Every so often, fundamental changes occur in the way financial processes are conducted. Some changes significantly expand the demographic of those using a process through strategic improvement, while others completely replace existing processes with something radically more efficient. One current development from SWIFT falls into both of these categories: the movement of treasury solutions onto cloud computing platforms.
Into the Cloud
For some time now, treasury solutions have been made available on cloud computing platforms and this has led to an expansion in the vendor demographic. While major treasury vendors offer cloud-based solutions, they are joined by a growing number of new entrants.
SWIFT has extended its connectivity into the cloud with Alliance Lite2, building on existing capabilities in enhancing corporate-to-bank activity to facilitate the transition of corporates onto cloud-based treasury platforms. This also benefits banks as it removes the need to connect to individual cloud-based treasury solutions, thereby reducing their costs and operational risks. This is effectively a ‘no impact’ SWIFT solution for banks because it requires no effort on their part when clients switch to cloud-based treasury solutions.
Corporate Demographic on SWIFT
One of the most intriguing things about the migration of treasury management to SWIFT is the size range of corporates making the move. Very large Fortune 500 corporations are prominent, but so too are smaller organisations. In fact by numbers in each segment, activity is evenly distributed across corporates with revenues of €10bn-plus, those with €1-10bn and those with less than €1bn.
Very large corporations are content to adopt cloud technology for treasury because while they regard treasury applications as important, they do not see them as core in the same way as intellectual property or sales. As a result, the migration of treasury solutions to the cloud is not being mirrored by enterprise resource planning (ERP) systems, which corporations prefer to keep in-house.
The pace of adoption of cloud-based treasury solutions is unsurprising when considering the range of benefits on offer. Many treasurers appreciate that they do not have to compete for internal IT resources as they would for an in-house treasury management solution (TMS). Given that treasury still tends to be seen in many corporations as a cost centre, it is usually also at the back of the queue for IT resources. Therefore the amount of treasury time and effort required for a cloud-based solution is appreciably lower and implementation timelines considerably shorter.
This advantage applies across the size spectrum, because cloud treasury solutions are not the sole preserve of the largest providers. Since the launch of SWIFT Alliance Lite2 in July 2012, we have noticed the emergence of several vendors with products well suited to smaller corporations.
This benefits both vendors and treasuries. Vendors would not have been able to offer stand-alone treasury systems at a price point accessible to smaller corporates. These corporates could not have afforded standalone solutions from major treasury system vendors.
The subscription-based pricing of cloud solutions also offers significant cash flow advantages when compared with the large up-front capital cost of a software licence for a standalone treasury system. As a result, a new segment of corporates can now afford to enhance their treasury processes by using purpose-built treasury management solutions.
Another important advantage for all corporates using cloud-based treasury solutions is that maintenance and scalability are no longer their concern. With in-house treasury systems, upgrades and expansion have to be conducted using internal IT resources or external consultants. Apart from cost, this also incurs additional operational risk. With cloud solutions these processes are transparent to the corporate treasury, as the vendor is responsible for delivering upgrades. It can therefore be argued that cloud-hosted solutions offer greater future-proofing and strategic flexibility.
The availability of SWIFT connectivity in conjunction with cloud treasury solutions also removes the need for separate SWIFT bureau services or the need to maintain an in-house SWIFT connection. As well as reducing the cost of day-to-day transactions, this delivers a straightforward route to scalability, both in terms of transaction type and banking partners.
Points to Consider
Although cloud-based solutions remove a considerable burden from treasury, they do not eliminate all responsibility. Operational risks may no longer lie directly with treasury but they have been outsourced. A critical part of adopting cloud-based treasury solutions is to conduct due diligence on both the vendor and the vendor’s own vendor(s) and this applies to their technical and financial resilience. Shortcomings in either could have severe consequences.
Regulators are keenly aware of the importance of this which highlights the need for industry standards for resilience and security in this space. This would not only serve to reassure regulators, but could also make vendor screening and selection easier for treasuries.
Cloud-based treasury solutions have made significant progress and are already delivering tangible benefits. However, scale economies mean that benefits will increase rapidly as more corporates and banks participate and it is important to appreciate that these are collaborative and not proprietary innovations. Both banks and corporates stand to gain from their participation both individually and collectively in terms of cost, efficiency and profit and loss (P&L).
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