Treasury Today Country Profiles in association with Citi

Technology: standing at the crossroads

Night view of brige in Shanghai

Without technology the world of treasury would be very different. It would be a lot more labour-intensive, that is certain. But what else is modern technology doing for today’s treasurer – and more importantly what will it be doing tomorrow?

Let’s start with a few choice numbers. In a recent survey of more than 600 global finance professionals from a range of sectors, sizes and regions, lack of budget was cited as the number one hold-up for 43% of respondents when it comes to full-on treasury transformation projects and for 61% when seeking a simple adoption of new technology. It looks like treasurers know technology is good for them but sometimes the business case just does not seem to persuade the board to release the funds.

Certainly, technology delivers operational efficiencies and enables treasurers to add value to other functions. It does so in part by providing analysis and reporting capabilities with the kind of depth, speed and accuracy that simple spreadsheets will never quite achieve. Even with this obvious advantage, treasury technology ‘spend’ suffers from the kind of roadblock that seems to mark it down as a ‘nice to have’ rather than a necessity.

Despite the grumbles about technology budget, the study (carried out by the consultancy, Treasury Strategies, and technology vendor, Reval) revealed that centralised structures are most prevalent. Some 46% of the survey sample claimed to have adopted this model. It is as well then, given the demands that such structures place on visibility and data management, that the most commonly used technology platform is the TMS (49% saying they own one). However, only 10% have access to an ERP for treasury duties and 27% still rely on spreadsheets (mostly in the mid-market segment).

The survey may have some vendor bias in terms of what questions it asked and how it asked them, but the report is still meaningful because it quantifies the responses of many treasury professionals. It presents a simple ‘structure versus risk’ conundrum for readers and unsurprisingly the top three strategic challenges (other than obvious regulatory hurdles such as Basel III or Dodd-Frank/EMIR) are cash forecasting (65%), cash visibility (59%) and risk management (47%). Drilling down into the risk perspective further shows that the biggest treasury worry is cash and liquidity risk (79%). This is followed by FX (66%), with counterparty risk, mid to long-term funding risk and interest rate risk reaching over 40% a piece. Commodity risk picks up the rear with 20%.

The bottom line of this analysis is that treasurers know what troubles them and even what can help resolve these issues but the fix – in the form of technology – is not always forthcoming. Despite the advantages that a meticulously selected and properly implemented treasury technology solution can afford its users, such challenges are still managed, in the main, by reviewing policies, processes and structures (a practice cited by 73%). Management by undertaking a review of existing technology or by the implementation of a new technology was cited by just 45% and 41% respectively.

Bright future

If these results are anything to go by – and at Treasury Today we hear similar comments and observations on a regular basis – then companies need to understand that treasurers and other finance professionals must be given the right tools for the job if they are to fulfill the expectations of their increasingly strategic roles with the kind of efficiency and effectiveness that can benefit all. Whilst simply throwing money at an issue and expecting it to go away is a mistaken practice, if the adoption of new technology is undertaken with due diligence then the position of treasurer becomes a far more useful proposition for all stakeholders, not least the boardroom.

“Things changed when the global financial crisis uncovered many areas of corporate treasury that needed to be smarter – and treasury technology vendors listened and responded with a host of solutions to help.”

Todd Yoder, Head of Derivatives & Hedging Strategy and Director of Global Treasury, Fluor Corporation

One treasurer who relishes the prospect of a tech-fueled future is Todd Yoder, Head of Derivatives & Hedging Strategy and Director of Global Treasury at Fluor Corporation, a multinational engineering and construction firm. He believes that “now is the most exciting time for corporate treasury in history”. What’s more, he feels it is only going to get better. “Things changed when the global financial crisis uncovered many areas of corporate treasury that needed to be smarter – and treasury technology vendors listened and responded with a host of solutions to help,” he explains. “The rapid provider-consolidations seem to be behind us, and new providers are investing and building some great solutions.”

Strong providers

The adoption of strong technology presupposes that the banks and vendors actually have the right technologies to offer. To this point, Stark (a vendor) argues that “banks do an excellent job of meeting their clients’ expectations to support bank services online”. Treasury technology vendors, he feels, “complement bank offerings and these providers generally develop functionality that fits the needs of their target markets”. A partisan comment maybe, but the opportunity for treasury technology providers – bank and vendor – is to envision what corporate treasurers will require in, say, five years’ time and then deliver it – and then keep delivering. This, after all, is their business and failure to deliver puts them in a precarious commercial position (especially with industry consolidation still on the cards). The convergence of cash management, working capital and the supply chain is a great example of how treasury is gaining strategic importance and, states Stark, “it is up to treasury technology to ensure the solutions are ready for these evolving needs”.

However, treasurers do have significant influence on the product roadmaps of treasury technology providers. Leveraging social media and collaboration tools, for example, gives treasurers a greater combined voice that makes it very easy for their technology partners to understand the priorities of their client base. Any treasury technology provider that cares about growing with their clients will use these inputs, along with structured client advisory boards and user groups, to ensure that client needs drive a significant portion of the product roadmap (there is an element of pure commercial interest here too of course).

With this in mind, a lot has been done just in the past five years in terms of treasury technology development, says Yoder. He believes that there will continue to be advancement in a variety of areas including risk analytics and visualisation, bank account management, improved integration of core systems, standardisation in formats (especially around ISO 20022), treasury compliance, and ultimately treasury being able to work more creatively with a variety of business functions across the organisation. “I think the providers doing well in this space today are where they are because they have listened and been adaptive to the needs of corporate treasury, legislation and market trends – and I see this trend continuing.”

But there is one area of new technology that has risen so far up the agenda in the past year that anyone would be forgiven for believing it was not only the remedy for all commercial misfortunes, but also that it was already in active service.

Understanding what you already have

The vendor viewpoint, framed by exposure to many different client scenarios, is slightly more circumspect. “In treasury we still see a technology paradigm shift happening between the old legacy tools and the new cloud technology,” notes Phil Pettinato, Chief Technology Officer at Reval. He notes that some companies are still struggling with disparate systems. They are using spreadsheets “in ways that they really weren’t intended to be used – as operating applications rather than analytical tools”. And although he notes a gradual shift from installed to cloud “some of that shift seems to be towards ASP which is just cloud hosting of legacy software”. This leaves treasurers with systems that do not necessarily communicate well, let alone provide a global platform to assist growth and competitiveness.

Fluor Corporation may be amongst the eager exceptions but the status quo “still leaves a lot to be desired for many corporates,” comments Pettinato. He does however accept that where systems are operationally embedded it is tough to disrupt that setup. “It’s difficult to be innovative when you’re stuck with old tools and old ways,” he comments. But he offers a cautionary note that when yielding to the temptation to force innovation in such an environment “you don’t get much of a return”. If, however, the technological environment is replaced with state-of-the-art technology to begin with, he believes it creates a virtuous circle of innovation, which helps to explain Yoder’s positive outlook.

For those stuck in a technological rut, it may even feel like a classic Catch 22 – progress has to be made in order to make progress. But maybe this is more of an excuse than a reason, when what is really needed is one bold step forward to set progress in motion. Whilst some organisations are focused on improving the efficiency of existing cash and treasury processes, driving a limited appetite for treasury automation and integration, other organisations are pushing the boat out more and seeking ways to transform their treasury operations into what Pettinato calls “value centres”. These treasurers already see technology as an enabler to achieve their vision and are constantly pushing their boardrooms and the technology providers to deliver the features to drive this change. This, for Pettinato, is evidence of quite a bright light at the end of the tunnel.

But in the quest for optimum performance, simply throwing money at the problem is not necessarily the right approach. From Yoder’s perspective, achieving such a goal is not so much about the use of a specific treasury technology per se but instead harnessing the capabilities and connectivity of the systems used. “In general, IT time is getting harder to find, so how efficiently and easily systems plug in is important to ensure optimum performance.”

Perhaps one of the great levellers in today’s technology space has been the advent of cloud storage and delivery. As Pettinato mentions above, the term is something of a catch-all for any system or application delivered from a remote server where the vendor typically takes the responsibility for its management. Notwithstanding nuanced explanations of what it is, or is not, Bob Stark, VP Strategy, at technology vendor Kyriba, estimates that approximately half of treasury teams leverage cloud technology in some form. As a result, it is missing out on some key benefits.

Indeed, he argues that the absence of cloud technology increases the risk for fraud, adds unnecessary cost to treasury, increases the need for internal IT resources, and restricts the ability for treasury to implement an effective business continuity plan. This may be true to an extent but it is a fact that many treasurers continue to maintain disparate systems across the treasury function and that these do not automatically integrate with each other. As Stark points out, “this impacts visibility into cash and liquidity, as well as risk exposures”. This of course harks back to the key issues treasurers say they are faced with as brought to light in the survey results revealed above.

With organisations cognisant of the need to be more analytical and critical of their processes, the urge to fix the problem is perhaps now rising up the agenda. Pettinato sees ready acknowledgement by treasurers that today’s cloud systems are capable of meeting the challenge. However, whether it is a TMS, ERP or other core platform that is being considered, engaging with new technology can be viewed as potentially increasing complexity.

Maintaining control

The key is to have data sources circulating within the same homogenised environment, if at all possible and to this effect, some organisations attempt to leverage the ERP systems they already have in place. Best-of-breed systems are impressive in themselves but if all data sources flow within an ERP, the fabled ‘single version of the truth’ might seem more probable, says Kevin Grant, Member of the Executive Board at financial software and services firm, Hanse Orga. For him, an ERP gives direct access to a host of functions such as planning, treasury, accounts payable and accounts receivable, and supplier and customer contract management information, all in one location and available the moment it is updated – “even if it manually keyed”.

Digitised data can be used for straight through processing and reporting. Business intelligence (BI) and KPI tools, which also reside with the same ecosystem, may also be auto-populated with this data. From here, it is possible to start building management dashboards to address the issues of the business “in a dynamic and real-time way”, says Grant. This can even be viewable in multiple channels, from smartphone to desktop, and be capable of providing group-level information, with resources to drill down into regional, country and even customer level, offering user-insight into various behaviours that impact the company.

The counterpoint to this singular expression of company financial data is that, system-wise, this is asking for a monolithic structure; it will be complex, hideously expensive to build and operate. Installations of SAP or Oracle, for example, have a reputation for being resource-intensive, and criticism has been levelled at the user-friendliness of such colossal systems.

“But things have changed,” retorts Grant. “None of the ERP vendors have been sitting back, failing to tackle ugly and unfriendly user interfaces; none have spurned real-time reporting,” he states. The change in software user-experience, especially in enterprise software, is something that Pettinato (as a TMS vendor) is also witness to. The shift is driven by the need for business visibility and the need to make optimised decisions. But Pettinato further notes “a human angle” to this, with today’s business software users being much more technologically advanced than before. “In using technology in their private lives it is driving the way they want to use technology in their business lives,” he explains. Mobile devices in particular are now part of mainstream commercial activity, even if many treasurers still feel uncomfortable executing transactions in this way (despite the deployment of multiple control and security methods that make mobile as safe as a PC).

The aim, of course, for best-of-breed or all-in-one is to allow greater transparency, analysis and control over all business processes. But modern solutions (including mobile) also need to allow global process owners, particularly the treasury function, to respond more quickly to ad hoc requests and to meet the increasingly strategic nature of such enquires. If treasurers are then able to proactively provide information to senior management and the board, then the function raises its standing in the organisation. If senior managers can be provided with ‘self-service’ access to that information, and receive it in an easily digestible form (Grant suggests a ‘dashboard’ user-interface), then so much the better for everyone.

Know what you want before asking for it

If the case for a technology upgrade is accepted, Yoder warns that treasurers must be comfortable with what the subsequent implementation looks like, what systems they need and how the systems they select will communicate. In addition, there will be a number of key questions that should be asked of vendors (and of treasurers themselves).

First amongst these should be what their department objectives are and how these sit alongside expectations of treasury by the CFO, CIO, CEO and the board. “Many treasurers miss the opportunity to have strategic influence within their organisation, which corresponds to the requirements they ask of their technology solutions,” says Kyriba’s Stark. Secondly, and from the experience of one who has engaged with many treasury departments in his time, Stark notes that treasurers are often “misaligned” with internal information security policies when they select treasury technology. In the end, this increases internal compliance costs and creates unnecessary security and business continuity exposures. Preparatory work in this respect is vital.

But this technology article is concerned about tomorrow too and when treasurers are probing vendors, Pettinato urges them to ask the right questions about future viability of the technology and of the vendor itself. The treasury fintech space has seen many mergers and acquisitions over the past decade or so and anecdotal evidence suggests that as some of the VC money invested seeks a change of scenery, more consolidation is anticipated over the coming years. But with new, smaller entrants popping up and vying for business, sometimes in new niche areas, Pettinato says it is important that treasurers continue with appropriate due diligence to minimise vendor risk and technology risk, removing any operational liability.

It’s new and exciting

Given that treasury technology spend can face a frustrating roadblock when trying to build a business case, talking about new and exciting developments may seem somewhat insensitive. But, as Yoder asserted above, “now is the most exciting time for corporate treasury in history” and familiarisation with new tools of the trade is an essential part of the remit, not least because the right technology is potentially the difference between surviving and thriving.

It is a well-worn statement of fact that corporate treasury has to do more with less. But it is the analytical capabilities of some of the newer solutions that are making this feat possible, says Yoder. “It is one thing to access information, but a system that can quickly create customised actionable reporting is instrumental in running lean and smart,” he explains. In practical terms, he is “personally really excited” about some of the new solutions that allow supply chain, procurement and treasury to work together to optimise cash utilisation “while reducing a host of different risks and strengthening relationships with clients, suppliers and sub-contractors”.

This is clearly technology in action and the convergence of treasury, risk management, and working capital is a strategic direction for corporate finance teams that some vendors are currently committing significant development resources to enable. “Treasurers are increasingly being tasked with expanded responsibilities including financing the supply chain and protecting financial assets from a broader array of internal and external risks,” notes Stark. To stay ahead of the curve, he argues that technology solutions are answering that call and that “sooner rather than later”, treasurers will need to familiarise themselves with solutions that provide future core requirements such as multi-bank supply chain finance, simplified regulatory compliance for derivative accounting, and payment centralisation models such as ERP-to-bank integration. For Pettinato, the key is in finding where any new technology proposal adds value and not just seeing technology as an end in itself.

It may be that some solutions are viewed as just nice to have and that a cogent business case is to be found wanting. “Necessary versus nice to have is a matter of perspective,” says Stark. “For those treasurers that want to be strategic and enable treasury to deliver more value to the organisation, technology that integrates cash, liquidity, risk, and the supply chain is necessary.” As the treasurer of an MNC, Yoder says his business case for new technologies is clean-cut. “If you want to run lean and smart they are necessary. The return on investment is strong, and the protection they provide is invaluable.”

The great technological panacea

So, hands up who has not read or heard something about ‘blockchain’ in the past 12 months. Even if you still don’t understand what it is or does or why it might help treasurers, bankers and frankly just about anyone who transacts electronically, the fact is that blockchain is getting massive amounts of coverage. We know many banks are experimenting with it, trying to find a way of seizing first mover advantage and leaping onto an already pretty packed-out exploratory bandwagon. We know too that financial technology vendors and platform providers – including the mighty Microsoft – are wracking their brains to find a way to exploit the multitude of benefits promised by the concept. Even the Bank of England’s governor, Mark Carney, hinted that it could have a role to play in widening access and improving the resilience of the UK central bank’s real-time gross settlement (RTGS) system and its £500bn of transactions processed each day.

Products are beginning to emerge now, most notably in the trade space. Bolero has an offering based on trade finance documentation as does the DBS/Standard Chartered partnership. And there is an offering from fintech firm, GFT, targeting the movement of physical commodities in the supply chain. But it is early days so the work must continue before useful momentum is achieved.

In a way, this is good news. Not only because something beneficial will eventually come out of all this endeavour but also because when it does, it will have been subjected to so much scrutiny by almost anyone with a passing interest that most if not all of the gremlins will have been ironed out before it starts work. In essence, the weight of expectation generated by the hype, and the sheer determination to make something useful out of it, means that one way or another blockchain will deliver.

Before its adoption in the financial services industry is assured, blockchain has to clear several significant operational and regulatory challenges from its path, suggests a new Standard Chartered report ‘Blockchain – the road to mass adoption’ (part of its ‘Beyond Borders’ series). “When it comes to some aspects of the financial services industry, adoption is still a little way off,” says the report’s author, Margaret Harwood-Jones, Standard Chartered’s Singapore-based Head of Investors and Intermediaries, Transaction Banking. But, she continues, “there is no doubt that blockchain’s real-time characteristic and ability to act as a public ledger of all transactions could revolutionise many parts of financial services, reducing risks and bringing cost savings among other benefits”. These savings, when blockchain is applied to cross-border payments, securities trading and regulatory processes, could be in the order of $15bn to $20bn by 2022, according to estimates from the Santander banking group.

Harwood-Jones further argues that the success of blockchain depends on “smooth integration with legacy technologies”. Solutions will face “potentially high costs” if this isn’t achieved. She also raises the spectre of cybercrime, noting that blockchain must prove to the market that it is “at least as secure as existing technologies”. But there is another more prosaic hurdle to overcome. Blockchain is likely to take years to come to fruition “simply because it will require harmonised standards and regulation agreed by the securities services industry, regulators and governments”. The scale of this challenge, comments Harwood-Jones, “should not be underestimated”.

Notwithstanding the justifiable caution surrounding the adoption of this ground-breaking approach, it is right that those engaged in the technology sector keep researching and pushing the boundaries of possibility. Even the august institution that is the Bank of England has seen fit to probe its potential, with governor Carney having unveiled a fintech ‘accelerator’ programme to encourage start-ups to come up with practical solutions to financial problems, amongst which will be consideration of the “disruptive potential” of blockchain.

Hot housing technology

The Bank of England accelerator programme will join established independent players such as Startupbootcamp FinTech and the long-running SWIFT project, Innotribe. These help developers with smart ideas to attract funding and to support and shape their ideas into workable solutions for the modern financial markets.

The Startupbootcamp FinTech programme is funded by industry partners typically with fintech interests (including so-called ‘Angel’ investors) and is augmented by a pool of 200-plus mentors drawn from multiple sectors and geographies. Nektarios Liolios, its Co-founder and CEO, says applicants either come with a piece of technology that needs a business model built around it, or they have a business idea and basic IT concept but need to understand more about the complexity of the technology required. All are about delivery to the broadest sweep of the financial industry and its customers, and even sector-agnostic tools for areas such as cyber-security. “We sit down with them, try to identify the gaps and work with them to fill those gaps.”

The ability to plug those gaps is increasingly important because as complexity grows in the FI and corporate space, so too does the number of potential problem areas. The industry really is in constant need of new solutions – not just a flow of highly visible new consumer payments models but also those less visible to the outside world such as for the capital markets or almost anything back office-related.

The reason banks support accelerator programmes is that often they cannot find or fund development of their own; they want marketable and usable solutions and are prepared to invest in the work of others, but share the risk. A number of banks have ‘innovation labs’ but the problem here is that it can be difficult for new technologies to gain client acceptance. The bank response is to aim for the “lowest common denominator” just to get buy-in (and quicker ROI), says Liolios. As a result, he argues that often “the vision is lacking”. However, if an organisation wants to be a leader and change the way things are done, he believes that projects must be “driven forwards bravely, not put on autopilot”.

In practice, innovation is an active process that must engage with as many ideas as possible to test what works and what doesn’t. The key to success with all innovative thinking, states Liolios, lies in “never being afraid to fail”. This is where experts with new ideas come in, and of course where accelerator programmes and investors with vision take up the mantle of responsibility to get those ideas into the real world and into the working lives of treasurers.