The uncertainty in the global financial markets has caused corporate treasurers many headaches, particularly regarding credit availability, monitoring and managing counterparty risk, and incoming regulations that might affect banking, tax and accounting.
Corporate treasurers are increasingly kept awake at night worrying about a lack of cash visibility and accurate cash flow forecasting. Limited control and transparency makes it difficult for treasurers to view their global cash position and optimise working capital across all their banking relationships. They need to get meaningful and timely information across a multitude of systems.
Kevin Grant, chief executive officer (CEO) at IT2, says that recent treasury trends can be broken down into pre- and post-global financial crisis. “Before the crisis, the focus was quite diverse and included straight-through processing (STP) and process management, different aspects of risk management, such as scenario analysis and VaR [value-at-risk], SOX [Sarbanes-Oxley] compliance, and new accounting regulations such as FAS 133, FAS 157 and IAS 39. The reaction to the crisis provoked quite a dramatic change, with the emphasis shifting to functionality supporting the new priorities of enterprise-wide cash and counterparty exposure visibility, which are, arguably, a shift back to basics.
“This new focus has encouraged higher levels of treasury connectivity with banks and internal remote business units, for example via SWIFT and corporate intranets, to ensure that complete and up-to-date information is collected from around and beyond the corporate enterprise,” he adds.
In addition, the treasurer’s role is expanding to include oversight in areas not hitherto under a treasurer’s remit. Paul Bramwell, senior vice president of treasury solutions for SunGard’s AvantGard, says that while the workload is increasing, the number of people to do the job remains the same or diminishes. He believes that there is a desperate need for automation tools to manage the redundant manual processes.
This is where treasury management systems (TMS) step into the picture. As Justin Meadows, CEO of MyTreasury, an electronic trading platform, says: “The TMS should be the golden system – the driving centre for treasurers and everything that they do. It needs to be fully integrated and be able to provide an overview of all data that the treasurer would want, down to the most detailed level and up to dashboard level, with warning alerts, etc.”
And many TMS vendors are responding to the challenge. Over the past two or three years, according to Paul Wheeler, managing director for Wallstreet Treasury at Wall Street Systems, the level of functionality has become functionally rich and more stable, even down to the lower end of the mid-tier in terms of products.
Three areas of new functionality that have made an impact in the past few years include:
Business intelligence, risk and reporting capabilities
Alongside a general back-to-basics approach, there is a re-emergence of concerns about risk management and the ability to identify and control those risks. As a direct result of the economic climate, greater pressure has been put on corporates to embrace the treasury’s role in risk at a business level. Up-to-date information is now required on demand.
Bramwell says: “There is a more consolidated focus on being able to identify where risks lie and treasury is using technology to automate the process of highlighting and identifying the risk. The platforms are there to identify exposures, whether that’s cash, FX [foreign exchange], interest rate risk or credit risk.”
Wheeler believes that the industry is beginning to find ways to get closer to the overall risk cycle of a business: “TMS vendors are beginning to embrace the fact that the treasury function is needing to holistically manage exposure across the broader business than just treasury. We see treasury’s remit expanding and it comes down to having very solid information around the total business, not just what historically might have passed through treasury.”
The crisis brought counterparty risk, in terms of banking partners, to the fore and therefore the opening up of SWIFT to corporates has to some extent relieved the reliance on bank proprietary connectivity. Corporates can now join SWIFT directly through a Member Administered Closed User Group (MA-CUG), Standardised Corporate Environment (SCORE) or Alliance Lite, or outsource their connectivity to a SWIFT service bureau. Corporates want to become more bank independent/agnostic and gain the ability to switch banks more easily.
According to Joergen Jensen, director at Nasarius, a cash and treasury management consultancy in the Nordic region, SWIFT is now becoming a standard way of integrating to banks, not just for corporate TMS but all payment systems. This point hits on the second reason why corporates are changing their bank connectivity – to improve the visibility of their cash across all their banks.
That enhanced level of connectivity allows treasury to be able to provide an ‘as real-time as possible’ view on exactly where its cash lies within the business. “I suffered through that in my previous life in corporate treasury,” says SunGard’s Bramwell, “where I just didn’t have access to those kind of balances, despite having subsidiaries reporting cash balances and local debt. The moment you find out that that level of reporting is inaccurate is when there’s a disaster.” He believes that SWIFT has been part of an improvement in visibility and accuracy.
SunGard is exploring the idea of a bank aggregation portal, where it uses SWIFT connections to provide a global view of a firm’s cash, beyond just what sits inside the treasury application. “Many companies want their subsidiaries to be able to remotely check their balances, search for outstanding transactions, etc, but wouldn’t necessarily want to give them access to a treasury application,” says Bramwell. “Therefore an aggregation portal is something that can be useful. It’s outside the core treasury application and can be deployed as a service in the cloud that’s hosted and managed by SunGard, for example, and used by corporates as and when they need it.”
Delivering via SaaS or cloud
Bramwell touched on the latest trend in terms of technology: software-as-a-service (SaaS) or cloud technology, where the TMS is hosted by the vendor, effectively outsourcing the technology and maintenance.
Wallstreet’s Wheeler explains: “Because there’s been significant retraction of investments around internal IT focus in treasury, treasurers have been left a lot more to their own devices to manage IT – some have even become IT specialists, certainly in the mid-tier. Therefore, many are keen to lean on the vendors to begin to take that burden away from them.”
Wheeler believes that the SaaS offering has matured so much in the crisis period that it is no longer a fad – it has become the norm. “Treasury won’t subside back to installed solutions,” he says. “Clients are saying that they are going to adopt this approach even more now that their budgets are opening out. They are beginning to look to the future.”
Many look to SaaS solutions as a quick way to deploy solutions to gain greater control. Martin Bellin, general manager of BELLIN, a web-based integrated treasury management platform used by Virgin Atlantic and Semikron, says that BELLIN’s fastest roll out was four weeks, but usually it takes about two to three months. “The idea is a web-based TMS, which can be deployed quickly and doesn’t require expertise to use,” says Bellin. “One of our partners calls it ‘glocal’ because it’s global and local at the same time.”
On the Cusp – Emerging Functionality
eBAM and personal digital signatures
SWIFT has been developing electronic bank account management (eBAM) and, hand in hand, personal digital signatures or SWIFT Secure Signature Key (3SKey), which enables eBAM. eBAM is a way for corporates to take control of their bank accounts and know who their signatories are, where they are, etc, effectively having all the mandates under central control. SWIFT has been working with banks and corporates in pilot programmes and launched eBAM in April, while it plans to launch 3SKey in October.
Commodities are something that an increasing number of corporates want to hedge and are therefore asking their TMS supplier to deliver this functionality. Nasarius’ Jensen says: “This is something where maybe five years ago treasurers were content – either they did not do commodity hedging or they were trying to manage it in Excel or with workarounds in their treasury system using FX instruments. But this was not a good solution because of its limited functionality, particularly with regards to reporting.”
Due to new environmental legislation, many corporate now want to trade CO2 emissions. “More companies suddenly want to be able to trade emissions and are asking for support within the system, particularly if they want to do hedge accounting,” says Jensen. “I think the systems providers are now adding more functionality to commodities on the instrument side and also in terms of handling the hedge accounting functionality, which is quite complex.”
Areas of Improvement
Cash flow forecasting
One area where treasurers are calling out for help is the whole world of cash forecasting. Zanders consultant, Mark Taylor, explains that it is so difficult to do because it is still heavily dependent on human input: “Forecasting is not a specific science, is it? It’s an art which uses statistical techniques and models, but different industry sectors, companies and people use different inputs and techniques.”
Speaking from experience, SunGard’s Bramwell says: “In my day in corporate treasury, one of the things that we were insistent upon was that we needed useful information in terms of forecasts, so that we knew what we were hedging. Because without forecast information, you are just guessing what you’re hedging, and you may actually end up creating exposures instead of reducing them.”
IT2’s Grant believes that the role of a TMS in supporting easier cash flow forecasting is to offer a user-friendly, web-based solution, ideally reflecting local style and terminology so that the forecast process is easy to use – and is therefore more likely to be used more effectively.
“Forecasting entities should certainly receive analytical feedback on their performance, and perhaps receive some kind of pricing benefit from the in-house bank for good forecasting performance,” he says. With today’s web-based technology and connectivity, barriers are more likely to be behavioural as opposed to technical, so treasurers need to communicate sensitively and interactively when rolling out a forecasting solution.”
Although previously treasurers might have had a transaction management package and then export data into a risk management system for valuations, for example, Jensen says that today treasurers expect everything in one package with integration across the whole group worldwide, as well as integration with the enterprise resource planning (ERP) systems.
But there is still work to be done in this area. Andrea Klein, vice president global financial services, Oracle, says: “TMS have been integrated with ERP applications, but this has been done through proprietary, custom integration. Thus, if a treasurer wants to change either the TMS or ERP on their side, or the bank wants to change payment applications or cash management systems on its side, the process is long and costly.”
Klein believes that building integration and ensuring data consistency across various systems has a worthwhile payback and return on investment (ROI) in terms of automation, controls, security, and better decision-making.
MyTreasury’s Meadows highlights that trading is a key part of what treasurers do – yet most TMS do not do multi-supplier trading. “They are more focused on the cash management side, trade booking, processing and confirmation matching, position reporting, etc. It is surprising that you can’t actually generate and execute a trade from a TMS, either through its own internal capability or by interfacing with a platform such as ours,” he says.
Today corporates set up trades within their TMS on the basis of the information there, and then simply export those to a trading platform where they are executed automatically. Once executed, they are inputted back into the TMS.
Some TMS vendors have integrated trading functionality. SunGard has its own SGN money market portal, for example, where a corporate can trade online for money market fund (MMF) investments. “As soon as you enter the trade, the transaction is brought into the system automatically; it’s confirmed, and settled automatically. And, of course, any balances are held within the TMS, as well as the trading portal,” says Bramwell.
The All Singing, All Dancing TMS
Zanders’ Taylor comments that vendors have long been racing towards an ‘all singing, all dancing’ TMS, which did everything that everybody wanted. This has been helped in some ways by consolidation in the marketplace; this year alone, Wall Street Systems bought both City Financials and Speranza Systems.
But the question remains, is a treasury better served by a vendor whose support team is covering multiple products, or is fully focused on one product? MyTreasury’s Meadows thinks that it is better to have specialist platforms and integrate them with TMS providers at the outset.
“If it is built in-house, then it will end up being the lowest common denominator and won’t address all the specialist needs. However, I can envisage a situation where the trading part is viewed as an integrated element of the whole treasury management function, and therefore is embedded within TMS. But I think it will have to be through the acquisition of a specialist supplier, and integration of that product into the overall product suite,” he says.
Should TMS providers look to be ‘all singing, all dancing’ or should they look more to interoperability and partnering? IT2’s Grant believes that the answer is both. “It is clearly desirable to have all necessary treasury management functionality available in a single system, and it is also necessary to integrate with complementary external systems,” he says. “Technically, the ideal may be pictured as a functionally complete TMS solution, based on a single central database that is updated in real time, robustly integrated with essential external systems. This approach minimises synchronisation and other technical, timing issues, and helps to assure that reporting is instantaneous, up-to-date and accurate, by eliminating unnecessary islands of technology.”
Oracle’s Klein reminds us that ERP vendors are expanding deeper into TMS territory: “ERP systems continue to take market share from legacy TMS providers as customers recognise that the ERP functionality improvements over the last 10 years now address most – if not all – of their core treasury requirements. In addition, they are starting to see that embedded integration offers tangible business benefits to both the treasury department and to IT. It makes sense to evaluate them as part of the TMS decision-making process.”
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