TechnologyConnectivity/InterfacingTreasury Management Systems: The Next Generation

Treasury Management Systems: The Next Generation

Treasury management systems (TMS) have benefited from advances in technology over the past 20 years. These include the movement from DOS to Windows, use of the internet as a communication medium and, most recently, the concept of software as a service (SaaS) as a deployment option. Interestingly, the functionality of treasury systems hasn’t changed as rapidly; TMS largely continue to be used by treasuries for much the same functions as they were 10 years ago.

This is soon to change, though, as these technology advances lay the groundwork that makes the next generation of treasury management systems possible. Leveraging a SaaS model will allow the industry to take this next step. While SaaS offers the market affordable and easy to implement treasury systems, it also delivers a technology blueprint that allows true system-to-system integration. This level of integration – enabling completely different systems from multiple vendors to communicate with each other – is a significant step forward.

SaaS is the provision of software by a vendor – called the application service provider (ASP) – over the internet instead of as an installed offering. The SaaS concept took off in treasury in the past five years, to the extent that SaaS is now the standard for every type of treasury technology, including TMS. The most common factors for the success of SaaS applications are listed below.

Table: SaaS Versus Installed Systems

Source: Thomson Reuters

While these benefits are compelling and have driven the growth of SaaS treasury applications, there is much more to this story. Think of what we have seen of SaaS to date as only the book’s first chapter with a lot of foreshadowing. Those hints of what is upcoming are as follows:

  1. Software developers can more easily deploy new features because they host one version of the software with all clients on that single version. New functionality can be rolled out in minutes or hours without the client having to lift a finger.
  2. SaaS applications – the web-based systems that we use today – are easier to develop and bring to market. This has increased the number and variety of ‘best of breed’ treasury providers. The proportion of specialised treasury software applications compared with full functionality treasury workstations has never been higher.
  3. Integration between web systems is easier than traditional system-to-system interfaces.

In fact, this final point is the most intriguing for two important reasons. First, web-based systems can be integrated behind the scenes by using identify federation, more commonly known as single sign-on technology. This allows the user to log in once to an application and that login is shared with the other applications, preventing the user from logging in multiple times. In fact, depending on how the systems are tied together, users may not even realise they have switched to a product from a different vendor. Bank trading portals are a perfect example of this.

Second, system interfaces, like any new feature, can be deployed quickly and without the involvement of the user or the user’s IT team. With installed software, each customer has to be updated independently, lengthening the time to achieve integration, not to mention the cost for both the vendor and for the customer to allocate the necessary resources. This exercise was made worse when one or both systems had been customised by the end-user – meaning that the interface work also required customisation. SaaS solutions eliminate that need to customise.

While these two points help establish that integration is easier between SaaS web-based systems, how do these capabilities shape the next generation of TMS?

The Next Generation of TMS

The ‘new’ TMS will not be a single product, but rather a multi-product, multi-vendor solution. These solutions will feature a combination of end-to-end treasury workflow with best-of-breed features, selectively choosing the best content and workflow from a variety of system providers. The mixing and matching would be restricted only by the inventiveness of treasury vendors and their partners.

This innovation – not SaaS itself but the integration that it allows – is the critical piece of the equation. It is what serves as a launching pad from traditional TMS into specialised treasury applications. For decades, the TMS or treasury workstation (depending on your preferred vocabulary) has been a requirement for successful treasury management. Treasury systems featured a wide range of functionality designed to automate and improve the efficiency of pretty much every activity the treasurer was responsible for. While the vocabulary remains – even with web-based treasury systems, which aren’t really workstations by their historic definition – the shift has already begun.

The first phase of this shift has been the movement to specific functions within the ‘workstation’. A good example is Microsoft, which was recently awarded the AFP Pinnacle Award for innovation. The innovation was how they delivered best-in-class global cash forecasting through a combination of technology solutions; one of which was their newly implemented treasury workstation. While many organisations win awards for innovative use of treasury workstations, this was different – only the cash forecasting module and the ability to receive SWIFT-delivered bank reporting were used. Microsoft identified its specific needs, enabling the company to source the third party software that would easily integrate into its internal framework of systems and deliver only those features critical to meeting its requirements. Other capabilities weren’t relevant – it was just about meeting Microsoft’s forecasting needs and integrating into its environment.

The next generation of systems will focus on specialisation. Software firms will focus on being the best at certain sets of features. Perhaps it will be cash forecasting, SWIFT connectivity, or counterparty risk; perhaps categories we haven’t even thought of as their own individual categories just yet. Whatever the core competencies vendors will target their efforts with, the benefits of this specialisation will be profound. Just as it has with any other manufacturing category – software or otherwise – specialisation on a core set of capabilities yields innovativeness, cost efficiencies, and ultimately better products. And that’s exactly what we are beginning to see in treasury software.

The tipping point is near, but for one key obstacle. That obstacle is software firms themselves. In any collaboration scenario, there will be leaders and participants. Some firms will choose to be the hub, constantly searching for capabilities to enhance their overall proposition. Others will choose to be connected to and market themselves as attractive partners for integrating. The lines will be drawn based on which firms can market themselves effectively to the end customer – the treasury professional. An obvious choice would be banks. They already have large portfolios of products that treasurers need to run their businesses. Layering on additional, integrated technology would only be logical. In addition to financial institutions, there will also be software providers, although likely only a portion of what those operating today. This is not to suggest that other software providers will vanish from the market – quite the opposite may occur.

Working in Partnership

Most software providers will focus their marketing on partner firms rather than directly to treasury professionals. Within software solutions, there may be only a ‘Powered by ABC Corp’ button in the bottom right corner of a screen to indicate that there is an integration partner on board delivering part of your user experience. And that is the beauty of this next generation of system. To the user, a multitude of solutions will be masked within what appears to be only one system. At the minimum, identify federation will allow single sign-on for the user so they won’t have had to provide multiple login credentials. More likely, the user will have that single sign-on experience along with the perception that, in the case of a financial institution, they never left your bank web portal whether you wanted to view worldwide cash balances, analyse the accuracy of your quarterly cash forecast, hedge your foreign exchange (FX) exposures with a series of forwards and options, or simply review the accounting entries before they are updated in your enterprise resource planning (ERP) system. Except that you will have left your web portal. And you will have just taken advantage of many different software solutions that, in combination, offer better functionality than a single firm could provide, at a much lower cost, taking advantage of the production efficiencies afforded by these specialist firms.

We are already starting to see some of this appear in the market as external market information is merged with internal treasury data. Simple examples demonstrate how the technology has advanced, such as translating your multi-currency global cash forecast to your operational base currency on a real-time basis. More complex examples are even much more telling, such as trading limits where treasuries no longer rely on historic credit ratings to establish the percentage of business that should be with each bank and no longer define counterparty risk as just the issuer of the paper they invested in.

The financial risk this economic environment poses to corporate finances has created, and will continue to create, a new set of requirements that push the previous boundaries of treasury technology. Fortunately a perfect storm of conditions – proliferation of SaaS treasury systems, market demand for better functionality at a lower price, software vendors developing more specialised features and starting to proactively target their role as a hub or participant category of vendor – are starting to take shape to meet these evolving needs. As they continue to develop, treasury professionals cannot help but benefit.

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