Old best of breed
In the past, treasury discussion of “best of breed” referred to the choice between dedicated TMS and the treasury modules of corporate ERP systems. Typically, treasury wanted best of breed TMSs, while the CFO and IT pushed for ERP solutions.
The arguments for using the same system across the corporation are strong enough that SAP seems to be gaining market share, despite being an order of magnitude more expensive than most current SaaS TMSs and having relatively limited sophistication. SAP treasury may have been helped in this by:
A weaker TMS market from the mid-noughties, as ION and FIS hoovered up TMS vendors and did not appear to do much with them (though more recently this consolidation has made space for current SaaS vendors like GTreasury and Kyriba which has ended up strengthening the market again).
Concerns about cyber-security that strengthen IT’s argument for a common architecture they can better secure.
Need for ever-stronger internal control over critical systems (though, in many ways, dedicated TMSs offer superior internal control over treasury operations).
Old treasury ecosystem
Of course, TMSs have always needed to interface with other systems for banking services, rate feeds, accounting and reporting.
Bank connectivity has traditionally been external software in most cases – either multi-bank services like SWIFT, Fides, TIS, or bank-specific solutions. Some old TMSs have in-house solutions (FIS has Trax and SAP has BCM) and most of the current SaaS generation offer “SWIFT in the box” (Kyriba and GTreasury) or equivalent built-in solutions (Fides for Reval). The functional boundaries are blurring as specialist bank connectivity providers offer increasingly sophisticated functionality (such as Fides and TIS) and on the other hand TMS vendors offer their relevant modules as bank connectivity solutions (Kyriba).
Rate feeds have always been separate because aggregating market data is far from the core competences of TMS and ERP vendors. Most corporates use rates from Refinitiv and Bloomberg, though many are turning for cost reasons to almost as good, if more limited, rate feeds for the eFX platforms (360T, Currenex, FXall, FXGO). Of course, minimal daily FX high-low close rates are available for free on the internet.
Treasury needs data from accounting systems, such as payables, to make payments and accounts receivable and accounts payables for cash flow forecasting. And treasury needs to send general ledger entries to accounting systems; some TMSs have accounting functionality but they tend to be used as sub-ledgers for treasury transactions only.
As FX trading has moved online over the past 20 years, eFX platforms, and increasingly eInvestment platforms, have become standard parts of the treasury ecosystem. Typically, eFX platforms like 360T, Currenex, FXall and FXGO have APIs to upload intended trades from TMSs and then to download completed trades back to TMSs. They also handle trade confirmation, replacing SWIFT Accord and MISys. As noted earlier, many treasuries take rate feeds from these platforms as well.
New best of breed
Today, it seems that the best of breed concept is becoming more granular. There is some precedent for this – for example, the old Reval (before the merger with EcoFinance) was probably used more for hedge accounting than as a general purpose TMS. But now, regulations like MiFID and the need for higher accuracy and greater productivity are driving treasurers to search for best of breed solutions in ever more specialised domains, like forecasting, reporting, hedging, compliance and so forth. The increasing prevalence of APIs makes stitching together diverse specialised solutions much easier, and, where legacy systems do to not have APIs, treasurers can use robotic process automation (RPA) instead.
Cash flow forecasting
Traditional TMSs have supported cash flow forecasting primarily as data aggregators and consolidators. TMSs mainly assist with workflow to collect and consolidate subsidiary or business unit forecasts, possibly with some analytical support – such as comparing forecasts with previous forecasts and actuals. This has been helpful for treasurers but leaves open the critical issue of where the underlying forecast comes from.
Today, fintechs such as Cashforce, CashAnalytics and Analyste are harnessing big data and machine learning (ML) or, more prosaically but equally effectively, statistics, to actually generate raw forecasts. As yet this kind of functionality is not available in most TMSs – though some can handle seasonality and other simple heuristics.
For treasuries seeking to improve the reliability of cash flow forecasts and reduce the related workload both within treasury and at subsidiaries, this technology is well worth the cost and effort of implementation.
Most current TMSs have some kind of dashboarding solutions and report generators. In many cases, the latter have such low usability that treasuries feel obliged to pay vendors to create new reports for them. This is not only expensive, but also neither sustainable nor flexible.
Another issue is that treasurers often want to disseminate information beyond treasury. Getting the CFO and other interested parties to learn to use the TMS dashboard (or even to remember a TMS password for occasional use) is a stretch.
Because of these issues, many treasuries are using business intelligence (BI) solutions – typically whatever is the corporate standard for dashboarding and reporting – to share treasury information within and without treasury.
Typical BI solutions include Microsoft Power BI, SAP Business Objects, IBM TM1 and so forth. Power BI is especially popular because it is included in Microsoft Office, which makes it effectively “free” (at least the basic functionality) for most treasurers. If none of those appeal, check out thoughtspot.com.
As FX volatility increases and compliance constraints tighten, many treasurers feel the need to optimise their hedging strategies. Large treasuries have been doing hedge optimisation for decades, but typically this required using Mathematica or MatLab on the side, and the skills to use them.
The market has responded to this gap with solutions dedicated to FX hedging. One example is FiREapps, which was acquired by Kyriba in 2019, but is still available as an independent solution.
Derivatives reporting requirements such as European Market Infrastructure Regulation (EMIR) have brought compliance requirements for treasuries that cannot easily be met by TMS native functionality. Some treasurers have integrated specialised trade reporting solutions to meet these requirements.
KYC and BAM
Many TMSs and some bank connectivity solutions provide BAM functionality as a system of record, but automating KYC and other AML requirements remains challenging.
SWIFT announced in 2019 that their KYC registry will be open to corporates – it was previously restricted to financial institutions. Some treasurers have had success with KYC.com.
As treasury “mash ups” become more common in the search for greater efficiency and accuracy and compliance, treasurers need to become familiar with the intricacies of dealing with APIs.