FinTechSystemsA Guide to Hosted Solutions in Treasury and Cash Management

A Guide to Hosted Solutions in Treasury and Cash Management

While treasurers are understandably risk averse, and historically prone to holding back on new technologies, the benefits now offered by the application service provider (ASP) and software-as-a-service (SaaS) models have become impossible to ignore.

Treasurers’ main concerns have been that hosted data could get lost or corrupted, competitors or other third parties could get access to their data, access to the system could be compromised in critical situations, and there would be a lack of integration with internal systems, such as general ledger and accounts receivable (A/R) and accounts payable (A/P).

But the success of hosted services implemented elsewhere in their companies, as exemplified by Salesforce.com, provides them with clear proof that something as crucial to a business as its customer database can be safely and securely managed with an application residing thousands of miles away on a service provider’s servers – with connections via the Internet or dedicated leased lines.

So, if a SaaS CRM system such as Salesforce.com is deemed secure for the company’s crucial client data, then it must also be secure for its treasury data. After all, if push came to shove, most CEOs would rather a list of bank balances were leaked to a competitor than his client list.

ASP vs SaaS

Both ASP and SaaS are hosted solutions where the application is run on hardware provided by the solution provider or, more typically, in dedicated server centres run by specialists. While each model has its own merits, there is an important difference between the two, but unfortunately not all systems providers use the correct terminology.

In general, SaaS customers run on the same application version and use the same underlying database, with safeguards in place to ensure that clients have no access to each other’s data.

ASP solutions are hosted individually with each customer having a separate database and its own version of the application, but they would normally share hardware with other systems to reduce hardware costs. Many ASP solutions are accessed via Citrix.

Another way of looking at the two approaches is to understand that, generally speaking, systems that were designed to be delivered as a hosted application are SaaS applications, whereas ASP is an easy way to provide existing systems in a hosted environment.

ASP solutions offer greater possibilities to customise and tune the solution for the individual client, but that also increases the overhead for the application provider and thus makes the solution more expensive to run.

This doesn’t mean that SaaS solutions cannot be customised. Most SaaS solutions offer possibilities to customise the installation, but typically delivery of new versions of the application is done at the same time for all clients, with no choice for the client. This also cuts down on the number of versions that the provider has to maintain and therefore the provider can better serve the client and ensure a bug-free application.

Most of the hosted treasury and cash management solutions offered today are ASP-based.

Secure Hosting

Treasurers rightly will demand a secure environment for any hosted solution, and for that they can rely on a SAS 70 Type II certificate, which ensures that the hosting company has procedures to protect their customers’ data. Virtually all hosted solutions are now certified for SAS 70 Type II, an auditing standard developed by the American Institute of Certified Public Accountants.

Contracts

Most hosted solutions are run on third-party hardware, which in turn is housed and managed in large data centres serving many clients. While some clients will need to sign a separate contract for the hosting with the hardware supplier, the most common model sees the client sign just one contract with the solution provider that covers the supply of the service, hardware and hosting.

Integration

Data needs to go in and out of the hosted system. The fact that it sits outside the company’s firewall could make integration with internally managed systems more complex, but not so much as to limit the way it will communicate with existing internal systems, such as accounting, A/R,A/P or human resource systems.

On the other hand, integration to external banks, dealing platforms and financial information services might be easier and less costly because it is easier for the provider to standardise the interfaces in a hosted environment.

What to Look For

No system is infallible so it pays to understand the risk. Treasury workflow has daily spikes, for instance, that can potentially lead to bandwidth problems at the hosting company.

Also with hosted solutions you get an added vendor risk. Most vendors are much smaller than the client. Therefore, the client also has to consider what to do in case the software vendor ceases trading.

Treasurers therefore need to demand service level agreements that reflect all these issues, including:

  • SAS 70 Type II certification or compliance.
  • Up-time and response times.
  • Processes for accessing data if the hosting partner or the software supplier goes out of business.
  • Access to data even if you switch system supplier.
  • Support levels, support time and response time to support calls.
  • Assurances about investments in technology (i.e. upgrades) to match future customer needs.

Pricing

SaaS and ASP solutions are normally priced differently to in-house software. The latter typically requires an upfront fee for the right to use the software, and a support or maintenance fee that covers upgrades and bug-fixing.

Hosted solutions are normally priced on usage, which can be based on volume, number of transactions, value of transactions, number of modules, number of users or any combination of these. These figures are then used to calculate a monthly or yearly fee.

Added Value of Hosted Solutions

The value of SaaS and ASP solutions go well beyond issues of technology and reduced up-front investments. Optional services, such as processing support, additional data or premium support hotlines, not only add a great deal more value to the basic hosting package, but also provide clear differentiators to in-house solutions and treasury solutions from the big enterprise resource planning (ERP) vendors.

In addition, implementation is usually faster on hosted solutions and problems are solved faster as the provider has easy and direct access to the system and data to identify and solve the problem. Hosted solutions also reduce the demand for stretched internal IT resources (especially at smaller corporate treasuries), which are spared the task of installing and running the system, while still being involved with the interfaces to other internal systems.

Using a hosted system also encourages the usage of a single global treasury platform across the enterprise. This single platform reduces the need for the maintenance of multiple systems or databases by IT and does away with the consolidation and reconciliation work required if you use a multitude of systems within treasury.

Vendors that ignore the hosted market or only think of it as a cheaper way to deliver their systems may in the near future discover that the market has shifted and prospects will be demanding more than just software applications. They will want the solution supplier also deliver data and information, connectivity at the flick of a switch, as well as process support and analysis, and much more. The creative vendors will be well placed to take advantage of the change in demand.

Major Vendors

Several systems in the treasury space are actively delivered as hosted solutions. Here is an alphabetical list of the biggest application vendors operating internationally that supply systems to the cash management and treasury departments. ERP systems have not been included as they normally are run on the same hardware as the accounting system and therefore don’t lend themselves to be hosted separately.

Bellin is selling its tm5 product with ASP as an optional delivery method which about one-third of its clients have opted for. It can be bought or leased regardless of whether the solution is hosted, which incurs an extra fee. Clients can choose between two alternatives for the hosted solution: a basic version and a version with more security and more hotline support. The ASP option is chosen by the clients because of the lower cost.

City Financial’s eTC is a fully web-enabled product also available as an ASP option that doesn’t require Citrix for connectivity. Even though City Financial is a relatively young treasury systems provider, the product was not designed originally to be a hosted system.

Ecofinance not only offers to host the solution for their clients, but they have also several banks as customers. These banks use the application to offer their corporate clients an extra service by providing simple and secure access to cash management, cash pooling and treasury management systems. Ecofinance’s application is installed and hosted by the bank itself.

FXpress advertises its FIRST system as a fully web-enabled ASP solution for which clients need only a browser to access the system. Included with the application comes rates from Reuters Investor. Should the client wish rates from another source, that is also possible. The system can also be installed in-house if required.

GTreasury (previously known as Gateway Systems) offers its cash management solution in three different modes. Customers can choose to install it in-house, use it in a SaaS environment or have an ASP installation. GTreasury has banking clients run the application in the SaaS mode. The banks then use it to supply extra services to their clients. Today, 90% of the sales are the hosted versions.

IT2 lets its clients choose between different delivery options. Most IT2 clients continue to host the system in-house. If a client chooses the ASP version IT2 also gives the client the choice of hosting partner. They can either choose IT2’s hosting partner or use their corporate IT outsourcing partners. IT2 wants to concentrate on the software aspect of the business and does not want to get involved in supplying services such as rate feeds.

Kyriba is a pure SaaS solution that is only offered as a hosted application. It is a relatively new system designed from the start as a hosted SaaS solution, so the company have been able to take full advantage of the technology. A free rate feed is included with the platform, and there’s an option to integrate to other providers though a client-specific interface. Kyriba is now also a SWIFT Service Bureau and can therefore also offer an additional SWIFT connectivity service from the platform.

Reval offers its hedge accounting solutions purely on a SaaS basis. Reval takes advantage of the SaaS environment and offers extra hotline help for clients who have problems understanding the results of the hedge accounting process. As it’s a hosted solution, Reval staff can easily access the data and analyse the situation to help with any problems.

Speranza Systems sells its Command Centre for bank account management as both a hosted solution and an in-house package. The hosted version is for mid-size corporates and contains best practice configuration. Speranza is partnering with Wall Street Systems to supply bank mandate management for Wallstreet Treasury.

SunGard offers its solutions for the corporate treasury market on an ASP basis under the AvantGard brand. SunGard is also a hosting company so unlike other treasury system suppliers it doesn’t have to buy in the actual hosting support, but can get it in-house. SunGard has seen an explosive growth in the uptake of its ASP and hosting offering in the last couple of years. It has now extended the hosting to covering managed services where SunGard monitors the work flow and processes within the systems so the clients only have to release transactions and payments where required as well as dealing with exceptions. As SunGard is also a full SWIFT member, it can offer an extended list of SWIFT services especially around the administration on top of the SWIFT Service Bureau connectivity. SunGard is now examining how it can extend its services and, for example, use the SWFIT connectivity to improve the connection points between SunGard’s systems and external systems.

Thomson Reuters developed its new Treasura system for the corporate market as a SaaS solution that can be combined with other services from the group. The base product, for instance, comes with live and end-of-day rates for spot and forward foreign exchange (FX), as well as interest rates for common currencies; other currencies can be bought on top of those. Subscriptions are also available for security prices, credit default swaps, commodities and equities. Treasura also offers dealing via Reuters Trading for Foreign Exchange (RTFX), as well as other services from the group such as instant messaging.

Wall Street Systems’ product for the medium-sized corporate treasury, Wallstreet Treasury, is today almost exclusively sold on an ASP basis, although it’s being marketed as a SaaS solution. The company has partnered with specialist solution providers to offer extra functionality in the ASP environment, such as hedge accounting and bank connectivity as added services to the core functionality. Wall Street Systems has had little success so far selling its top-end product for the corporate market, Wallstreet Suite, on a hosted basis.

Weiland Financial Group has taken full advantage of the hosting for some of its products. For example, it offers to do the specialist work of analysing the bank fees for its clients with the hosted BRMEdge Outsourcing solution. This is a good example where a software provider not just provides the same software in a hosted environment but also adds a service – in this case the back office work of analysing the bank fee statement for its correctness.

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