increasingly choosing to have their treasury software hosted and managed externally – also known as vendor hosting.

Vendor hosting was once solely defined as Application Service Provision – (ASP), but now encompasses various different styles of offering: from a true ASP – where all clients’ data is held on a single server managed by the vendor – to vendor hosting of single-client servers, and everything in between.

Most TMS providers now offer some form of hosting service – be it dedicated server hosting, shared server hosting, web-delivered applications, or fully-outsourced data and/or process management. Finally, some companies may have hosting partners – such as IBM or Microsoft – outside of the TMS provider that they choose to host the server.

The connection to treasury may either be through a Citrix application – where the connection is dedicated and each client has its own connection – or it may be web-delivered. To add to the complexity, companies may choose to either buy a system outright – and still have it hosted – or pay for licensing and pay-as-you-go.

Model breakdown

What do you need to know about the benefits and drawbacks of the models out there?

There are only two vendors in the TMS market that offer a solely ASP model – Kyriba and Thomson. With this model, all clients use the same cluster of servers. Client data is all held on the same hardware – although it is, of course, segregated. The advantage of this model is that it allows for significant cost savings, because the vendor only has to run and manage one set of systems. The challenge, however, is when it comes time to upgrade. Since everyone is on the same set of servers, everyone must be upgraded at the same time.

A number of vendors hold client data on a series of servers, with two or three clients to a server. This deals with the upgrade issue, but the cost benefits are reduced as the vendor must maintain a number of hardware sets.

The most expensive ASP option is to have a dedicated server for just one company’s treasury operations. Generally, the solution is either delivered via a Citrix connection or via the web. Most high-end TMS providers offer this service – such as Wall Street Systems, IT2 and SunGard – and the solution can either be licensed or purchased outright.

The advantage of licensing software is the cost – paying annual license fees costs less than outright purchase in the short term. It also has a clear advantage over hosting the server in-house. There is no need to draw on internal IT resources to manage it and access is provided to support staff whose sole job is to understand the system.

Another option when using a dedicated server is to have a third party host the solution. Often companies will do this when they already have a hosting arrangement for other software – gaining a cost benefit – or they plan to invest in other third-party solutions. Then the company can buy or license the software from the TMS provider and rely on the hosting party’s IT resources to manage it, handle upgrades, and the like.

One of the big drawbacks of vendor-hosted solutions that are licensed – rather than dedicated servers where the solution is purchased by the company – is data ownership. Judson Murchie, analyst at Aite Group, explains, “One of the key challenges that vendors don’t want to admit is that you don’t own your data. So if you leave that vendor, the data doesn’t necessarily come with you. Whereas with your own sever you own that data, you have it in house. From a vendor perspective, this is a brilliant move to make sure customers are sticky.” It can make changing vendors quite difficult.

Price or functionality?

The cost of a vendor-hosted solution will naturally dictate the functionality that is built in. Some solution providers targeting smaller, less complex treasury organisations take a partnership approach to give clients access to non-core functionality from third parties – such as A/P and A/R automation. In contrast, the higher-end systems will have both more sophisticated core treasury solutions and a wider range of functionality.

However, higher-end suppliers are also starting to look to partners to provide some non-core solutions. The advantage of using partners is that you get access to best-of-breed solutions. But it also means more connections – and more relationships – to manage. With a single provider managing it all, that complexity is reduced.

One big development that could change the face of treasury solutions going forward is that big cash management banks are starting to look at incorporating TMS functionality into their own banking platforms. Banks around the world are looking to take specific functionality included in a treasury management system and use that to bolster existing bank products, rather than build and offer whole new solutions.

They are also looking for better ways to hedge development and deployment risk. Rather than spending millions to build functionality from scratch and hoping it grows to meet a market need, they can take pieces that they know work well for corporates and add them on to their offerings.

This may also be a way to open up treasury technology to the highly-underserved mid-cap market. Companies that already have bank relationships and use their banks’ platforms will have access to functionality that they could not afford to invest in on a stand-alone basis. This partnership development could have the potential to change the way companies buy their bank services and who they partner with.

Treasury Today checklist

Factors to consider when selecting a vendor-hosted model:

  • Cost.

  • Complexity of the treasury organisation.

  • Data housing policies.

  • Security requirements.

  • System functionality and support.

  • IT resources and their dedication to treasury.

  • Other IT hosting relationships.

  • Desire to ‘own’ data.

  • Ease of changing vendors.

  • Vendor reputation and financial strength.