Is it time for treasury to split with all-in-one solutions?

Published: Nov 2021

Standalone software components may not be about to usurp treasury management systems, but even TMS vendors acknowledge that specific customer requirements demand co-operation with fintechs.

Colourful beachhuts on stilts

Earlier this year, JPMorgan Chase commercial banking published an article suggesting that many treasury and finance organisations assume a TMS can solve all their operational cash management issues and referring to the availability of niche alternatives that can alleviate the cost burden and long implementation timelines associated with a traditional TMS.

Even TMS vendors accept that standalone components make sense for addressing specific issues, which is why Kyriba has opened its unified platform to third parties. However, they also suggest that clients see software proliferation as a pain point, particularly in relation to security and data management.

In simple terms, multiple standalone components are generally seen as more relevant for large organisations which handle specific types of transactions that can be quite complex and involve large volumes.

Small and medium-sized corporates tend to handle simpler transactions with less volume and their financial resources are more limited. As a result, they are more likely to opt for a single treasury management system.

Many of the reasons for using a single TMS platform (convenience, cost, lack of internal IT skills) are as relevant now as they have ever been and likewise there have long been corporates with the motivation and resources to supplement their core TMS with specific standalone components.

“As such components become more freely available, cheaper and easier to connect, they will appeal to more corporate treasuries,” says Adrian Rodgers, Director of treasury consultancy ARC Solutions. “However, the number of treasuries that need to assemble a boutique suite of applications will remain relatively small.”

Patricia Hines, Head of Corporate Banking at Celent refers to two distinct trends in this space – TMS providers expanding their functionality into adjacent spaces (such as Kyriba supply chain finance); and adjacent players expanding their functionality into TMS (for example, HighRadius receivables automation and Coupa payables automation offering TMS features, and Axletree SWIFT Service Bureau offering treasury automation).

Anil Khurmi, Manager at treasury consultancy Zanders describes the option of using a stable of best of breed standalone treasury solutions as an increasingly viable alternative to the established model of using an all-in-one TMS.

Case study

zurich logo

From working with a simple set of accounts and a small number of banks – taking data from a number of internal entities – Zurich North America’s treasury function underwent rapid growth. This resulted in the function becoming the shared centre of excellence for cash and banking activities across the US and Canada.

The treasury function now supports numerous business divisions with cash across half a dozen core banks. This growth created challenges establishing cash positions on a daily basis and underlined the value of the payment functionality provided by the treasury management system supplied by GTreasury.

“The system has reduced our dependency on using individual bank websites and enabled us to manage corporate loans and short-term investments as well as payments,” explains Sandra Telles, Treasury Operations Manager at Zurich North America.

The attraction of working with a single TMS was its ability to be a hub for cash management activities such as payments, cash forecasting, bank fees, and cash accounting activities.

“The breadth of the functionality allowed us to eliminate a bank fee vendor, import investment balances from multiple partners, and support the implementation of cash postings, all which contributed to reduced expenses and centralisation of data and processes into one simplified solution,” says Telles. “We like the ability to do our treasury funding and investment payments within one system whilst also booking the activity within a single system.”

As head of operations, Telles says she is regularly approached by other TMS vendors as well as fintechs offering standalone solutions. The company actively supports fintechs that have developed relationships with its TMS and ERP systems.

“Supporting new vendors through our treasury management system will make it easier to implement data feeds and/or payment files in a more cost-effective way at an accelerated pace,” she says. “Most organisations have resources constraints when it comes to IT support, so being able to use a single TMS solution to support new business needs will continue to keep Zurich agile with respect to automation and reduces the work effort needed from our ERP system.”

“This evolution is driven by an increasing number of fintechs disrupting the market with competitively priced standalone products, coupled with technological advances which help to mitigate the risks previously associated with running multiple systems,” he says.

It is also important to note that the TMS vendor market continues to go through significant consolidation. Some of the key drivers for this include the fact that large scale clearly supports, amongst other things, the ability to deliver niche capabilities on top of the core solution.

Whilst newer, smaller vendors face challenges – not least those presented by the ever-changing regulatory landscape – the accelerating pace of technological advance is having a significant positive impact on the supply of lower cost, specialised solutions available to corporates.

That is the view of Andrew Hollins, Director of Corporate Treasury Proposition at Refinitiv, who identifies two notable trends that have emerged from these developments.

“On the one hand we have seen growth in cloud-based, full service TMS solutions targeted at mid-sized, often regional corporates,” he says. “Common features of these SaaS solutions include low cost, standardisation of capability, and the absence of customisation. This can be sufficient for a company with less sophisticated, less complex treasury requirements.”

It is also apparent that larger corporates are examining their deployed TMS spend far more rigorously. With a deployed system, it can be the case that multiple modules provide support across a range of critical treasury functions such as cash and liquidity management, payments, and risk management.

With the growing availability of agile, cloud-based solutions which are able to supplant certain deployed TMS modules, companies are increasingly able to make a call regarding the degree to which certain modules are ‘core’ to their particular operation and business model. As a consequence they may choose to replace a costly deployed TMS module with a lighter, cheaper, and more targeted alternative.

The number of treasuries that need to assemble a boutique suite of applications will remain relatively small.

Adrian Rodgers, Director, ARC Solutions

According to Hollins, hedge accounting, cash flow forecasting, benchmark interest rates transition, and even collateral management can be candidates for a lighter alternative, supporting capital markets and hedging portfolios.

“By adding an interface to the company’s ERP system it is also possible to consider enterprise-wide risk analysis encompassing value at risk, cash flow at risk, liquidity/working capital optimisation, and supply chain financing solutions,” he says. “On the latter point, there is a notable trend towards the automation of receivables and supply chain financing leading to a growing number of disrupter platforms supporting this workflow.”

Where they are available, APIs simplify setup and are lower cost connectivity channels. Finastra uses APIs to connect its treasury management solution with FX dealing platform 360T and its confirmation matching service, for example.

The use of APIs enabling data sharing between systems has had some impact on the resources required to manage interfaces between these individual treasury solutions according to Hines, who notes that SAP has improved its connectivity tools and SaaS-based TMS providers including Kyriba and GTreasury are beginning to launch API portals.

There is a tremendous opportunity for those solutions that support open banking given that they can leverage APIs to incorporate data from multiple solutions into a single dashboard suggests Manoj Mishra, Vice President of Consulting Services at CGI. “Institutions able to leverage APIs to provide a unified experience using niche fintechs wherever it makes sense will emerge as the ultimate winners,” he says.

The concept of an all-in-one treasury solution was a nice idea decades ago but that model and strategy is no longer scalable.

Tracy Kantrowitz, Vice President of Market Treasury, Bottomline Technologies

But API readiness still varies by bank and technology provider, creating a general lack of global standardisation and maintaining demand for channels such as SWIFT. In addition, the buyer will still be working with multiple suppliers for installation, integration and ongoing product support cautions Ken Lillie from treasury consultancy Lillie Associates.

“Every system project and requirement definition is different, so corporates need to complete a thoroughly researched requirements definition,” he says. “They should also look at the market to see what products are available to meet those requirements – including TMS and standalone – examine each option for functionality and efficiency, and compare the overall price and ongoing cost of ownership.”

When asked whether the lower cost of using an all-in-one system outweighs any compromise involved in using systems that don’t deliver all the required functionality at a time, Khurmi says corporates need to balance total cost of ownership against functional fit.

“The use of multiple solutions is often assumed to be more costly and cumbersome, although recent developments – such as SaaS cloud deployment, single sign-on and the use of APIs for data integration between systems – means this may no longer be the case,” he says.

Additional considerations in the choice of approach include training requirements, user experience, vendor support and relationship management. “These are all areas that are adversely impacted when using multiple platforms, so it is important the benefits of enhanced functionality outweigh these factors,” adds Khurmi.

In some cases it makes sense for TMS vendors to expand functionality, for example in areas such as cash forecasting where ION Treasury has applied machine learning to its treasury forecasting capability. In other cases, providing integration with specialised solutions will be the preferred option, such as if a company is looking for greater automation of its investment activities.

Specialised solutions put pressure on treasury management providers to strengthen their own functionality in those areas, says Steve Wiley, Vice President of Treasury Solutions at FIS.

“In evolutionary terms, treasury management systems which have received continual investment over the past 20 years have evolved to a point where they can do most or all of what specialised or best-of-breed solutions can do,” he explains. “Newer treasury management systems struggle and are forced to partner with ecosystem players to establish stronger integration.”

Treasury management providers are focusing on both building and partnering according to Tracy Kantrowitz, Vice President of Market Treasury at Bottomline Technologies.

“The concept of an all-in-one treasury solution was a nice idea decades ago but that model and strategy is no longer scalable,” she suggests. “Treasury management system providers must invest in both core treasury functionality and digital services that allow them to integrate and cooperate with other solutions.”

Treasury management systems need to support wider functionality as the market trend amongst banks, TMS providers and fintechs is to aggregate and consolidate financial services offerings with the systems used to support the business, adds Eric Aillet, Product Manager Fusion KTP at Finastra. “The distinction between each will reduce over time as the value chain is consolidated,” he says.

The trend for fintechs to develop solutions focused on specific treasury functions might suggest that treasury management systems need to offer wider functionality, but that is not the only factor in purchasing decisions. Hines concludes that a corporate might choose a standalone component because of its lower cost of ownership.

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