Insight & Analysis

Even if it’s not broken it doesn’t mean you can’t fix it: a new look at treasury technology

IT technician repairing PC

Corporates can afford to experiment with technology without committing huge resources, says Royston Da Costa, Assistant Group Treasurer, Ferguson. Here he explains how progress can be sustained.

“The goal for every treasurer should be to future-proof their treasury function by using the technology available today,” argues Royston Da Costa, Assistant Group Treasurer, Ferguson. However, he notes, it is all too easy “to lose sight of the goal to become more efficient using the limited resources available”.

Despite compelling drivers such as the benefits of integrating and automating manual processes, strong economic growth in the US, the increasing pace of technological change, the rise of cybercrime and snowballing compliance and control issues to manage, there are barriers erected to technology adoption in treasuries across the US and elsewhere. All is not lost though.

Having carried out his own research, interviewing US treasurers and obtaining data from the AFP conference held in San Diego in 2017, Da Costa has corralled his observations into his new paper: ‘What are the challenges facing US Corporates wishing to invest in treasury technology?’ In it, he seeks to address corporate objections to treasury technology progress.

Inertia

The mantra that ‘if it isn’t broken, why fix it?’ is commonly cited by corporates. Treasury departments are usually operated as cost centres and investment in technology is viewed as an additional cost with very little return. In the US, companies are extremely cautious about ‘over investing’ in technology and have a perception that they won’t see enough ‘bang for their buck’.

The AFP survey saw 42% of respondents citing cost and business case as the main barrier to investing in a TMS. And with treasurers typically being appraised by their CFO on their core responsibilities to manage the cash and risk for the group, the quality of the technology they are using often plays second fiddle.

Potential solutions

It is no longer acceptable to hide behind the rationale highlighted under the ‘Problems’ section, mainly because most corporates cannot afford to ignore the advance of treasury technology. Also the entry level cost that a decent TMS solution can be implemented for has significantly fallen in recent years.

In any business case proposing investment in treasury technology, it is vital to highlight the financial benefits and time savings that could be achieved by implementing it. A new solution, after careful selection, should offer corporates the assurance of futureproofing against regulatory changes and potential applications the business wishes to interact with.

The increasing importance of data to businesses is another factor that must be considered when reviewing the existing treasury infrastructure and whether it is capable of integrating data from multiple systems in an efficient and cost effective way.

Any treasury business case applying for investment in technology must be able to quantify the benefits and savings that will be realised, as a result of the implementation. These may include:

  • Limited internal IT support is required.

  • Easy to roll out to other users ie just a web browser connection required.

  • A strong support system that will develop with the business and market conditions.

  • Potential for application across the Group and further cost reduction.

Fear (of the unknown)

Most US treasury teams are comprised of employees trained and proficient in collecting and processing data in a relatively manual manner. However, many treasurers may find themselves outside their comfort zone when reviewing a SaaS or cloud-based TMS solution. There is a human factor here too, including the willingness of employees to be trained or up-skilled as new technology is deployed. If their role becomes redundant, the way they react will affect the structure and morale of the team, and the treasurer’s credibility within the team.

Potential solutions

Treasurers should educate themselves to broaden their vision and understand the positive benefits of treasury technology. There are three key areas where a TMS stands out and should be the focus of treasurers today: security; compliance and controls; and regulation.

In this context, treasurers should explore and recognise how the technology will not only make their team’s lives easier, it will offer the opportunity to do something more interesting or challenging, and most importantly add value to the business.

Most people will be aware of the pace of development in technology, in their personal lives at the very least. This is a vital fact that should be used to engage them in new technologies like artificial intelligence (AI), robotic process automation (RPA), and machine learning (ML). However, all should accept that change will take place – whether we agree with it or not!

Complexity

Any request by a treasury function to invest in technology and improve their processes often does not compel a board to approve if gains are seen as minimal. Allied to this, there is still a widely held belief that implementing a TMS requires a significant amount of resource in terms of time, costs, and people. There is also a belief held by some IT functions that a cloud-based TMS would put their IT jobs at risk, or even threaten their company’s security infrastructure.

Potential solutions

The myth that running a manual process is somehow simpler than using a system is not a rational argument anymore. Technology is demonstrating in all walks of life how simple processes are being replaced by automation.

Historically, implementing a hosted solution was more complicated and time consuming. However, cloud solutions have shown that this is not the case anymore. Whatever solution is presented to US treasurers, it must be delivered as:

  • Simple: easy to understand and intuitive.

  • Not complex: no ‘black box’ technology that cannot be explained to the auditors.

  • Straight through processing: processes should be seamless and straightforward.

Uncertainty

Uncertainty often plays a part in the decision of a treasurer not to review ways of improving their processes using technology. Corporates that have a TMS solution in place, typically selected by the incumbent treasurer, will oppose any suggestion of change quite fiercely, the main reasons being cost, time and resources. The real reasons will be uncertainty, loyalty to the current provider, costs.

Potential solutions

Some of the largest companies in the world have failed because of neglecting the opportunity to invest in technology at the right time. Any company without a basic TMS to handle its cash management and regulatory reporting could be handicapping itself.

Future proofing

Treasurers must be encouraged to recognise that ‘no action’ is not an option. The excuses of costs, time, and resources are not enough anymore to prevent questions being asked by senior management about the stability of treasury processes, and their ability to adapt to change.

The area of payments alone should prompt most treasurers to review the systems and processes they currently employ, and whether they are prepared for the developments around the corner.

The threat of cybercrime is also an area of increasing concern to treasurers and most boards. Treasurers cannot afford to continue ignoring lower levels of security around their hosted servers, compared to some of the larger SaaS providers who have a ‘Gold’ standard security certification.

Training and development

The issue with treasury staff that have been used to following the same manual process for a lengthy period of time, provides a high risk of cybercrime. It is important that corporates recognise this risk and address it by implementing secure technology using two-factor authentication or bio-metric identification.

Corporates should also work with their TMS suppliers to re-train and upgrade their treasury team’s skills, especially where there is an aversion to change or worse, an irrational fear of job loss. As part of the TMS implementation, there were several initiatives that Ferguson implemented to secure buy-in from group-wide users:

  • A customised user manual was made available to all users via their treasury provider’s online portal.

  • Show and tells - presentations designed to highlight the TMS’s main benefits to various departments and entities within the Group - were a huge success.

  • Detailed scoping workshops to help the wider group in using the TMS more extensively.

  • A vigorous due diligence exercise conducted on the current TMS provider during the selection process, including ‘penetration testing’.

Costs: time and money

US corporates, from a strategic perspective, are usually only interested in the daily operations, including basic cash management, being performed satisfactorily. Any cost to improve that process is perceived as unnecessary and would deter development of treasury technology or selecting a TMS. Most importantly, it is the level or urgency that IT functions often fail to recognise treasury processes require, notably payment cut-off times.

Potential solutions

It varies depending on the corporate what financial benefits can be generated. It is easier and sometimes appropriate to highlight the process and efficiency savings, as well as time savings that will be realised from implementing a TMS.

Some of the benefits Ferguson realised were:

  • Eliminated Ferguson’s separate platform for executing internal trades.

  • Eliminated using a separate trade repository for reporting EMIR trades.

  • FBAR reporting – at least one week saved by Ferguson Enterprises in the US.

Process Savings realised
Market Data 6 days pa
Dealing 3 days pa
Confirmation Matching 6 days pa
Accounting Journals NA
Reporting 12 days pa
Bank Account visibility Enhanced controls
Facility visibility Enhanced controls
12 days pa + additional automation
Control Payments 6 days pa + enhanced controls
Subsidiaries 6 days pa + increased visibility + increased engagement
Regulatory Reporting 12 days pa
Maintenance and upgrades 45 days pa
Total 108 days pa

The corporate should be able to amortise the capital cost over a few years and identify the payback date. It is also useful to highlight the TMS business model benefits; most cloud-based solutions are accessible by multiple users at a fraction of the cost of buying user licences.

As Ferguson is de-centralised, it enables the users in our group who would not normally be given access to a TMS, to participate in our treasury processes. This has helped to increase treasury’s visibility of and connection with the wider group.

TMS providers are much more qualified in managing interfaces ie usually they are already set up for their other customers. Furthermore, the whole process should be a lot cheaper for the corporate, than trying to set up the interface individually with each vendor.

Further, SaaS solutions require a lot less resource from IT as they are ‘off the shelf’ products, designed to ‘plug and play’. Additionally, there is no arduous process for implementing upgrades. Instead, upgrades take place in the background with very little inconvenience to or input from the customer.

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