FinTechSystemsTrends to Consider When Upgrading or Selecting a Treasury Management System

Trends to Consider When Upgrading or Selecting a Treasury Management System

Treasury
processes depend on data consolidation and on (complex) interest and risk
calculations. The evolution of treasury as a profession has, therefore, always
gone hand-in-hand with computing power, from the first calculators to the most
advanced treasury management systems (TMS) available today.

During the
past three decades, software suppliers have competed for their share of the TMS
market, which has always been small but rapidly changing. New technology has
repeatedly posed a challenge to existing vendors and offered opportunities to
new entrants starting from scratch.

Mergers and acquisitions have also
dramatically changed the face of the TMS market. Two years ago, some changes in
ownership left many wondering how the market might develop. Zanders tracks about
40 TMS vendors worldwide so, based on our observations of these market players
over the past 10 years, here are some trends that I believe will shape the
market in the coming years.

Fewer Vendors and Hardly Any New
Entrants

In order to survive, vendors need a solid and up-to-date
technology platform and potential to grow. Typically, existing clients need to
focus on growth functionality, whereas prospective clients and investors want to
incorporate the latest technology. In several cases established vendors have not
been able to defend, let alone expand, their market share because they did not
master this balancing act.

In the past, when there were no mature
solutions on the market, new entrants could easily capture a market segment
based on an incomplete system built on new technology. This was made easier
because, until recently, solutions operated on a standalone PC without much
integration. A big threat to vendors has been that dissatisfied clients would
select a new solution.

However, the software industry hasn’t experienced a
technological revolution in the past few years, which has allowed existing
vendors to mature their solutions. In recent TMS selection projects for clients,
the ultimately chosen system was selected for the degree to which it surpassed
the selection criteria, rather than simply by meeting the criteria. This
indicates that the market is mature and that available systems meet clients’
functional criteria.

Mature markets typically focus on quality and price.
It is not easy for new entrants to offer a competitive system from day one and
still make a profit. Hence, it is not likely that new names will appear in the
market. It is more likely that the number of competitors will decline as a
result of the acquisition of market share by some vendors, while others will cut
their losses and will leave the arena.

An Increased Lifecycle Will Reduce
the Licence Income of Vendors

There are two reasons why the lifecycle of
a TMS solution has increased. First of all, mature products mean that corporate
clients don’t need to switch systems once they have implemented one that meets
all their needs. A second reason why clients continue to use a selected solution
for longer is the fact that solutions become more embedded in an integrated
application landscape. Switching solutions then has a big effect on processes
and data flows.

As a consequence, licence revenues for vendors are
reduced and they have to focus on other sources of income, including maintenance
and professional services. Vendors might also experiment with alternative
contract formats, such as rental and software-as-a-service (SaaS) to keep the
cash flowing.

Vendors and Customers Need to Become Partners as the
Lifecycle of TMS is Extending

The increased integration between TMS and
financial systems extends the lifetime of products, making upgrading the
preferred option compared to implementing a new system. This trend shifts the
relationship between treasurers and vendors from sales to account management.
Treasuries need an open relationship based on trust because they have to align
their TMS projects to other IT projects competing for budget and resources.

Increased Complexity of Solutions Adds Cost to Development and Puts Pressure
on Profitability

While the market is maturing, TMS become more embedded
and the vendor revenue mix is shifting, the increased complexity of solutions
creates new challenges for vendors. The drive for efficiency and compliance put
process automation and integration with other business processes on the
development agenda. Given the limited size of the market, development shops
supporting TMS are typically small and operate on a budget incomparable with
that of large enterprise resource planning (ERP) vendors or, for example,
Microsoft. Adding new functionality is increasingly complex and costly. Only a
substantial market share can assure a profitable future.

As a consequence
one can expect a further market shake out at the expense of smaller vendors. One
can also expect that vendors with a solid client base in one geographical market
will commit to expansion in other markets. The net result might be that globally
there will be fewer vendors, but in a specific geographical market more
competitors can be active.

Market Consolidation is Inevitable, but
Creates Opportunities For Other Suppliers

In the past few years, we have
seen consolidation in the TMS market. From an economic perspective this made
sense. However, any takeover or merger should put existing customers on the
alert: how do my priorities and interests align with the new vendor
organisation? Furthermore, the new vendor organisation will typically have focus
on internal issues at the expense of the client relationships. Rightly or
wrongly, clients will start looking for alternatives that could fit their best
interest.

Treasury Systems from ERP Suppliers Gain Market Share but its
a Captive Market

TMS provided by ERP vendors have also matured in recent
years. Their market share, especially that of SAP, has increased accordingly.
However, their unique selling point of seamless integration with business
processes is attractive to a captive market of those companies that have
implemented the ERP on a truly company-wide scale.

Although the TMS
market is maturing and we foresee a longer lifetime for a TMS once selected, the
TMS market is not divided. Selection and implementation of a TMS will remain an
important project for many treasury professionals. However, decisions about
selection and upgrades will have to focus not only on functional fit, but also
on alignment with the IT landscape and vendor
relationships.

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