FinTechSystemsThe Impact of Web Services on Treasury Management

The Impact of Web Services on Treasury Management

While the processes of treasury operations and the basics behind the services that banks offer to meet them have remained pretty much unchanged for quite a long time, technology has allowed for increasing automation, improved timeliness, greater accuracy, and a complexity not even previously considered. Three phases of IT implementation provide an overall framework for describing the impact of technology on business:

  • Automation: the migration from manual systems to computer based systems. Journals were replaced by discrete applications that were purpose built to replace each manual process on a stand alone basis. These are the classical ‘information silos’. The ‘smokestacks’.
  • Integration: the automated systems are tied together to provide information across systems in the enterprise.
  • Web enablement: The advent of a common way of sending and receiving data (XML), the development of standards both for the messages and the business processes that utilize them, provide a framework for distributing information across the enterprise boundary.

Today, customer focus, customer needs, customer centricity, value-added and STP are the mantra of financial institutions seeking to retain, attract, and grow treasury relationships with their corporate customers. Why has banking changed so much? Are corporate needs that different than they were 10 or 15 years ago?

The answer, I think, is that everything has changed – but nothing has changed. The mainstays of corporate treasury operations remain virtually the same:

  • Accelerate collections
  • Know where your cash is
  • Slow down disbursements
  • Forecast cash requirements
  • Risk Management

The difference is in the detail. While the objectives of today’s organizations remain virtually the same, they now have much better tools to support them, and some of the functions previously provided by banks are being disintermediated as companies communicate directly with each other.

The globalization of business has created a need both in financial services firms and corporates for improved timeliness to meet the needs for just-in-time business, faster settlement and greater transparency. Forecasts of cash requirements can be made through statistical and transactional analysis from sales forecast, and accounts receivables and payables and payments information transmitted in a B2B environment right from the payables systems of customers directly to their suppliers. Matching engines can take information from broker-dealers, depositories, and banks to accelerate the post trade settlement process in the securities industry.

How does this relate to the impact of Web Services?

Organisations that implement web services-enabled applications can communicate with each other through a standardized and secure interface over the web interface on XML.

For years, the financial community has sought a better way to serve its customers. Treasuries – and their financial and trading counterparties – require an intricate coordination of processes to meet the increasing demands for speed and accuracy created through globalization, competition, and industry and governmental regulations.

Facing the increasing commoditization of services and the competitive pricing policies inherent in not-well differentiated products is creating an opportunity for innovative banks and other financial institutions to create new services that embrace the improved efficiency of standards, XML and secure message delivery over the internet. Automation provides significant value to common treasury operations such as payments and FX deals by accelerating access to information. And by accelerating access, it is now feasible to analyze and process vast amounts of information that were previously inconceivable because you couldn’t obtain it quickly enough and even if you did, computational capability was an expensive commodity!

For banks, this standardization forces them to re-think their role in terms of the financial value they provide through electronic banking for their customers. In the past, a bank’s electronic banking unit would provide an interface to its customers using a proprietary network and standards. By standardizing the interface requirements using web services, the playing field has been entirely leveled and the difficulty of migrating from one bank to another has been removed. This means treasurers are free to shop around for new banking relationships.

For the bank wanting to enter a new marketplace, the fast implementation of a web services based interface can offer a new revenue stream. But the enablement of a web services based architecture for a bank with an established customer base may mean that traditional relationships become the target of cannibalization.

Bank Challenges

Banks need to offer innovative, cost effective ways to utilize IT as a strategic component of their offering. Multiple connections and high maintenance costs are associated with the provisioning of proprietary solutions – these have now become a cost-intensive burden for both banks and their counterparties.

Straight Through Processing

Real STP is a concept that goes beyond the boundaries of the enterprise. While many organizations have moved internally to provide information in real time, how can information from the outside world be integrated to provide cross-enterprise access? As the complexity of the business process increases (as in post trade settlement, or trading partner integration for example) so do the benefits (and complexity) of implementing STP processes.

What treasurers’ customers want is end-to-end STP. It used to be that ‘STP’ referred to containing costs by eliminating the manual intervention required to process financial transactions within the organization.  The ‘STP rate’ was the percentage of transactions that could be processed in an all-electronic environment. Not anymore.

Enabling banks and other intermediaries and counterparties to connect to each other over the internet is what is required to provide real STP.

In order to provide this vision, technology must provide:

  • Security
  • Scalability
  • Cost effectiveness
  • Message translation
  • Ability to easily integrate in back end systems of both banks and corporate customers
  • Web services capabilities

The enabling components are now available to support these requirements. Technically, it had been possible to integrate disparate enterprises into a workflow for quite some time. However, the cost of provisioning these solutions as well as maintaining them rendered substantive implementation unfeasible. Where there were interfaces, they were primarily provided through batch file transfer.

So, that’s the answer to the riddle – nothing has changed about the business requirements, but everything has changed about provisioning them! Three initiatives provide a preview of what’s in store in this new automated Web services environment.


With the introduction of SWIFTNet, SWIFT’s new IP network , SWIFT can offer secure and guaranteed real time message requests and responses over the SWIFT network.

An initial new application for this network is real-time cash reporting. The new IP-based network in conjunction with new messages allows a SWIFT member to initiate a request to another SWIFT member to respond with the information sent back over the SWIFTNet network. There is no longer a need for data users such as a bank or corporate treasury to wait for their counterparties to push out information. Now, all the counterparties can be queried. The benefits are huge. For example, position worksheets can be populated with real-time information, eliminating the need to ‘call around’ to get up to the minute information

The initial users of this service are likely to be bank treasuries themselves A bank treasury is now able to query its correspondents in real time to determine if expected collections have been made. Previously, the correspondent would initiate the sending of the data but with real-time cash reporting, it’s the recipient data user who initiates the request.

2. RosettaNet

RosettaNet is a consortium of technology companies who have agreed to define data and process definitions to support a complete B2B order-to-cash process between trading partners. Within the last year, RosettaNet expanded the process to include the integration of payments along with the matching to remittance advices. (A not-so-simple process when the payment is sent to the seller’s bank and the remittance advice – which can pay off many invoices – is sent directly from the seller to the buyer)

“What XML replaces in the case of corporate-to-bank communication is proprietary PC workstations with dial-up links that have huge maintenance overhead both for corporate IT departments and bank user-support departments. Using XML open standards internet protocols eliminates that completely. That is significant,” said David Blair, managing director of Nokia Treasury Asia Ltd. in Singapore, and program director of the RosettaNet Payment Milestone Program.


TWIST is a consortium of corporate treasurers, banks, fund managers, trading platforms, and clearing and settlement services (amongst other industry participants) who have developed a set of non-proprietary XML standards that address three functional areas:

  • Wholesale financial market transaction processing
  • Commercial payments & collections and working capital finance
  • Cash Management

Some of the processes that are supported include:

  • Wholesale trade life cycle: FX, Loans & Deposits
  • Credit checks
  • Bank pricing of deals
  • Deal uploads
  • Deal capture, including post-trade events
  • Static data exchange
  • Commercial paper issuance
  • Payments Processing
  • Payment initiations
  • Invoice discounting
  • Cancellations
  • Rejections
  • Repairs
  • Status updates
  • Bank statements, Investigations

Going forward

If Web services are about passing information over the internet or intranet, how is this information gathered in the enterprise so that it can be made available to the web service? Certainly, the days of rip and replace are as long gone as the eve of the new millennium.

Service Oriented Architecture

A Services Oriented Architecture (SOA) enables organizations to redefine legacy processes without replacing them. With an SOA, legacy functionality is cut up into smaller increments of work – services – and these are ‘exposed’ to a common communications infrastructure that carries the information between systems. A good deal of the development is involved in analysis of the data in each of the exposed systems. It is essential that data definitions mean the same thing in each system, so there is a required one-time process to normalize the information.

Business Process Coordination

Once the data is available, defining a common set of processes that can be shared across the enterprise and between and amongst business counterparties is the first step at supporting complex business transactions. There is the need to keep track of a transaction: Who ‘owns’ the transaction at any point in the transaction life cycle? What is the transaction status? What happens when a process fails? Business process coordination is the software tool that allows for the modelling and implementation of the services created when legacy systems are connected to the Services Oriented Architecture.

It’s important that a tool that organizes the service from a model gets used. Because there is an underlying model to the execution of the interactions between and amongst and across the enterprise barrier, the service building blocks can be recombined for new uses without building from scratch.

So the three technologies which provide access to more information, faster, and with fewer errors are Web services, Services Oriented Architecture and Business Process Modelling. More than any other ‘next best thing’, these technologies will support a vast range of new data intensive applications and will give new life to the older, legacy environment.

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