Treasury Technology - Current Trends and Future Direction

No one can predict the future of treasury with absolute certainty. But since the nature of treasurers and financial executives is to get a specific job done, correctly and efficiently, most are happy to articulate their short-term and long-term concerns to vendors who truly seek to work with them in developing solutions. What is certain is that treasury technology trends emanate and evolve from three areas critical to today’s treasury function: ROI, enterprise cash and compliance.

Return on Investment: Three Magic Words

There is an old saying that you get what you pay for in life. Treasury technology is no different. Treasury solutions represent both an initial investment and an ongoing investment. Vendors must protect their customers’ investments in software and implementation – both internal and external costs – and clients should expect that their investment is not going to become obsolete before they are ready to make a change. The challenge to vendors is to continue to deliver functionality with state-of-the-art technology while not indulging themselves in technology for technology’s sake.

New technology from a vendor is generally introduced in the form of new products built from the ground-up with the latest programming language, typically resulting in significant upgrade costs to a client but essentially including the same functionality as before (or less in the first release) only this time with new extra buzzwords. Historically, the investment by the vendor has not retained the client’s internal investment and may require additional external investment (i.e. a new licence for a new product). This churn is a result of using technology as the end, when in fact technology is really only the means. The future use of software is in the creation of solutions as a series of services, connected and working seamlessly together in an orchestrated and well-defined way.

Software designed and developed in such a service oriented architecture (SOA) provides both the vendor and client a path towards delivering functionality and user experiences using new technologies. New functionality and services can be added within an SOA framework, and the existing application can be upgraded piece-by-piece, reducing upgrade costs and leveraging everyone’s investment.

Enterprise Cash: A Global Management Challenge

More treasury functions around the globe are assuming responsibility for enterprise cash, which far surpass the traditional treasury-cash only mindset. There are two primary reasons for this trend: the first is an increased emphasis on predictable cash generation being placed on companies from investment and credit analysts; and second, technology is now available to help with this management challenge.

The technology trend is twofold. From a pure technology standpoint, new technology is now readily available that allows for the extraction and real-time intelligent presentation of critical data from multiple diverse systems. You may have read about extraction, transformation and loading (ETL) and dashboard technology in recent industry publications. With more emphasis now being placed on automating the processes and management of information presentation – not just the data – associated with payables and receivables functions in companies, many are choosing to implement these technologies and those that are doing so are accruing huge benefits in terms of investor confidence, more optimal working capital management and reduced transaction costs. With an ROI like that, look for the trend of global enterprise cash management to continue into the foreseeable future.

Compliance: A Top Concern at All Levels

Automation, automation, automation is the compliance equivalent to real estate’s location, location, location. Compliance as a critical treasury concern emerged in the late 1990s when regulations resulting from FAS 133, IAS 39, GASB 31 and others took effect. Other departments within the organization had already been dealing with labour law compliance regulations associated with OSHA, HIPAA, FMLA, ADA, but treasury’s role in the compliance dialogue remained largely undeveloped until 2002 when the US Congress passed the Sarbanes-Oxley Act (SOX). What’s interesting about SOX is that its reach is so expansive in terms of enterprise compliance – ultimately with the CEO and CFO taking responsibility for publicly reported information – that even the word “compliance” evokes strong emotion in previously unemotional places.

This focus on compliance is derived from a concentration on fundamental business processes, such as automation achieved through straight-through processing, that directly impact the security and concerns at all levels of an organization. Critical functions like communications with financial partners need to be automated in a straight through processing fashion. Some of the key topics you may find yourself evaluating this next year include the following:

1. Increasing internal STP – Straight-through processing commenced with internal STP and is still key to both internal and external compliance. Treasurers needed some method to reduce errors and a highly-skilled team spending unnecessary time re-keying the same information into multiple spreadsheets or internal systems. As with any new technology, internal STP was deemed a life-changing development when it was first introduced nearly a decade ago. Internal STP is no longer new, but the capability continues to provide an increased automation of data flow within the treasury organization, an increased speed of data flow and an increased error reduction rate.
2. Increasing external STP – Leading technology solutions producers have already introduced their clients to greater compliance through external STP, that is seamless integration with external partners such as banks, investment funds, data providers and other members of the financial services value chain. A secure messaging network simplifies the number of connection points, thus increasing security by providing more services across fewer connection points. The external STP advantage for the client is fierce competition in the marketplace. The challenge is finding a reliable vendor that can and will follow through on everything that is promised. Since STP provides such an obvious benefit to everyone, all serious financial services providers will be equally committed to increasing external STP for some time, and joining qualified messaging networks to jointly benefit their customers.
3. Automation of workflow within treasury operations – Being able to fully utilize STP to automate the import of bank statements, reconciliation of accounts and general automation of workflow is vital within the treasury department. Some treasuries are more advanced than others in this area, but the trend is for every organization to move closer to this reality.
4. Automation of in-house bank processes – For a number of reasons, undoubtedly many technology driven, corporations and organizations are taking advantage of the software available today to support an increased investment in in-house banking. As external fees continue to climb, and technology continues to support managing more domestic and international accounts in-house, treasuries will continue to invest in the automation of in-house bank processes.
5. Automation of bank STP – Treasuries have come a long way from the dial-up and tape methods of the early 1990s, but the trend is to capitalize on the developments of the past 15 years and triple or quadruple today’s capabilities within the next 10 or 15 years. When the Bank Administration Institute and a leading treasury solutions provider released a new standard for Internet banking (called BAI-XML) based on the widely accepted BAI standard for banking and utilizing XML data transfer in December 1999, the genuine possibility of automation of bank STP became a reality for many corporate treasuries. Today the trend is to continue to make the process even more seamless and better integrated into daily treasury processes, hence increasing compliance and with that security.
6. Automation that supports compliance policies – There is increasing formalization of compliance policies covering everything from access security, through auditing of actions and changes to data and business rules. But policies alone don’t make a system secure or compliant. Adherence to the policy is what is required, and increasingly systems are able to embed these policies in the operation of the solution, increasing the adherence to policies. A large part of compliance auditing is the testing of the required controls. Systems that provide the controls are a key to this, but the future holds the ability to additionally audit the systems application of the policies.

Service is Paramount

Solid customer service in itself is not a trend – it is and should be a standard. Increased compliance regulations have inspired many large corporations to upgrade or replace their treasury software and lured a greater number of mid-tier corporations away from a reliance on spreadsheets. This combined with more browser-based functionality, equipped with better security features being offered to the marketplace, vendors cannot take one single client’s needs for granted in such a highly competitive market. If cash is king, service is the emperor. Savvy vendors must never underestimate the importance of client service.

Summary

The past five years have seen treasury functionality grow and mushroom at a previously unthinkable rate. What’s different today is that the phenomenal change witnessed has raised the level of expectation by clients, possibly reversing the order in which technology was traditionally introduced. It’s no longer the case that vendors develop upgraded and new functionality and then demo it to progressive clients who seek to run cutting-edge business. Today’s clients are guiding change and telling vendors what they want and need and it is up to the solutions providers to keep up with marketplace demands. More than any single development in technology, this is the trend that should be expected for the foreseeable future.

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