The future is in bits (and bytes)

Published: Feb 2014

Treasury technology may exhibit a relatively glacial flow compared to consumer banking software, but the treasury landscape is shifting. But in which direction is it going?

Never short of a professional view on how the market is behaving, Kelvin Walton, director of UK-based consultancy, TreasuryWise, believes that whilst TMS vendor consolidation has gone almost as far as it can go, niche systems will continue to thrive; a condition in part being driven by the broadening scope and list of treasury concerns, from risk to regulation to Big Data.

Niche providers will thus persist because as new needs arise technology gaps are created. The main TMS vendors may subsequently offer a competing solution, but not every treasury has or needs a TMS and of those that do, the solution may not be best-in-class.

But niche providers may in time become acquisition targets for the major TMS providers seeking to fill their own functionality gaps (especially if the vendor is losing sales to a better-integrated competitor). Walton believes it is no idle speculation that the commercial threat to a major player is not only its direct competitors but also the smaller vendor “intent on upsizing”. Unlikely? A specialist vendor finding itself with deep pockets, having generated revenues by servicing the small and mid-sized corporate sector, can move into the mainstream if it acquires the right product set; Reval, for example, making a case in point.

Cloud concerns

For Walton, niche vendors – most of which are offering their products via the Software as a Service (SaaS) or cloud delivery model – are thus the “dynamo” of the industry right now, the old argument against the SaaS model – that taking technology offsite multiplies operational risk – having faded, notes Walton. The cloud variant – where a company’s data and applications sit on servers that it controls, as opposed to SaaS servers controlled by the vendor – practically negates this concern. Both SaaS and cloud models have moved steadily towards acceptability and Walton believes both are now seen as “secure, stable and cost-effective” and, he adds, “even a risk reducer” where SaaS/cloud accessibility facilitates the retirement of yet another spreadsheet.

Marcus Hughes, Director Business Development at payments specialist, Bottomline Technologies, believes that for any organisation looking both to reduce costs and manage risk, the cloud model now has “considerable appeal”.

Indeed, states Hughes with considerable confidence, “for those who are considering a new solution there seems little need to bother with the costs and complexities of having an on premise solution”. The wider technology community has already recognised this view, Hughes adding that “most, if not all” vendors are moving their software to a pay-as-you-go platform option. “Considering that the vast majority of the payments process is outside of the business, within the financial networks, it seems almost illogical to try to maintain internal systems for this purpose.”

The next big change which Hughes anticipates over the next year or so is that, driven by budgetary and IT constraints, major banks will begin outsourcing to the cloud core functions such as supply chain finance, payments and multi-network connectivity. “However, cloud should not be seen as inevitable for all organisations,” he comments. “Successful solution providers need to continue to offer both locally deployed and cloud-based options to their customers who must make up their own minds about whether, or how they choose to migrate to the cloud.”

For Justin Brimfield, EVP, Corporate Development at Reval, whilst much attention has been given to the large margins of error, weak security and lack of audit capabilities associated with spreadsheet usage, it is worth noting how reliance on spreadsheets tends to creep back into the lives of those who have invested in conventional, installed treasury applications. “After the initial benefits of automation are recognised, many treasuries find themselves falling behind several versions of their systems without the time, cost and effort to invest in implementing an upgrade,” he says. As regulations change and organisations grow, these same forward-thinking treasury professionals turn back to using spreadsheets as a workaround. “These workarounds become more and more out of sync with their core treasury applications, which in turn, are relied upon less and less.” Brimfield argues that companies automating processes for the first time or facing an upgrade “can leverage SaaS technology to ensure they are always on the most current version”.

Wider choice

One major vendor that has its feet firmly planted in both the installed and SaaS/cloud camps is SunGard. Whilst its Senior Vice President of Treasury Solutions, Paul Bramwell, understands the treasurer’s reticence to shift to new technology, given that many use mature applications that have been years in the making. User-familiarity carries with it an element of security whilst new technology is risky. But the main reason for slow adoption, he feels, is that there is a predominant landscape of installed legacy technologies which is not easy to integrate. “It’s a project that a treasury has to budget for, not just financially, but in terms of timing and resources.”

SunGard has a policy of supporting all the versions of its software in current use because it understands that treasurers will not change for changes sake. But, admits Bramwell, “it is in our interest to persuade clients to move on to newer versions of the software”. Enticing treasurers to adopt new technology requires forethought, not gimmicks. “We introduce new features and functions but still the enemy of the software vendor in this respect is client inertia.”

The treasurer’s hand may eventually be forced though. The rise of risk, regulation and compliance in the current environment is a strong driver for change; some recent events would not have been considered possible when many legacy applications were first installed (bank default, for example). In technology terms, vendor actions can focus the mind on change too. Where technological change is forced around one aspect it may mean change is necessitated elsewhere if the upgrade (or replacement) software cannot communicate effectively with legacy systems. If legacy technology can potentially constrain progress or at least dictate what can and cannot be implemented, it is surely better to manage change to new technology rather than be forced into it.

A risky business

In the broader context of corporate life, Brimfield sees treasurers taking on new challenges, such as managing commodity and price risk. Risk technology (and hedge accounting) has always been Reval’s stock-in-trade for treasury, but like SunGard’s Bramwell, he too sees “the circle of data mining getting bigger” to cover “every last exposure”. To this end, Reval partnered towards the end of 2013 with US-based firm, Atlas Risk Advisory.

Atlas’ proprietary methodology (based on data cube technology) of extracting data from an ERP provides a “complete view” for balance sheet and cash flow hedging. Reval collates the data enabling the user to hedge through one of its trading partners before returning the confirmation. It is, says Brimfield, a “straight through processing relationship”; integration, he feels, is “one of the burning issues of the moment”.

New products are clearly needed to address market change, where manual approaches to risk, compliance and fraud leave businesses overly exposed. Vendors are tackling these needs, says Phil Mattes, Treasury Strategist at Kyriba, but the push for innovative solutions to take treasury to the next stage is a different matter.

Market consolidation over the past few years has removed some of the smaller (and therefore more agile) providers, leaving the mid-sized vendors as the main market-disturbers. But the risk-averse nature of corporate treasury means the dramatic changes in paradigm that can be seen in some industries “is never seen in the treasury world”. The treasury department, says Mattes, “is rarely the early adopter of technology”.

On the move

The voluble chatter around the anticipated roll-out of mobile treasury services is a case in point. Anecdotal evidence suggests treasurers are yet to be fully convinced, leading Mattes to argue the case for clarification of the message. “Treasurers are perhaps not ready to have their full TMS on their iPad, but for accessing key reports, getting cash positions and for enabling payment approvers to review and release payments, I think there is genuine interest.” Casting the typical treasurer as a “road-warrior” is a mistake too, he feels. “We’re finding that some clients are using mobile when they’re away from their desk but not necessarily out of the office.”

Mobile is perhaps still a ‘want’ whereas tackling the Big Data issue – managing and mining the vast quantities of data stored in treasury solutions to identify trends and anomalies, in order to make more informed decisions – is becoming more of a ‘need’. Mattes’ team is currently working on an initiative to enhance reporting. By integrating treasury and finance data, mining it and using visualisation tools to clearly present it, it is possible to aid the transition of data into information. Where the treasury system, ERP and other in-house finance applications can better share information, Mattes argues that risk management and competitive advantage can be derived. This, he adds, is especially so as the shift is made from periodic data transfer to the real-time world of open API-based live data exchanges.

Banking on technology

Technology strategy for a transaction bank is not just a case of thinking about how well its own toolset is faring, but also how well it connects to its clients’ technology and enables them to operate more efficiently, says Ken Deveaux, Global Head of Channels and Distribution, International Banking at RBS. One of the big connectivity issues for 2014 is SEPA. “We’re driven by a confluence of regulatory requirements and corporate client needs to meet a deadline. I think there will be an opportunity for corporate treasurers to optimise their working capital flows quite a bit further,” says Deveaux.

“Today, technology and standards are driving the exchange of payment instructions and related reporting, for example, in a series of bi-lateral exchanges between banks and corporates,” he notes. “Commerce by nature is a multi-lateral activity, with buyers, sellers, and their banks exchanging information and promises that result in a transaction. As technology and standards become more sophisticated and accepted, I do see the electronic model evolving more to support a many-to-many environment.”

In the supply chain finance space, consideration will be given to improving connections between buyers, sellers and banks so that financing and the flow of payments and information about goods and services being sold is all in one place. “This is an area where we think there is a lot of efficiency to be created in enabling companies to manage this information much more cleanly,” comments Deveaux. The products or tools that create these connections will come from both banks and independent technology firms, but for him it is essential for banks to try to “break out of just pushing payments from one party to another” and deliver services that help treasurers optimise their use of working capital and improve the efficiency of payment and information flows.

In the coming years Deveaux sees connectivity being taken for granted; this is a good thing. “I see a world where connectivity is much simpler and more straight through as standards mature and become more broadly accepted,” he explains. But he also sees better connectivity between all parties to a transaction, from initial inquiry through to final payment. He also believes that over the next few years the benefits of these multi-party exchanges – seamless exchanges of payments, purchase orders and other commercial information – will be seen on a wider scale.

We want information not data

“It’s not just about making transactions, it’s also about pushing information,” says Mark Wraa-Hansen, Global Head of Cash Management Solutions, Danske Bank, commenting on the likely form of new technologies. This is particularly so for mobile devices which are “starting to spill over into treasury”.

Wraa-Hansen believes that treasurers are ultimately looking for flexibility. Solutions will be in demand that enable the pre-definition of a wide range of financial situations, ensuring key decision-makers are getting the information they need from their banks, when and where they need it. The persistent talk of the need for real-time data suggests a matching sense of urgency around the implementation of solutions. “In the future we will see more third-party and bank-owned data hubs into which corporates and their banks can connect,” he predicts.

Standardisation is an enabler for full flexibility and visibility. It clearly takes a while for some propositions to make an impact. However, Wraa-Hansen thinks that the time has come for the long-running TWIST standards group and its Bank Services Billing offering. “Corporates are increasingly looking for transparency in the fees they pay to banks and for the ability to benchmark those fees across banks,” he says. “In this respect, TWIST is a great tool that has not received the attention it deserves.”

The Big Data explosion mentioned above by both Walton and Mattes needs steering in the right direction. “When you have lots of data, intelligence must be applied to generate information that you can then act on,” states Wraa-Hansen. With every client having a different set of needs, tailoring of solutions is a current focus for Danske Bank; the key, he notes, lies in clear communication of ideas and added business value. “It’s one thing to have great technology but if we don’t listen carefully to how it should be applied and what kind of outcome is expected then it is useless.” Treasurers may not typically be early adopters of new technology but, he continues, “I don’t think there is any reluctance to adopt new technology; we just have to articulate and explain how and why it is relevant and what it can do for them”.

Be prepared

With all this in mind, one important consideration when buying technology is its likely longevity in terms of vendor support. Few products will be carried indefinitely but the decision to ‘sun-set’ a certain offering may be driven, not by commercial reasons, but by the product’s obsolescence in terms of outmoded technology. This may make it increasingly difficult to interface and integrate with other software, may bar the use of modern facilities such as web-based functionality or, even if the function is still working well, become harder to find developers with the knowledge to keep the software relevant. TreasuryWise’s Walton thus notes the inadvertent potential for an existing architecture to “condemn you to a certain set of rails as to how you can develop”. For this reason he urges buyers to at least be aware of the underlying technology of the system being purchased, no matter how new and exciting it may appear to be.

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