Treasury innovation in Asia: twilight of the spreadsheet?

A treasury management system (TMS) can be very beneficial for functions ranging from liquidity management and payments to reporting and compliance. However, the Asia Pacific Treasury Barometer 2015 issued by SunGard (now FIS) and Bank of America Merrill Lynch showed that only about 40% of companies in Asia use either a specialist TMS or a treasury module from an enterprise resource platform (ERP). Another 23% have built in-house applications.

The PwC Treasury Systems Report published earlier this year similarly found that around 47% of treasury functions in Asia have a TMS. Worryingly for vendors, “more than half of survey respondents in Asia expressed dissatisfaction with their existing TMS,” the report found.

Many organisations that do use a TMS have older systems. The 2016 Treasury Management System Survey published by the US Association for Financial Professionals (AFP) found that only 44% of companies that do use a TMS have the most up-to-date version while a further 44% are using systems that are one to two iterations behind the current version.

Rather than taking full advantage of a TMS, treasury staff in Asia often still use spreadsheets for a significant portion of their work. The FIS survey showed that 67% of respondents across corporations of all sizes used spreadsheets in 2015, a percentage only slightly down from 69% in 2013.

“Spreadsheets remain the backbone of Asia Pacific treasury reporting, with its predominance unlikely to decline meaningfully in the short term,” commented BofA Merrill global e-commerce executive Cindy Murray. “However, the growth of TMS and cloud-based technology systems continues to rise and demonstrates that treasuries across the region are beginning to embrace change at an acceptable level.”

When companies do use a TMS, how they employ it varies significantly depending on where they are located. Developed markets such as Singapore and Hong Kong are typically very open to the cloud and have core needs for capabilities that enable them to manage cash, liquidity planning and foreign exchange better, Reval’s Asia Pacific consultant Nicolas Adjemian told GTNews.

Firms in Australia and New Zealand, on the other hand, have higher exposures to commodities and need systems that can provide robust risk management across all asset classes. Big conglomerates in Japan and Korea typically have decentralised treasury operations and TMS is mainly focused on solutions for the domestic market, such as cash visualisation.

Developing countries in Southeast Asia are again different, notes Adjemian, being heavily reliant at best on the treasury module of their ERP providers but in most cases relying instead on bank portals and Excel spreadsheets. Initiatives around treasury centres in Malaysia and Thailand are, however, driving interest in cloud-based TMS in both countries.

A need for change

With Asian firms lagging behind their counterparts in other regions – and with only 62% of treasurers in Asia seeing the treasury function as a value-adding centre compared to 79% globally, according to PwC – there may be an impetus for change. What’s needed, PwC opined, is a “fit-for-purpose TMS solution [that] will allow treasurers in Asia to meet ever increasing demands and add value to their businesses.”

Key drivers of that change, Andrew Bateman, head of treasury software solutions at FIS tells GTNews, are regulation and globalisation. Whereas relatively inexpensive headcount could manually operate basic functions of treasury cost-effectively in the past, “the increasing complexity of regulation requires corporations to invest in modern TMS technology for both computation and compliance.” With many Asian corporates now having regional or global operations, there also tends to be a greater need for core risk management functionality, specifically for foreign exchange.

Some solutions may come from financial institutions. Consultancy and services group Capgemini reports that banks and non-bank financial institutions are transforming their payments processing infrastructure by investing in order to create centralised payment hubs that will enable them to improve corporate payments services. The next stage of transformation in payments has also begun, Capgemini notes, with innovation from non-banks that are creating open-source, distributed, and immediate payment settlement infrastructure. “Non-banks such as Ripple and Earthport have created next-generation payments networks, which can be used by the financial institutions to offer new competitive payments products.”

Discussions with small- to mid-sized companies in Asia over the past year about the potential adoption of treasury technology systems showed that change is underway at these companies too, according to Broadridge Financial Solutions executive director Andreas Guenther. However, many are shifting away from relying on banks and looking at resources to build treasury capabilities in-house.

“Asia-headquartered entities are expanding globally. They see the immediate benefits of treasury management solutions in terms of flexibility and in-house data to be more efficient across geographies and banks.” Guenther expects that Asian corporates will fully embrace quality treasury management solutions within the next five years. Many corporates across the region also have a head start on their western peers for renminbi (RMB) transactions and are creating innovative cash management structures across the region, Bateman notes.

Boston Consulting Group (BCG) and France’s BNP Paribas also found a preference for non-bank specific solutions in their Corporate Treasury Insights Survey 2016, where treasurers said they prefer a TMS and other external platforms over single-bank platforms because they offer an integrated multi-bank solution. The survey also found, however, that small companies in Asia tend to embrace traditional banking portals, with relationship managers playing a prominent role in day-to-day operations.

Conferences organiser EuroFinance notes that many companies in Asia that have stuck with Excel may well leap straight into cloud-based solutions. The reason is that “it makes little sense to buy in-house treasury systems with the associated problems of cost and maintenance when cheaper, more flexible solutions are available plug-and-play in the cloud,” says EuroFinance.

Innovation

Along with building in-house TMS themselves or procuring TMS from large vendors, companies have the option of solutions from the growing number of fintechs in Asia that are developing solutions to meet specific needs of corporate treasurers.

Some of that innovation may well happen through fintechs that operate within banks. Capgemini principal James Methe said in a recent D+H webinar that “it’s surprising how many banks have acquired fintechs for their open application program interfaces (APIs). They’re outsourcing their creativity, adapting rather than changing. We’re seeing a trend [away] from everything having to be invented inside the bank.”

Other solutions will be created outside banks. Satyen Kothari, chief executive officer (CEO) of Mumbai, India-based fintech Cube, told AFP that he sees banks falling back on their core treasury management business and leaving anything beyond that to fintech startups. “The Reserve Bank of India (RBI) is doing incredible work to force banks to work together and open up protocols that private companies can use to build layers on top of core cash management. But you can very rarely move up the stack, and the banks are being forced to stay down in that stack, while the innovators are coming out on top and creating use cases.”

One example of a fintech that is developing a solution is Fluent, a start-up with an enterprise blockchain network solution that it says will enable corporates to make real-time payments with zero fees, utilise simple global treasury management, optimise working capital and streamline the procure-to-pay process.

Regulators in an increasing number of countries in Asia are also supporting fintechs. The Monetary Authority of Singapore (MAS), for example, recently published 100 Problem Statements for fintech and is ready to support fintech companies in developing solutions. These include:

  • Establish a digital supply chain finance hub that incorporates leading technologies in cargo documentation, SWIFT’s MT798 trade messaging utility, business process outsourcing (BPO) and blockchain.
  • Establish a digital marketplace where trade financiers would list products and services available to small to medium enterprises (SMEs), where the latter would be able to post trade finance opportunities.
  • Design a gateway interface that uses APIs to reduce complexity and the cost of multiple clearing interfaces for banks.

While it remains to be seen how many fintechs will develop solutions to address these and other problems highlighted by central banks, this will be pushed from MAS and similar initiatives in markets in other areas in Asia, which means that solutions are likely to be created faster.

What’s next?

While corporates in Asia might have been slow in adopting the TMS, rapid advances in technology and the push for treasury to provide more value-add services with less resources could well speed up the pace of change. The competition between vendors, banks and fintechs to deliver solutions will give corporates more and better choices that may well provide the impetus for giving up spreadsheets.

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