The range of cloud-based tools is expanding rapidly to meet the needs of treasurers responding to pressures imposed by management, the pandemic, inflation and the end of LIBOR
The invasion of best-of-breed solutions from the cloud looks unstoppable throughout 2022 as companies embrace them to plug gaps in treasury management systems.
“We absolutely expect best-of-breed solutions to gain traction,” Amol Dhargalkar, managing partner and global head of corporates at Chatham Financial. “Treasury has always used many tools within its technology stack.”
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In the wake of the pandemic, for instance, widespread staffing challenges are driving cloud-based fixes to all-in-one systems. Also, the increase in more nuanced workflows in most areas of treasury management – for instance CEOs increased demand for highly specific financial guidance – will rely on the automation available in cloud solutions.
And by no means least, says Dhargalkar, best-of-breed is vital in enabling treasurers to integrate and leverage Application Programming Interfaces (APIs) and data management pipelines (ETLs). The value of these tools is certain to grow as demands on treasury increase because of corporates’ growing recognition that their function can deliver deeper insights into the company than all-in-one systems. In short, corkscrews as well as Swiss knives.
The sharp increase in their use underpins his predictions. According to research by Treasury Intelligence Services (TIS), a specialist in outbound payments, highlighted how in early 2020(pre-pandemic) around 60 percent of corporate treasury groups were leveraging cloud-based financial software, with 40 percent using treasury APIs.
However, these usage levels are forecast to grow rapidly over the next few years, according to TIS’ research, with it “already becoming commonplace for treasury groups to leverage a variety of different cloud platforms at once”.
Research from EY cites cost, convenience and confidence behind corporates growing interest in implementing treasury systems, either as a pure Software-as-a-Service (SaaS) or as a private cloud on dedicated client databases.
“This trend has been driven by cost and security with the prevailing view that outsourcing IT infrastructure and security to dedicated vendors is cheaper and more efficient than installing systems in-house,” according to the report.
Just one of the big attractions of best-of-breed is speed of execution. “As long as each platform is API-enabled, integrations can quickly be established to connect it with other cloud solutions in the corporate’s technology stack,” TIS says. Indeed some best-of-breed suppliers say their solutions can be up and running within a few minutes.
Another attraction is the post-pandemic issue of connectivity. Combined with robust APIs, best-of-breed works trouble-free with communication platforms such as Slack and Zoom.
But the main draw of best-of-breed is the specialisation that facilitates niche yet vital treasury functions such as payments management or FX trading without leaving holes in the underlying, highly valuable data.
APIs have the power to transform treasury
In all this APIs play a fundamental role. As HSBC summarises: “By providing a cost-effective, frictionless technology experience, [APIs] can remove barriers to automation, solve common pain points and potentially deliver levels of system flexibility, agility and scalability that few thus far have imagined –APIs are transforming treasury.”
APIs deliver real-time connectivity between banks and corporates that enable treasurers to capture data around transactions almost as they happen.
Fast-growing though they already are, TIS concludes that best-of-breed solutions built around APIs could still be in their infancy. “These process-based programming codes are only just beginning to reach their full potential within today’s digitalised financial ecosystem,” it predicts.
The writing is on the wall, says Chatham Financial’s Dhargalkar: “We expect specialised [best-of-breed] systems to make major inroads even with companies that already have a TMS in place. ChathamDirect has seen greater demand as companies focus more on derivatives to manage inflation as well as volatile currency and commodity price risk.”
In a more complex, faster-moving, post-pandemic world treasurers need all the specialised help they can get.
“Nearly all treasury professionals are dealing with an inflationary environment for the first time in their careers,” adds Dhargalkar, citing numerous challenges such as changes in capital markets with the end of LIBOR, the need for more sophisticated tools to handle risk in interest rates, currency and commodities, and a closer working relationship with senior management as it wakes up to the potential of treasury.
“Treasurers are looking for tools to streamline and support these strategies,” he says. “They allow their teams to focus more on strategy and communication and less on clicking buttons.”