Has all Innovation been Acquired out of the TMS Market?
If you were, or still are, a client of an acquired software
company, you don’t need to be told that there has been an effect on service
levels, pricing practices, and innovation. Ironically the very reason many of
these successful treasury software providers were acquired in the first place
was thanks to the success that the vendor enjoyed from pioneering a product or
market innovation. Yet that innovation has often been the first candidate for
rationalisation as a result of acquisition.
Does that mean that
all the innovation has been acquired out of the treasury management system
(TMS) market? The answer is a resounding ‘no’. It has, however, been
redistributed to other firms that recognised opportunities to succeed in the
Despite the degree of consolidation the TMS industry has
seen, there remain as many viable providers of treasury management technology
as ever before. If the industry had stood still and no new innovators had
entered the market we would have an duopoly on our hands, with every
prospective TMS client choosing to buy from one of only two firms. Anyone who
has purchased treasury software recently knows that is not what’s
Corporate Treasury is a Feature/Function
Innovative software companies succeed in the
treasury technology market and continue to emerge after others are acquired
because corporate treasury teams demand a distinct – yet broad – set of
complex features. There is no such thing as ‘nice to have’ features. There are
features that add value and those that do not. The list of those that add
value is lengthy, ranging from simple bank connectivity to cash forecasting
and bank analysis.
More recently, both working capital and risk
management have emerged as ‘must haves’ within every treasury system. While
price and other factors are always important, functionality is often the key
factor in making a shortlist of vendors.
Because TMSs are not a
commodity and because the costs of making a poor technology choice are quite
high, the treasury software firm that can differentiate by delivering
meaningful functionality to the treasurer will win a lot of business. Those
that rely on other factors, such as price, will not survive long.
New Technology Enables Better Systems
technology available to treasurers is delivered via the cloud, in the form of
software-as-a-service (SaaS) solutions. Cloud solutions reduce hardware
requirements and introduce mobility to every aspect of our personal and
business lives. SaaS models are also quicker to develop as they are built upon
newer programming languages, use more advanced software components and, most
importantly, feature multi-tenant hosting so that software can be tested and
implemented in a minimal amount of time.
As a result, it takes
less time and resources to build software than it used to, especially in
comparison to non-cloud software developers. This means that software
providers can react more quickly to new market requirements and distribute
software updates more efficiently and with less cost. In a world where,
according to the
, there is a new financial regulation
every 22 days, time to react is a critical consideration for every treasurer
when making decisions about their treasury software providers.
Will my Technology Provider stay Innovative?
Perhaps the first question to ask is: will the innovative treasury software
provider that the corporate treasurer selectes be acquired by a less
innovative firm? Hopefully not, for the customer’s sake! Fortunately, there
are some obvious signs to look for if you have concerns about your technology
provider being consolidated by a larger entity.
The first sign is
an organisation’s finances. What do their balance sheet and income statement
look like? How much of total revenue do their very largest clients represent?
Just like assessing the creditworthiness of a customer or the counterparty
risk of a financial partner, the treasurer can identify if a current or
potential financial challenge could make the software provider vulnerable to
illiquidity or an easy takeover.
Another telling sign is the
ownership and management of the software provider itself. Is the company well
funded or relying exclusively on annual revenues to grow the company? Are
there long-term strategic investors, or is the company funded by venture
capitalists with a predetermined timeframe and exit strategy? What is the
profile of ownership and management and, if tightly owned, what succession
plan is in place should an ownership change occur?
Assuming that you
are confident that your TMS provider won’t be acquired, there is one final
check that is important in assessing just how focused on developing new and
innovative features your provider is and that is product partnerships.
Strategic alliances are forged for many reasons, but the intent
behind product integration partnerships is very important to properly
understand. Product partnerships may be a precursor to development of a
technology ecosystem, for example. Or they may be a signal of lack of
innovation forthcoming; that the company has given up on a key area of
development. Usually the best way to tell is if your software provider entered
into partnership for capabilities that other competitors have – or if the
alliance offers functionality unique within the market. If the latter, the
intent is likely a good sign they are on the top of innovation. If they’re
just filling competitive gaps, however, that is likely a very different
Innovation Exists – If you Look at the Right
Acquisitions of TMS providers have impacted on
the treasury technology market and have sucked some of its innovation and
creative development over the years. Fortunately, independent software
providers – both veteran and new entrant organizations – continue to push the
envelope with their combination of newer technology, cloud business models,
and strong financial investment to continue innovative product development
and achieve market success. As a result, corporate treasurers still have
choice when it comes to TMSs.