The cloud-based treasury management systems (TMS) market is experiencing a spike in growth as treasury teams seek the real-time visibility, scalability and cost-efficiency from cloud-based solutions.
“Cloud-based TMS solutions are rapidly gaining traction due to their scalability, lower implementation costs and ease of integration with other enterprise systems. This has been particularly true since the pandemic,” reflects Royston Da Costa, Assistant Treasurer at Ferguson who says SaaS solutions are migrating to the largest cloud-based providers like Amazon (AWS), Microsoft Azure, Google Cloud, IBM Cloud and Snowflake, to name a few. “Software-as-a-Service (SaaS) models allow treasurers to access their TMS from anywhere, enabling a more agile response to market changes and cloud-first architectures facilitate regular updates and enhance cybersecurity measures.”
Sukand Ramachandran, Managing Director and Senior Partner at Boston Consulting Group says it’s possible to divide the typical day of a modern treasurer into two halves. In the morning, the treasury role is mostly strategic where tasks might include analysis of the corporate capital structure, long-term plans to raise money or when to pay dividends.
The afternoon is more transactional. Making sure payments go out and ensuring sufficient cash on hand will be front of mind. In the past, meeting these complex technological needs would involve multiple software applications involving separate tech licences and ensuring each was current and secure. Trends in hosting these services as a platform in the cloud via TMS is transforming treasury.
“Treasury management systems are now being hosted as a platform in the cloud whereby treasurers can access their TMS on a platform as a service – they no longer need to solely depend on their in-house technology function to do anything because they are receiving everything as a service. Users are given a login and secure key and can access all their data off a platform which is operated on a cloud provider,” explains Ramachandran, continuing. “When the tech function of a company is not a core part of the business, or only a small part of what the business does, it is helpful to get someone else to manage it for you. Firms can benefit from scalability and the ability to respond to increased demand, accessibility and cost efficiency by migrating to a TMS to the cloud.”
Integrating AI and APIs in the cloud
Proponents argue that the trend of hosting TMS as a platform in the cloud goes hand-in-hand with the burgeoning demand for compute coming from AI. Corporate treasurers are increasingly using AI for analysis and forecasting, hunting for patterns to help them predict customer payments, sales or potential risks ahead. Companies don’t necessarily want to hold the level of compute power this requires because they won’t always use it. By accessing cloud platforms, they can tap into AI benefits like forecasting or deep customer analysis on demand. “They don’t have to buy the technology capability that might then just sit idle 80% of the time,” says Ramachandran.
Modern treasury management systems also integrate banking APIs for continuous updates and seamless connectivity. TMS solutions are integrating APIs and utilising cloud technology to provide treasurers with a 24/7 view of their financial landscape. It’s a trend Da Costa believes is a significant game changer. “In my view, API aggregators like Necto that do the ‘heavy lifting’ for corporates by connecting to multiple third parties, including banks, are a game changer. It is worth noting that APIs can also be used to connect to internal systems, offering additional automation and efficiencies,” says Da Costa.
Kyriba is embracing APIs and AI into its treasury management models, maximising the data flowing into TMS to enhance analytics and forecasting. “Cloud is a great tool because all enhancements are rolled out quickly so everyone is on the same version,” says Elisamaria Panico, VP Product Evangelist at Kyriba. “Cloud-based solution providers working on enhancements can leverage them quickly. Locally installed TMS platforms are a different story.”
Ferguson’s Da Costa adds that the shift towards real-time payments is also driving the need for treasury management systems to offer instantaneous liquidity updates that is best supported by cloud-based platform. “With the advent of initiatives like SWIFT GPI, ISO 20022, and domestic real-time payment systems, treasurers require tools to monitor cash positions in real time as well as FX and interest rate risk management solutions driven by live market data. TMS solutions are integrating with banking APIs and utilising cloud technology to provide treasurers with a 24/7 view of their financial landscape.”
Key decisions
Admittedly, treasurers are unlikely to make the ultimate decision when it comes to choosing a cloud provider. However, any decision around procuring from a software provider that’s a service on the cloud must ensure the same configuration to achieve the same outcomes. It is also important to choose a vendor that can manage the volume of the business, and has the ability to scale up. Risk assessment is also key.
This means analysing the different trade-offs between using a cloud-enabled platform versus a platform run by computers in the building, overseen by an in-house team. It requires an exploration of the different features, capabilities and costs of the different systems and which can best support effective treasury management. Cost benefit analysis will gauge benefits like reduced maintenance and accessibility, particularly for global teams.
“Using cloud services involves a different way of thinking,” says Ramachandran. “Companies are either running technology hardware and software from their own domain or they opt to use a third-party provider to run the technology for them and access it remotely through a network. Treasury needs to understand they are moving from capex (capital expenditure) model to an OPEX (operating expenditure) model of using technology.”
Under the platform model, treasury teams no longer have to worry about the technology budget and the need to refresh their computer stack because the service provider takes on this responsibility, he continues. The build will use the providers tech and expertise and include infrastructure costs and building the software based off a pricing model skewed to the amount of analysis required. A company will pay a fixed fee or variable fee. Still, treasury teams will have to pay for analysis in the cloud. “In the old world, the capacity of computers constrained us. In the new world, if can rachet up the analysis and get a bill at the end of the month. It’s a different paradigm,” says Ramachandran.
Securing data is another key consideration. This will involve vendor analysis that evaluates how vendors integrate security frameworks like the data protection act in Europe, KYC and MAL and ISO. Other considerations treasury might bear in mind is the fact large scale providers are better positioned to manage the carbon footprint from cloud services. “Large scale providers have stated climate policies that treasurers can consider when they select a provider but in reality it’s a very small piece of the puzzle,” reflects Ramachandran.
The importance of a streamlined process
Kyriba’s Panico warns that assessing the right strategy should be approached in a streamlined and systematic way. This involves a full assessment of current TMS functionality and evaluation of in-house technology capabilities, as well as anticipating the upgrades that will be required in the future to meet the needs of a growing business. “Evaluating the most suitable landscape involves anticipating business growth and the ability of the cloud to manage increased transaction volumes and scale compared to on-premises TMS technology,” she says.
She also espouses the importance of cross departmental collaboration in the migration and analysis process, ensuring different teams spanning treasury, IT, legal and information are aligned on all strategic and financial objectives. “I’ve seen some situations where treasury doesn’t have enough visibility in the process, and important business needs get overlooked. Migration decisions work best when treasury and IT collaborate early and bring strategic input together.”
“Treasury teams should be proactive in defining what they want from the transition,” she continues. This could be the ability to connect to particular banks; obtain a certain type of data, use AI to enhance a solution or connect with an ERP. “Whether it’s access to specific bank connectivity, AI capabilities or ERP integration — that needs to be clearly communicated early,” she urges. “IT plays a critical role in any treasury technology transformation — particularly around vendor management, architecture and cyber security. But it’s essential that treasury stays in the driver’s seat to make sure the solution supports long-term business goals.”
Migrating to a cloud-based TMS (or any cloud facility corporates buy) changes the role of IT within a company. Teams will shift to focus on strategic planning, vendor management and cyber security away from a hands-on role. Again, treasury should articulate what it requires from IT, she says. “It involves a direct conversation: say ‘we want you here’, ‘you are our eyes and ears on the infrastructure and cyber security’.”
This could include issues like the risk of disruptions impacting their ability to access the network. It means a backup plan is important. “Make sure the network connectivity between the cloud and your business is resilient.” Are these vendors meeting data privacy regulations properly? What if one of these providers has an outage? A shortage of cloud computing experts within banks, the danger that a cyber vulnerability or incident at one cloud provider may have a cascading effect across the broader financial sector and banks’ lack of bargaining power when negotiating contracts with cloud providers.
Other key issues feed into the decision-making process. For example, data hosting restrictions exist in many markets including India, China and Indonesia. It means corporates in these jurisdictions must keep their data hosted in country so that companies in these jurisdictions procuring services in the cloud must make sure the provider is in their own geography.
