Seeding the Cloud

While a treasury management system (TMS) delivers many
benefits – cash visibility, financial risk management and improved treasury
efficiency and accuracy – it is also perceived to be very costly. In addition
to the cost of a solution itself, a TMS project is time-consuming and
disruptive to corporate treasuries. For these reasons only large corporates
have traditionally adopted TMS; many other corporates have gone without or
continued to rely on Excel spreadsheets or ad hoc modules, covering risk for
instance, rather than invest in enterprise-wide comprehensive solutions.

The perception that TMS’ are costly, time-consuming and also require
continued maintenance, internal IT staff and upgrading, creates the ideal
environment for a cloud-based Softwareas-a-Service (SaaS) approach to flourish.
Installing treasury and cash management systems using this model can be
gradual, flexible and avoids expensive siloed IT infrastructures. Regulatory or
reporting changes can also be more easily absorbed. There are, of course,
on-going fees with this model – and over the longer-term these can add up – but
upfront capital expenditure is cut, which is especially helpful when budget are
often tight, and internal staffing costs reduced.

Definitions vary,
but put simply a cloud or SaaS-based solution is essentially an outsourced one,
where functions are handed over to a third party. It is now very rare that a
TMS project would be implemented purely in-house because most corporate
treasuries, even very large multinational corporations (MNCs), do not have the
time or resources to devote to such a project.

The ‘gtnews TMS
Survey 2012’
, for instance, questioned 500 corporate treasury respondents
late last year and found that only 7% are now using a system built in-house. By
far the more interesting figure was that 29% still do not use a TMS at all,
typically relying on spreadsheets instead, but this increases the scope for
data entry errors and can introduce onerous manual workloads and added risk
into treasury operations if not properly managed. A similar Association of
Corporate Treasurers (ACT) TMS survey in May this year, said that almost 50% of
its 250 respondents still depend on spreadsheets to manage cash positions and
forecasting.

Implementing a SaaS delivered TMS solution, hosted by
a third-party, should alleviate the risk and large manual workload concerns
surrounding the use of spreadsheets. It can be rolled out gradually too
module-by-module in order to cut the costs and make TMS’ more accessible to
smaller corporates, or those MNCs seeking to reduce direct internal costs and
stagger upgrade costs.

Paul Bramwell, senior vice-president of
treasury solutions at SunGard AvantGard, says there is now a “very strong
trend” towards cloud computing in TMS installations. “Cloud is a misunderstood
concept with incorrect definitions. We define it as a thick application, hosted
by a third party and accessed through the internet or a remote connection. No
IT infrastructure is required by the corporate because the application is
hosted elsewhere,” he says.

The definition of terms such as cloud
computing, application service provision (ASP) and SaaS can be confusing for
corporate treasurers. Very often on a TMS project, they will involve the IT
department in order to gain a more accurate insight into what vendors are
telling them. To a great extent, cloud computing is a marketing term – used to
cover ASP and SaaS models. Put simply it means a hosted service that is
accessed by users via web browsers. The corporate’s data and software is stored
on servers at a remote location. The picture can become complex when the
corporate’s software, say the TMS itself, is provided by one vendor while the
cloud service and connectivity is provided by another, but we’ll examine that
later.

Research Shows Popularity of Cloud & Security
Concerns Lessening

According to global consultancy KPMG,
and its latest ‘The Cloud Takes Shape’ research, cloud computing, “has finally
started to move beyond the hype and into the fundamental fabric of today’s
enterprise”. The firm conducted research among 650 senior executives in 16
countries, from multiple industries, to gauge attitudes towards cloud
computing. KPMG found that organisations were gaining valuable insight, not
only into the potential benefits of cloud, but also the practical challenges of
adopting the technologies as they examined the issue.

The cloud
trend in treasury departments is being driven by a number of factors. First,
there is now greater acceptance of outsourcing in industry. Handing over
services to third parties has become almost routine; cleaning contracts,
canteens, personnel and payroll are all areas that have headed down the
outsourcing route. Organisations have become comfortable with the idea of third
parties carrying out activities that are not considered ‘core’ or strategic. At
the same time, the definition of what is core or strategic has changed, leading
to more activities being hived off.

Second, security issues
surrounding cloud computing largely have been addressed. “Over recent years
security standards have emerged for cloud computing and also ways to
independently verify those standards,” says Bramwell. “The widespread
acceptance of home banking on the internet and bank-based portals to make
payments have also led to greater confidence in the security of cloud
computing.”

KPMG’s research revealed that security is still viewed
as a challenge, particularly with regard to privacy. However, whereas security
was identified as the top concern for IT and business executives when it came
to cloud in the firm’s 2011 survey, by 2012 it had dropped below integration
challenges and implementation costs as the main concerns. “This does not mean
that security is no longer a key issue for executives,” says the KPMG report.
“Of the possible security concerns, data loss and privacy risks were cited the
most often by respondents, while general security risks and risk of
intellectual property theft were only somewhat less frequently identified.”

According to KPMG’s survey, concerns related to security did not seem
to be slowing cloud adoption. In fact, more than one third of respondents
suggested that their organisations would adopt cloud within the next 18 months
in areas such as sourcing and procurement; supply chain and logistics; finance,
accounting and financial management; business intelligence and analytics; and
tax.

Moving Away From Spreadsheets

Specifically in the treasury, the move away from in-house spreadsheets to
cloud-based solutions and TMS modules should not be underestimated and the pace
of it is expected to increase. Bob Stark, vice president of strategy at Kyriba,
says moving from spreadsheets to a TMS is a big decision for a corporate
treasurer, with the decision to implement a SaaS-based model another “big step
up”. The reason a high number of corporates still use spreadsheets, he says, is
that until recently there have been very few cost-efficient alternatives
available. “In many countries, treasury management systems have been a very
expensive option. They entail licence fees, on-going support and maintenance
and can take up to a year to install. Many organisations simply could not bear
these costs.”

Kyriba’s solutions are based on a SaaS model. The
company identifies a number of benefits with this approach including: a lack of
upfront capital investment; cost savings versus the traditional installed
software approach; simple and rapid implementation; removal of the need for IT
support; immediate access to system upgrades; and anytime, anywhere access to
data. Cloud solutions are now more cost-effective and can be aligned with what
a corporate treasury needs, adds Stark. “Cloud applications can offer something
significant to firms that are using spreadsheets. It enables them to pick and
choose the parts of treasury that are causing them pain. The scalability and
cost-effectiveness of cloud computing [modules] have become very attractive to
treasuries.”

Phil Pettinato, chief technology officer at Reval
agrees, pointing out that the economies-of-scale that can be achieved with
cloud applications are of real value to corporate treasuries. Reval’s
application, for instance, is a SaaS-based treasury risk management (TRM)
product that emphasises reporting, data and risk management procedures and
connectivity. It is used by corporate treasurers around the world, says
Pettinato, to manage the full suite of business needs treasuries have regarding
cash management, liquidity management, payments processing, financial risk
management, accounting and compliance.

“Our end users include very
large organisations as well as smaller firms,” says Pettinato. “All of them are
using our service to run their treasury operations and connect to their banks
in order to gain visibility on their positions globally. Visibility, payments
processing, sophisticated risk management, accounting and compliance can be
true differentiators for service providers.”

Module-by-module Rollouts and Risk Mitigation

Since the financial crisis of 2008 treasurers have been taking on more and
more responsibilities, especially around risk. Whereas traditional TMS were
more focused on cash and payments functions, rather than risk management,
accounting and compliance, that situation has now changed, believes Pettinato.
“There is a greater need in treasury now to include commodities, interest rate
and foreign exchange (FX) risks. Corporate treasurers want one solution that
will manage all of that.”

A SaaS platform can deliver these
capabilities in a modular fashion, enabling corporate treasurers to pick and
choose the functions they want and the speed they introduce them to the
business. Another important issue for treasurers is that cloud-based solutions
can be easily integrated, enabling treasurers to connect into other systems.
“Integration is a big part of straight-through processing (STP),” says
Pettinato. “Being able to share data between systems is important because as a
treasurer’s requirements grow, they may want to place more [information] into
the cloud. It is important that a cloud solution is flexible and scalable.”

As treasurers have taken on more responsibilities, says SunGard’s
Bramwell, there has been a realisation that IT is not a core competence. “There
is a level of trust in the industry now with cloud solutions; even treasurers
at the largest firms realise they are not IT experts and that they should look
to outsource to experts,” he claims.

Challenges and
Conclusions

Complexity can arise if IT has been outsourced
to one company and the TMS to another, admits Bramwell. SunGard does both, he
points out though, meaning a treasury department has the option of selecting
just one partner to deal with.

The issues treasuries are dealing
with are growing: visibility over cash is important, particularly in real-time
with risk and liquidity assessments now paramount and the attendant
connectivity a prime concern. The long-running campaign by the financial
messaging cooperative SWIFT, for instance, to sign up treasuries to its SWIFT
for Corporates programme reflects this need. It has produced some limited
results with approximately 1,000 users now signed up, but many more corporate
treasurers are now aware of it and say they require SWIFT connectivity to the
wider banking world in order to operate, suggesting further growth is
possible.

“SWIFT connectivity, along with regulations such as the
European Market infrastructure Regulation (EMIR) and Dodd-Frank in the US are
pushing corporate treasurers down the TMS route,” says Bramwell. On top of this
is the single euro payments area (SEPA) compliance drive, global accounting
standards changes, and electronic bank account management (eBAM) drivers.
“These issues can be dealt with very efficiently in the cloud. In fact, there
are very few companies that build their own TMS now; the challenges and the
ramifications for getting something wrong are too high,” concludes Bramwell.

According to Bob Stark at Kyriba: “The responsibilities on treasuries
are growing, and installed solutions are having difficulty keeping up with the
changes. A cloud solution can deploy new functions within a week. The
integration capabilities between different cloud solutions are a big
differentiator between cloud systems and traditional software packages as
well.”

But it is important to recognise that not all corporate
treasurers will opt for the cloud route. As SunGard’s Bramwell says – while
acknowledging that cloud is rapidly growing as an option – there are still some
companies that want to continue with in-house deployed TMS solutions.
Treasurers must decide for themselves what the correct approach is for them and
their organisation.

Corporate treasurers do not tend to be early
adopters of technology, says Kyriba’s Stark, before adding that he does,
however, think there will be a natural progress towards cloud applications over
time. “New requirements will drive the need for new capabilities in treasury
systems. That drive will see most applications reinvented as cloud solutions
within the next ten years.”

Cloud computing

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