Next generation TMS

Published: May 2017
Business person on the phone looking out of office window at the city

Treasury management systems have changed markedly over the past decade, with many adopting a broader range of functionalities as well as different deployment models. In theory, companies of all shapes and sizes are now able to leverage these solutions – but to what extent are corporates in Asia Pacific taking advantage of next generation treasury technology?

Treasury management systems (TMSs) are the mainstay of many corporate treasury departments in Europe and the United States. Indeed, PwC’s most recent Global Treasury Survey found that 80% of respondents in Europe and the US had a fully integrated TMS. Asia Pacific (APAC), however, has tended to lag behind where TMS adoption is concerned: the same study found that less than half of treasury functions in Asia use a TMS.

Changing landscapes

There are a number of reasons why this is the case, not least of all the way in which the treasury profession has developed in APAC. “In Hong Kong and Singapore, two of the region’s most developed markets, the usage of TMSs is generally on par with Europe and the US,” explains Albert Lo, Partner at PwC. “The main reason being that most companies in these cities have a more developed treasury department that is taking a strategic role in the business.”

Once you move beyond Hong Kong and Singapore, however, TMS usage drops significantly. “In some APAC markets, the role of treasury is still emerging and is embedded into the broader finance function,” adds Lo. “With no standalone treasury function in place, the driver to implement a treasury system is just not there.”

Even when a treasury function exists in companies operating in Asia’s emerging markets, corporate culture can prohibit TMS adoption, comments Tony Marrinan, Head of Financial Sales, APAC at OpenLink. “In the top-tier local corporates, the treasury function is still primarily regarded as a cost centre,” he says. “Typically, their structure is quite decentralised and they do not have overly complex requirements, meaning that senior management believes that the operations can be run on a spreadsheet.”

Historically, many Asian corporates were also priced out of the TMS market. “Until quite recently TMSs were perceived to be expensive,” says Tony Singleton, Managing Director, APAC at Reval. “They were required to be hosted on internal servers and the upkeep of these fell onto the corporate customer. As a result, TMSs have typically been a tool for top-tier corporates with abundant IT resources and sophisticated treasury functions.”

Treasury in the cloud

In more recent years, both the status of treasury in the region and the solutions offered by TMS vendors have changed, seeing TMS adoption gain momentum. “Today treasurers across the region have a much broader remit and are expected to achieve their goals with fewer resources,” says Singleton. In Reval’s most recent global survey, for instance, 72% of financial professionals in the region said they expect the scope of their treasury function to increase, while 73% expect their staff to stay the same or decrease. “This growing maturity, coupled with the proliferation of regional treasury centres (RTCs), highlights the need for treasury teams to have more sophisticated tools than spreadsheets to manage their operations,” adds Singleton.

As the treasury profession has developed, so has the TMS landscape, with vendors offering lower-cost deployment options. The game changer in this respect has been the rise of cloud-based solutions, whereby solutions and data are held off-premises on the TMS providers’ servers and accessed through the internet. According to Reval’s survey, 30% of respondents in the region said they are using cloud-based solutions.

Cloud-based solutions offer numerous benefits for treasurers. For instance, vendors maintain and automatically upgrade their solutions, ensuring that systems are always up-to-date. Cloud solutions can also be accessed easily from anywhere in the world and they can offer better disaster recovery and business continuity.

The main attraction, however, is that the rise of cloud models has cut costs dramatically. PwC, for instance, suggests that a cloud-based TMS implementation can be 30% to 50% cheaper than a traditional server-based implementation. It is no surprise, then, that OpenLink’s Marrinan states that every RFP the company receives specifies cloud deployment.

Six steps to TMS success

Executive management support

Group of three people icon

At the outset of the project, it is essential that treasurers (should) garner the support of executive management and at least secure their willingness to consider investing in a new treasury system.

IT department

Three people on top of a tog wheel

It is important to seek IT participation from the start and invite a designated representative to join any TMS project discussions. Their early involvement promotes their understanding of treasury requirements whilst giving them the opportunity to provide expert guidance on the technological details of the TMS project.

External relationships

Handshake in the background with three people in the foreground

Treasurers should be aware of any issues that may surround the integration of bank reporting mechanisms, payment systems or other external feeds with a new TMS. It can be helpful to discuss the TMS project with bank relationship managers as they may be able to provide useful insight into TMS technology and how it can help specific clients’ needs.

Treasury structure

Bunch of bricks laid out neatly

It is important to consider which areas within treasury operations will be impacted by system changes. This will depend on a treasury’s structure – decentralised, centralised and/or in-house bank – and on whether payment/collection factories or shared service centres are used.

Treasury operations

Tog wheels

The systems and procedures currently in use should be assessed in detail and relevant documents such as the treasury policy, treasury mission statement, job descriptions and user manuals should be consulted. Workflow analysis can be undertaken to identify current inefficiencies, weaknesses and control and security issues that may expose treasury to greater risk.

Defining TMS requirements

Paper and pencil with target

A definitive list of requirements should be drawn up using the information collated. These requirements can then be divided into areas of activity or sections within the treasury department, eg dealing, confirmation, settlement, cash flow forecasting, treasury control and risk management, differentiating between the essentials and the ‘nice-to-haves’.

Joining the dots

Treasurers are also requesting systems that are more flexible and better positioned to meet their changing needs. More specifically, treasurers are asking for systems which enable them to pick and choose functionality based on their own requirements and that can be easily integrated into other systems used by the treasury.

It is in these areas that relative newcomer to the TMS space, TreasuryXpress, has focused a lot of its efforts. As a former treasurer, Anis Rahal, the company’s founder and CEO, found it frustrating having to implement a full TMS when only a few specific features were needed. As such, TreasuryXpress has pioneered the ‘unbundled’ TMS solution with its C2Treasury platform.

Once the basic solution is deployed, Rahal explains that treasurers are able to use TreasuryXpress’ online ‘app store’ to buy extra modules, such as advanced forecasting. “The TreasuryXpress Store is all about how we can make the life of the treasurer easier,” he says. “Often the selection and buying process for treasurers is long and drawn out because they are forced to justify extraordinarily expensive implementation project fees and subscription costs. Our solutions eliminate those barriers because they are highly affordable and quick to implement.”

Rahal also notes that the TreasuryXpress solution has been built with next generation connectivity in mind, specifically application programming interfaces (APIs). Most recently, TreasuryXpress launched a payments API called Payments+. The new API delivers an easy, self-service means to automatically generate bank-ready, ISO 20022-compliant payment files from any ERP or TMS. “We rely on APIs to make our technology work and connect to other systems,” says Rahal. “It is all about providing flexibility and optionality to our clients.”

The next step

Some treasury departments in Asia are also now looking to squeeze added-value out of their systems through the use of analytical modules. PwC’s Lo states that when working with clients on implementation projects, many are interested in the ability to conduct scenario analysis and stress testing based on their own data set. “The results can then be provided to the CFO and used as a guide for the future,” he says. “This is a very good way to get more value from the TMS and something many corporates are looking at doing.”

The focus on analytical capabilities is something that OpenLink’s Marrinan says the company has been working hard on. “By including commodities risk alongside interest rate and FX rate risk in our system, we already offer our clients a holistic view of their overall risk profile,” he says. “Analytics has always been a big part of our offering, but now there is a concerted effort to make this easier and more effective for treasurers and CFOs. The aim is to help put them in a position to make highly informed and proactive business decisions.”

Analytics, while useful now, is not the zenith according to Reval’s Singleton: he expects to see the focus moving to mobility and real-time analytics evolving into artificial intelligence (AI) over the coming years. “Corporates won’t have to conduct stress testing, the system will do it for them based on the data it is receiving from the market,” he explains. “This information will then be pushed to the treasurer and displayed on a dashboard within the system. AI may also enable TMSs to suggest trades that need to be made and changes to the hedging policy, for instance. In Asia more urgent imperatives will be addressing cyber-security, blockchain, and new accounting standards like IFRS 9.”

Building a business case

Before treasurers in APAC can leverage the functionality that TMSs offer today – and the functionality they may offer in the future – they first need to build a business case to have one implemented. As mentioned earlier, this is not always easy.

Reval’s Singleton, who has been working with clients implementing TMSs for over ten years, has some salient advice for how to overcome the challenges. “Implementing a TMS is part of a transformation journey,” he says. “And first treasury needs to shift the thinking of senior management and make them view treasury as a value adding function that can deliver enhanced financial returns for the business.” Once this mindset has changed, Singleton says that treasurers can then begin thinking about how to sell the investment in a TMS platform. Here it is important to highlight the financial benefits that can be sought from improved working capital management, liquidity management and the adoption of an in-house bank.

Finally, when the treasurer gets approval to implement a TMS, Singleton advises that treasurers should be strategic when managing the implementation. “It is important to get quick wins to show the benefits of the solution immediately,” he says. “For instance, Reval helped one of its clients connect over 1,000 accounts in the first two months, gaining full visibility over their cash. This was a big benefit for the company and completely validated the rest of the project.”

Case study

Portrait of Wan Chun Shong, Group Treasurer, Tan Chong Group

Wan Chun Shong

Group Treasurer

Tan Chong Group

As a fast-growing company, Malaysia’s Tan Chong Group needed to move away from manual processes and drive more efficiency across its treasury operation.

“We have been running an in-house bank on spreadsheets for a few years and as the company was expanding this was becoming an incredibly time-consuming process,” says Wan Chun Shong, Group Treasurer at Tan Chong Group. “The biggest issues were that mistakes were so easy to make and occurred frequently, and I was spending most of my time resolving these issues. We also needed to gain more visibility over the Group’s cash, something that the legacy manual set-up just didn’t permit.”

Long-term project

Tan Chong had actually come close to implementing a TMS a few years ago after the treasury explained the merits of such a system to the company’s senior management, however, this didn’t go ahead. Although disappointing for the treasury at the time, it did provide some key learnings for when Wan and his team began looking at the TMS market again last year.

“After setting up the in-house bank, we went into the market looking for a highly sophisticated solution that could be hosted on-premise,” he explains. “In hindsight, this really wasn’t what we needed. We were not a sophisticated treasury set-up and didn’t need a ‘Rolls Royce TMS’, so in some respects it was good that the project fell through, rather than be stuck with a solution that didn’t meet our needs.”

A more pragmatic approach was therefore taken last year when the Group submitted its RFP to the market. What is more, the senior management had also become more familiar with cloud technology and were therefore happy for the treasury to adopt a cloud-based solution. “We knew that the best system for us was one that has robust functionality and isn’t overly complex to use or filled with a lot of features that we wouldn’t use,” says Wan. “We wanted to plug in and play and enjoy the benefit right away.”

After a diligent process, Tan Chong selected Kyriba’s cloud-based solution. “We knew that all the TMS solutions could do what we wanted, it was just a case of finding the one that was easiest to use and most closely matched our requirements,” says Wan.

Next steps

With implementation commencing shortly, Wan states that the current focus for his team is on aligning processes with the system. “Treasury teams shouldn’t try and adapt the system to fit, they should adapt,” he says. “The TMS will provide all the efficiency and streamlining that you need as long as you provide the right inputs.”

The next area that Tan Chong Group will be focusing on is bank connectivity. This is especially important in ASEAN as not all banks have best in class technology infrastructures. “Ideally, we want the TMS to connect to all our banks and provide the straight through processing that we are looking to achieve,” concludes Wan.

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