TMS Survey 2012: Adapting to a Changing World

The 2012 gtnews Treasury Management Systems (TMS) Survey was conducted in August 2012, and attracted more than 500 corporate-level respondents globally. This year the survey, sponsored by Software-as-a-Service (SaaS) treasury and risk management (TRM) solution provider Reval, was more global than ever. gtnews readers from western Europe made up 40% of respondents, while North American and Asia Pacific readers made up 31% and 17% of respondents respectively, giving a truly global perspective. 

Respondents’ company sizes were also diverse. The greatest share of the 500 survey respondents (32%) come from organisations with annual revenues of between US$1bn and US$9.9bn. Another 31% of respondents were from organisations with annual revenues below US$250m, while nearly a quarter of the organisations represented had annual revenues at or above US$10bn. 

Figure 2: Respondent Profile by Annual Revenue (%).

TMS_Survey_2012_Fig_202_smaller

 

Source: The gtnews TMS Survey 2012, sponsored by Reval.

TMS Prevalence

Demonstrating the importance of adopting a system to make treasury operations as structured and automated as possible, the percentage of respondents using a TMS has once again grown: 69% of respondents use a TMS, a rise of six percentage points from the 2011 survey. The majority of these users (53%) are using a commercially available TMS, while 9% use a TMS in the form of the module provided with their enterprise resource planning (ERP) system, and 7% use a system built in-house. 

Figure 3: Prevalence of TMS (%).

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Source: The gtnews TMS Survey 2012, sponsored by Reval.

The main advantages of commercially available systems are up-to-date functionalities and coverage of best practice treasury features. In the past, banks would offer some treasury functionalities through their proprietary platform. Many corporate treasurers now prefer not to be limited by any particular proprietary system and instead opt for a commercial TMS. 

However, almost a third of respondents still do not use a TMS. For Ryan Heaslip, senior solutions consultant at Reval, this statistic represents one of the key findings of the survey. “The figure of 29% doesn’t take into account organisations that plan on replacing their existing solution,” he says. “From what we are seeing in the industry and from having worked alongside our clients, the support many companies have been using for treasury management are just not working – whether that be the use of Excel or out-dated legacy systems. Moreover, those treasurers who are implementing or planning to implement a treasury management solution are seeing it as a great opportunity because it not only allows them to optimise their processes and solutions, but also helps them become more strategic in their decision-making by aiding funding decisions, improving internal financing and allowing for more efficient hedging strategies and risk management.” 

Regional Variations in Selecting Solutions for Treasury Management

The gtnews TMS Survey 2012, sponsored by Reval, also highlighted that TMS usage still varies widely region-by-region. It is most prevalent in western Europe, where only 24% of survey respondents indicate that their organisations do not currently use a TMS, a decrease of four percentage points from the 2011 survey as uptake continues to grow. This finding is in contrast with the 37% of organisations in North America and 34% of organisations in the Asia-Pacific region that do not currently have a solution for treasury management. However, a higher proportion of organisations in Asia-Pacific (17%) and North America (13%) without a TMS at the moment intend to introduce one within the next two years, compared to 11% in western Europe, where admittedly the technology is already more prevalent. 

The extent of usage of commercially available systems also varies considerably by region. Two-thirds of western European corporates surveyed rely on a commercially available system, compared with just over half (51%) of North American organisations and around a third (36%) of Asia-Pacific organisations. Asia-Pacific organisations are also more likely to have built their own TMS. 

The extensive use of treasury management solutions in Europe stems from the well-established need in the region to manage multi-currency and cross-country transactions, as well as to comply with regulatory regimes. Companies not particularly advanced in treasury practices tend to satisfy their needs with internally developed systems due to the lower set of requirements for more specific and mission-critical functionalities. A greater proportion of Asian companies – 17% versus 3% and 5% respectively in western Europe and North America – fall within this latter category. 

Reval’s Heaslip explains that meeting regulatory and risk requirements are “well-known drivers” for considering treasury technology such as SaaS TRM solutions, which are flexible and sophisticated enough to handle the more complex requirements of an evolving treasury and for addressing the procedural challenges associated with keeping pace with regulatory change. “Many organisations in the North American market see SaaS as a required deployment model to address compliance with changing regulations from the implementation of the Dodd Frank Act in the US to new rules from the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB),” he says. “With market risk, counterparty risk and a host of other risks that treasury must manage, having to upgrade installed software is not a sustainable model in a fast-paced environment.” 

System Maturity

The 2012 survey showed that 64% of firms globally have had their TMS in place for three or more years, while 23% of respondents report using a TMS for more than eight years. However, responses showed considerable regional variation in both the level and the rate of change of system maturity. 

Figure 5: Period of TMS Use (%).

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Source: The gtnews TMS Survey 2012, sponsored by Reval.

Demonstrating the relative maturity of the TMS market and consistent with the region’s wide usage of the systems, nearly seven in 10 organisations in western Europe have had a system for three years or more, which is similar to the findings of the 2011 survey. By contrast, TMS maturity has declined in the Asia-Pacific region, with 22% of companies surveyed having a TMS that had been in place for more than eight years, compared with a much larger share of 32% in the 2011 survey. Meanwhile, a relatively higher proportion of Asia-Pacific organisations – 22% in 2012 compared with none in 2011 – have had their TMS for less than one year. This reflects a dynamic regional market in Asia-Pacific with both new and existing buyers, which are looking to upgrade, coming to the market. 

Heaslip says that Reval has experienced this profusion of new, fast-growing companies in Asia-Pacific (A-P), which are searching for systems for all areas of finance, not just treasury, to help them manage their growth. “We have seen that treasury needs in A-P are in a state of flux. It is difficult to think about bank interfaces, for example, if you are adding big relationships through growth into different regions or via acquisitions,” he says. “Treasury platforms are becoming more flexible than they have been in the past, with SaaS-based platforms allowing much easier rollout to regions, and out-of-box connectivity enabling easier bank and portal connections.” 

The length of time organisations in western Europe have used their current treasury management solution is also a surprising finding. “Many organisations are simply making do with what they have, and a lot of manual effort is going into their current treasury solution,” says Heaslip. This longevity is also likely to have resulted in organisations having to retain legacy solutions that are no longer supported or that are not in line with their current strategy. 

Use of the SaaS Model

Compared with 2011, the percentage of organisations using licensed TMS installations has increased dramatically. Three quarters of company treasury management solutions are licensed and installed on servers, an increase of 20 percentage points from last year’s survey. This change has been driven primarily by the concentration of companies through mergers and acquisitions (M&A). 

Eighty-five percent of the largest companies surveyed (>US$10bn revenue) are users of licenced solutions compared with 70% of the smaller organisations (<US$250m revenue). Heaslip says these large companies, whose internal procedural and technological structures are more complex, still can benefit from SaaS solutions, as they are flexible enough to fit the internal requirements of any treasury organisation. “It is not the tool that requires the customisation, but the organisation,” Heaslip claims. “As SaaS does not require high levels of customisation, it is seen as cost-effective software by small and large companies alike”.

Heaslip believes that SaaS offers a welcome antidote to the budgetary constraints seen in Europe, where capital expenditure is constrained. “We are seeing organisations struggling with challenges that are best served by SaaS deployments: internal resourcing constraints, the need for quicker implementation, better out-of-box integration and interoperability with third party operations.” As businesses start to re-evaluate their needs, he says, SaaS satisfies the requirements of treasuries that now have the added level of complexity that risk management brings upon an organisation. 

SaaS uptake of treasury management systems varies region-by-region. In North America, 41% of TMS’ are delivered as SaaS, compared with 22% in western Europe and Asia-Pacific. This difference can partly be attributed to the fact that North American companies are traditionally more ready to adopt new technologies. “As strategic mandates for treasury evolve, technology needs to evolve with it,” Heaslip says. “A SaaS model enables innovation and flexibility that traditional, installed treasury management systems have not been able to deliver.” 

Challenges

In terms of the challenges to a successful TMS implementation pointed to by the 500 plus survey respondents, one element stood out: committing a company’s internal team resources was cited by 39% of respondents as a challenge. In order to meet it, strong coordination across lines of business is required, while clear responsibility and accountability metrics are required in order to gauge results. To achieve these objectives, it is vital to have a strong mandate from the company’s top executives, but obtaining this can prove difficult. Hosting solutions in the cloud offers one way of countering demands on team resources. 

Figure 8: Greatest Challenge of TMS Implementation Process (%).

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Source: The gtnews TMS Survey 2012, sponsored by Reval.

Heaslip says that SaaS users can alleviate the pressure on internal resources by using value-added SaaS solutions, such as Data-as-a-Service (DaaS) and Connectivity-as-a-Service (CaaS), both of which offer functionality like built in holiday calendars, built in connectivity to banks and trading confirmation platforms. These services can also eliminate or significantly reduce both the IT and treasury resources that typically go into such an implementation. “An implementation plan should ensure that the organisation’s effort goes into the most high value-add tasks, such as business process review and testing and training, while the vendor effectively handles the low-value tasks such as bringing on static and transactional data,” he explains. 

Overall, project organisation and methodology is the second greatest challenge for 28% of respondents to the gtnews TMS Survey 2012, while only 13% indicate that timing and budget planning for a TMS project is the greatest challenge. One in five respondents report that none of the three specified challenges is their greatest challenge. 

Implementation Time

There is currently a broad range in terms of implementation time. Although over half of the organisations surveyed saw TMS/TRM implementation occur in one year or less, a quarter of corporations completed implementation in 12 to 17 months, while it took 18 to 23 months in 11% of companies. One in 10 organisations has seen implementation extend to two years or longer. 

Heaslip notes that the ratio of vendor to client effort, in terms of the implementation, is increasingly considered by clients to be another key metric. “We have seen many organisations move their focus from simply how many consulting days there are when it comes to an implementation, to also considering the effort involved in partnering with a vendor. What is important is achieving a better outcome on delivery time, following a structured and proven project methodology.” 

Handling More Sophisticated Asset Classes

The 2012 results show a jump in the number of organisations recording sophisticated asset classes in the TMS, which could indicate that more treasurers are diversifying their portfolio of corporate assets. Sixteen percent of companies surveyed now record complex derivatives via their TMS, compared with just 6% in 2011. Nearly four in five organisations record asset classes of foreign exchange (FX), commercial paper, loans and deposits in their TMS, and 74% record simple asset classes. Over half (52%) record FX and traded derivatives alone, while 34% record derivatives and commodities. 

“The emergence of more complex derivative usage supports the evolution of the traditional TMS to a TRM solution,” says Heaslip. “A traditional TMS is typically not capable of handling complex FX derivative and risk needs. A TRM, by contrast, handles the integrated workflow of managing core treasury functions such as cash and payments, liquidity management and complex financial risk and hedging strategies.” 

Figure 12: Portfolio of Asset Classes in TMS (%).

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Source: The gtnews TMS Survey 2012, sponsored by Reval.

This investment strategy and level of insight allows them to offset risk factors often encountered in the current environment. It also helps to ensure the liquidity crucial in modern treasury strategies, while chasing higher yields from their investments. FX capabilities are also needed in a TMS to ensure swift cross-border and multi-currency payments execution. 

Reval’s Heaslip concurs that this push towards greater exposure visibility indicates a maturity within corporate risk management policies, for the greatest possible hedging efficiency. “Organisations are now going beyond the goal of simply hedging all or a portion of their exposures. It’s a very positive indication of how treasury organisations are handling their risk,” he says. “We are seeing clients wanting to use risk management tools such as ‘what if’ analysis, market scenario analysis and cash flow at risk models – all ways to assess potential results of particular hedging programmes to mitigate the risk,” he adds. 

Improving Functionality

Financial professionals surveyed are far from unanimous in their view of what functionality would bring the biggest improvement to their organisation’s TMS. However, a significant proportion (22%) chose the most popular option, cash flow forecasting, which is a familiar functionality wish in the on-going gtnews TMS Survey. 

Heaslip believes that TMS providers need to listen to organisations to better understand what is needed to meet their goals. “Cash flow forecasting has been a top need of treasurers for over ten years. So obviously there are vendors that have continued to fail to address this core requirement. At worst, the TMS then becomes a glorified reporting tool for cash forecasting and at best provides a comprehensive flexible workflow which has advanced capabilities,” he says. “TMS providers need to specifically address those treasury pain points raised, so that these priorities come off the list in future.” 

Other key functionalities highlighted were integration/interoperability, as well as electronic bank account management (eBAM) – both chosen by 17% of respondents. Fifteen percent choose risk management and 11% choose connectivity to SWIFTNet as desirable in a TMS. 

Conclusion

As shown by the continued increase in the proportion of treasury departments that have implemented or are planning to implement a TMS, treasurers continue to value a structured view of their assets, although there is still scope for further TMS adoption. However, the global picture has become more diverse, particularly in the area of system maturity, perhaps due to changing market dynamics. This diversity is also true when it comes to choosing installed or SaaS solutions. 

Some findings of the gtnews TMS Survey 2012 are more familiar, such as the need for increased cash flow forecasting functionality. Cost control remains a major issue for corporate treasurers worldwide. The drive for reduced costs, as well as stronger risk controls, is also reflected in the continued push for increased visibility and control into investments through more sophisticated insights. 

 

 

 

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