Heads in the cloud

Published: Mar 2013

When it comes to buzzwords in technology, ‘the cloud’ is a popular recent addition. But while it may be a relatively new term, the cloud is not actually a new concept. It represents computing remotely rather than locally, with vendors offering technology solutions that are managed, serviced and hosted remotely, outside the treasury organisation. A software-as-a-service (SaaS) solution is a perfect example of a cloud solution.

As with any new terminology, definition is vital. Some vendors will claim that they offer a solution that is cloud-based because some components are run remotely; or they offer an older technology using an application service provider (ASP) model and call it cloud-based. This can lead to confusion in the marketplace.

When looking at cloud-based solutions, treasurers should ensure they are investing in new technology that they can trust will be expanded upon in the future. The benefit of treasury services in the cloud is that the treasurer does not have to worry about managing the technical infrastructure. Instead, they simply order a service.

With a web-based cloud service, there is nothing to install and no implementation programme to work through. The corporate’s in-house IT department is busy enough with their internal systems, so the more that can be pushed out of house to the software experts, the better it is for both the corporate’s business and IT functions. If something does not work, the treasurer simply calls their supplier who will then take care of the issue. In the payments arena this is a huge value proposition for corporates.

“The cloud computing story should be interesting to treasurers because of the level of innovation that they can receive via these services,” says Joerg Wiemer, CEO, Treasury Intelligence Solutions (TIS). “Every customer is always running on the newest version of the software, which is a big difference compared with the way things used to work.”

Enhanced functionality for treasury

Cloud-based solutions are available for a large number of treasury functions, such as the headline areas of cash management, payments processing and working capital transactions. Today they can also go deeper into functions such as risk management, derivative trading and tracking, and accounting services for the treasury and accounting groups.

Take payments as an example. The way that the treasurer manages their payments business with a relationship bank can be simpler, faster, cheaper and at a lower risk when using remote rather than local solutions.

From a relationship perspective, the treasurer maintains the direct relationship with their bank representatives. Where the supplier becomes involved is with the technical connectivity between the treasurer’s treasury management system (TMS) and/or enterprise resource planning (ERP) systems and the bank systems.

Using a cloud-based service for this makes sense for the banks as well, as the core competence of many banks generally lies outside the area of systems integration and connectivity. Rather, their core competency in the transaction space is to execute and manage payments originating in different systems. From a bank perspective, if their corporate customer approaches them with a cloud service supplier, they know that the implementation projects connecting the customer to the bank’s technological infrastructure will be quick and reduce the effort on their side.

“The cloud computing story should be interesting to treasurers because of the level of innovation that they can receive via these services.”

Joerg Wiemer, CEO, Treasury Intelligence Solutions (TIS)

The quality of the data that the bank receives from a cloud platform can be higher than that directly from a corporate via different accounting or ERP systems in the front end. Many suppliers will check some customer data before sending it to the bank. They can carry out format mapping of the data, for example from the SAP payment format IDoc into a bank-specific format or the Single Euro Payments Area (SEPA) ISO 20022 XML format. This means that the error rate should be significantly reduced.

“A benefit of cloud computing is that a single solution can bring you visibility through your whole treasury function and workflow,” explains Phil Pettinato, Chief Technology Officer (CTO) at Reval. “This means that you can consolidate this data and get value-added business process optimisation to aid your strategic decision making. There is a push by many treasurers to move out of the local processing of data in disparate systems, which is where a single cloud-based solution comes in.”

Following the 2008 global financial crisis, treasury has become much more strategic within the corporate organisation. The treasurer requires the right solutions, analytic tools and technology in order to provide that strategic level of value back to the organisation. Running on legacy TMS that was primarily designed to track cash and payments may not be the most efficient option available today. The type of sophisticated analytics that the treasurer requires include elements such as:

  • Valuation.
  • Risk management.
  • Cash flow at risk.
  • Stress testing of portfolios.
  • Bank account management, where accounts are globally and how they feed back in to foreign exchange (FX) hedging and exposure management for different currencies.

Manufacturers also need to understand the procurement risk on their commodities side and exposures to fluctuating commodities prices. All of this data needs to be packaged together into information that allows the treasurer to make the right decisions. If you are trying to do this using disparate legacy systems, by the time all of the data has been organised and analysed it is already old information. On the other hand, investment in cloud-based solutions all feeds into the latest version of the software.

“Cloud solution providers can keep up with market trends and compliance changes, ensuring that all service users remain up-to-date,” explains Reval’s Pettinato. “For example, if a currency was to be split out from the euro, the provider can change the software accordingly, roll it out in the next maintenance release and ensure that all clients are running the new version.” You can’t do that in an ASP/client server environment with multiple versions in the market.

A changing landscape

The shift to cloud computing for treasury is part evolution, part revolution. On the evolutionary side, when systems that the treasury hosts in-house have fallen behind current industry best practice due to either market or regulatory changes, they become due for an upgrade.

At this point, the cost of upgrading the system, which might be several versions back from the current version, can be problematic for the budget. There are also the issues of internal IT cost and the distraction to the business function as the new version of the same solution is tested and rolled out.

As previously mentioned, if the treasurer goes for a cloud-based solution instead, they will join the single version of software that they share with the community of other users, and won’t be left behind in terms of the software they are using. This is currently one of the main drivers behind the adoption of cloud computing for treasury.

“I think there is also some revolution at work with cloud computing, as web-based technology is where the focus of technological advancement is,” says Reval’s Pettinato. “Everyone is realising that in order to get the benefit of, for example, global access to software in a real-time perspective so that subsidiaries and central treasury can all see their exposures, hedges and cash positions, you really need to have this technology. The availability of this technology in the market place is causing this change of mindset.”

For most corporates with an IT budget, when looking for a new system to invest in they are looking to new technologies. Investment in a legacy-type product is not an appealing option.

The IT support provided by cloud solution vendors is another driver for adoption among treasurers. If a problem is encountered with a payments batch, for example, this can be solved quickly on the vendor side, without the treasurer having to arrange a long project. Removing any worries on the technical side of operations leaves the treasurer free to focus on the more strategic elements of the job that add more value to the organisation. TIS’s Wiemer provides an example:

“I recently spoke with a CFO who had a new treasurer joining the company. They discovered that the PC-based station the company used to execute payments had broken down on several occasions. There were problems with their salary payments and suppliers were asking about overdue payments. In turn this created rumours in the market that the company had liquidity problems. The CFO knew that this problem needed to be resolved very quickly.

“Therefore, before the new treasurer could focus on the strategic business partner role of the job, he had to clear up the existing problems. This would not happen with a cloud service, as the provider would have identified and eliminated the problem much earlier.”

The global picture

Globally, North American adoption of cloud-based treasury solutions has led the way. Today, Europe and Asia are catching up quickly, with request for information (RFI) and request for proposals (RFPs) for treasury systems increasingly showing a preference for the cloud.

“I have spent some time in Asia over the past few months, in places such as Mumbai, Singapore and Shanghai, to find out more about customer requirements,” says Wiemer. “What I see is that the acceptance of cloud-based services is significantly increasing in all parts of the world.”

“Cloud solution providers can keep up with market trends and compliance changes, ensuring that all service users remain up-to-date.”

Phil Pettinato, Chief Technology Officer (CTO), Reval

“We have many clients across the Asia Pacific region in places such as Australia, New Zealand, Hong Kong and Singapore,” says Reval’s Pettinato. “Companies in Asia realise that there are technology trends from outside of their region that they can benefit from, and they are focussed on accepting those technologies they can take advantage of.”

For those whose business touches Europe, SEPA can be a driver for the shift to the cloud. Currently treasurers have a systems issues related to SEPA, with the need to produce the SEPA XML format in the TMS/ERP in time for the looming SEPA migration deadline of 1st February 2014.

There are two basic options available to achieve this. The first option is to bring in an external consultant to configure the system to make sure that it is SEPA-compliant. Such a project can be time consuming, but perhaps a larger problem at the moment is that it is very difficult to hire such a format specialist consultant as they are likely to be fully booked.

The second option is to outsource this to a cloud provider that can deliver a SEPA out-of-the-box service. This takes the strain for the treasurer and can ensure compliance by the time the SEPA migration end date arrives.

Data security

With any remotely hosted technology, there are important questions to ask about where the data is and how secure it is.

  1. A secure data mindset

    The world is trending towards cloud-based solutions, so where data specifically resides is not necessarily going to be as transparent to everyone. The most important thing is that it is maintained in a secure fashion. Evaluate the company you are contracting with and what their security services are around providing these services.

  2. Treasury experience

    If you are a treasurer and want to shift into the cloud, be sure that the service has a good quality of management. Quality means experience in treasury – do they really understand your needs? Look for both experiences in developing solutions that fulfil your needs, as well as in operating these solutions.

  3. ISO certification

    When evaluating the data security available from cloud solution providers, treasurers should also look for ISO security certifications. This is a quality seal and shows that your supplier has done their homework. Does an ERP provider certify the solutions? Are they SAP-certified? It is important to know this information before making any purchase.

A cloudy forecast

The application of cloud computing is part of a transformation that is currently occurring in the traditional treasury technology space. With an increasing focus on risk management, treasurers are looking for sophisticated software that can match their ambition. A shift to the cloud is one way to achieve this.

Treasury talk: cloud computing

Treasury Today recently spoke off-the-record to the Treasurer of an international beverage company headquartered in North America and the Group Treasurer of a global sportswear manufacturer headquartered in Europe, to hear their take on cloud computing.

Treasury Today: How long have you been using treasury cloud services?

North American Treasurer (NA): We are relatively new to this type of service, having been using it for less than a year.

European Group Treasurer (EU): It is similar for us, we’ve been using cloud solutions for just over one year.

TT: Which areas of your treasury use cloud computing solutions?

EU: Our treasury uses a cloud solution for bank account management.

NA: We use one cloud-based TMS provider for all traditional treasury areas, including front office trading and back office confirmations, cash positioning, straight through processing (STP) of payments/settlements, short-term cash forecasting, and the general ledger interface of treasury activity to our ERP system.

TT: What benefits do you feel that you receive from using treasury cloud services?

NA: The cloud solution allows for maximum IT infrastructure flexibility in a straight through trading, confirmation and payment solution model. In addition, unlimited licensed users allow treasury to further roll out forecasting, reporting, and the inter-company netting process to business users outside of treasury.

EU: Yes it is similar from our perspective, the ability to run one global standard platform is key.

TT: Do you have any concerns about using treasury cloud services?

EU: Confidentiality would be our biggest concern.

NA: Yes, security concerns will always exist. We try to mitigate this risk with several layers of authentication and other methods of protection. The cloud service eliminates the concern of a long-term commitment versus the previous server installed investment model. Given the flurry of consolidation in the industry that we have seen of late, we weigh these concerns against the ability to maintain flexibility to participate in future technology improvements.

TT: Are there other treasury functions in your department that you would like to move to the cloud in the future?

NA: We would like to see additional back office paper for bank signatories, bank account documentation and bank invoice volumes and fees migrated to an all-in-one cloud service.

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