Technology for Treasurers: Trends and Developments

This commentary identifies the current trends and developments in treasury technology. How are treasurers' technology requirements changing and what are their expectations today?

Time doesn't stand still for corporate treasurers as they deal with the ever-changing environment of treasury and keep pace with latest industry developments and regulation. Not only are the responsibilities of the corporate treasurer growing day by day, but they must also stretch their time and resources in order to do more with less. Technology plays a fundamental role in making the pressurised existence of the treasurer less stressful and more efficient.

When considering the technology requirements of corporate treasurers it is important to recognise that it is not simply a case of 'one size fits all'. "No two treasuries are alike and requirements will vary greatly," says Jon Scott, director of PricewaterhouseCoopers' (PwC's) treasury technology advisory services in North America. "Factors that differentiate treasuries include size (i.e. volume of transactions), complexity of treasury operations, geographical diversity, resources available in both treasury and IT, risk appetite and the regulatory/controls environment."

He also describes other defining factors, such as budget, appetite for potentially large-scale systems projects and ongoing support, the technology environment within the company (e.g. use of an ERP system) and business/legal constraints regarding contracting with certain types of companies. "To some extent, the requirements drive the capabilities that are offered but that too can be a limiting factor in identifying what can be automated," he adds.

How Are Technology Requirements Changing?

Technology must keep pace with the environment that it serves and no financial sector is evolving quite as rapidly or dynamically as treasury. According to Elizabeth St-Onge, managing director at Treasury Strategies, never before have market and business conditions necessitated treasury to implement a streamlined and automated environment to the extent that they do today. "Recent environmental drivers are increasing the demands on, and visibility of, treasury - making it impossible for treasury departments to function at an optimal level without the visibility, controls and analytics only available in an automated environment," she explains in her article, Treasury: The Last Frontier of Automation.

The tools that treasurers have relied on for years are now under close scrutiny in the current era of heavy compliance and the need to pass strict internal and external audit requirements. "Compliance with Sarbanes-Oxley (SOX) and other standards has necessitated extensive reviews of treasury functions and the tools they use," says Paul Nailand, founding director of Visual Risk. "Auditors have focused heavily on areas such as system security, dual approvals, reliability and robustness of deal capture systems, and seamless market data integration."

In his article, The Age of Compliance - Increasing Demands on Treasurers, Nailand discusses the fact that the use of spreadsheets as 'treasury systems' is under more pressure than ever, particularly in mid-market companies that have traditionally been slow adopters of treasury management systems.

And this is a common industry opinion. "Spreadsheets just don't work in the post-SOX world," insists Jim D'Addario, director of ERP Financials Marketing at SAP. "Treasurers need technology that is automated, provides effective controls and also helps them to integrate with their ERP systems so they can achieve a more precise forecast on predicted cash flows and therefore manage their liqudity more effectively."

The transition away from using spreadsheets will not be an overnight phenomenon and, to some degree, perhaps treasury practitioners will always use spreadsheets, but today's regulatory requirements will certainly curtail their dominance in the treasury space. The introduction of Internet-based standards such as XML and more sophisticated treasury management systems will fuel the movement away from spreadsheets as a treasury tool. "For many of the other Fortune 200-500 companies, integrated solutions with their ability to tie together most treasury activities seamlessly, along with ERP modules for those that use them, continue to demonstrate growing popularity over more manual, often spreadsheet-driven processes with their continuing controls and efficiency concerns," affirms PwC's Scott.

A significant trend that is also influencing the development of treasury technology is the evolving nature of corporate treasury itself. "Treasuries have become increasingly demanding in their requirements, as they have expanded their responsibilities beyond traditional cash management responsibilities and into greater integration with the underlying operations of the company," says Scott. "Risk management is perhaps the other key driver, reinforcing the need for greater visibility of exposures and centralised reporting of activities, which can only be efficiently achieved through automation."

Interestingly, the widening scope of the treasurer's responsibilities is also reflected in the way that treasury systems providers are changing. The systems vendor market and best-of-breed solution providers have gone through extensive consolidation over the past five years. As a result, the acquiring vendors have become larger and more stable within the market but also, according to Hans Candries, manager at PwC, they are acquiring systems beyond their traditional scope and moving into the working capital and financial supply chain management space by offering accounts payable and receivable functionality, for example.

Technology in the Market Today

As a result of the increasingly sophisticated demands of treasury, the range of systems' capabilities and awareness among treasurers about the technology offerings available in the market has also grown. With the vast array of solutions that are available, which ones are working and which ones are likely to fall by the wayside?

"There are a range of solutions in the market that continue to be popular, and perhaps one of the most important differentiators of the more successful ones has been their dedication to developing not just functionality to keep up with the times, but innovative solutions to meet the other constraints faced by treasury," says PwC's Scott. "These include remotely hosted systems, which are probably the fastest growing offerings, and help address both cost and internal support resource issues while simultaneously providing the vendors and users with easier support/issue resolution as well as upgrades."

ERP system vendors have also continued to focus more of their vast development resources on providing modules that, to varying degrees, have been able to support many of treasuries' growing demands for existing users of other modules of their systems. 'Integrated' treasury systems have become more important too, with enhanced modules to capture transaction and exposure information remotely and collate it for treasury and senior management, such as through web-based capabilities.

Flexibility is certainly fundamental to the success of treasury technology as, according to Joergen Jensen, director of product management at Wall Street Systems, most organisations aim to use their treasury management systems for five to eight years so corporates should not invest in a system that simply suits them at the present time because this could be a straightjacket for future growth.

"Choosing a treasury system with the right architecture can be a trade off between flexibility on one hand, and implementation effort and time, on the other," he points out in his article, Making the Right Treasury Technology Decision. "A mid-sized corporate treasury might not have the resources to implement a complex treasury system, whereas some cash and treasury management packages, for example, won't be able to fulfil the needs of a treasury with a large debt portfolio and complex risk management requirements."

In fact, arguing the case for making an investment in treasury technology as well as gaining management buy-in appears to be a significant barrier for many corporate treasurers.

Making the Case for Technology Investment

According to St-Onge at Treasury Strategies, despite the growing need for treasury technology and the increased availability of options, adoption rates for treasury technology are still very low. "Based on our research and extensive consulting work with corporations of all sizes around the world, we have identified two primary reasons for this. First, a view of treasury technology as an infrastructure expense rather than a business investment and, secondly, competing priorities," she explains.

Taking the first point, St-Onge claims that while many treasury departments understand the value and benefits that a treasury system can bring, they have been unable to garner senior management approval for this type of investment.

This fact is supported by Richard Spong, solutions marketing manager, financial services at Sterling Commerce, who says that, in corporations outside financial services, regardless of their size, the priority for technology spend is invariably, and understandably, directed to the core competency and trading function of the business. "The primary systems investment goes, for example, to warehouse management, the research laboratories, store operations, production line re-tooling or engineering design. In almost every case, the requirement of the finance division is secondary," he claims in his article, Treasury Communications Technology - Are We Getting the Message?. "To command budget share, the division requires an extremely good business case and clear analysis of the forecast return on investment."

The second reason behind the lack of treasury technology usage is the sheer number of competing priorities facing treasury. In many companies, treasury might just not have the time to implement an automation project despite receiving approval for a technology project. As mentioned earlier, this is understandable in the current environment where treasury is expected to do more with less. In her article, St-Onge describes some solutions available to companies who face the situation of inadequate staffing levels required for a technology project, such as hiring temporary staff to increase the team's capacity for the duration of the technology project or engaging a third-party consulting firm who will be able to provide additional resources to supplement treasury.

Another solution outlined by Timo Hämäläinen, founder and CEO of Exidio, is to consider the use of intermediary 'software as a solution' (Saas). "You might have a vision of an all-encompassing, integrated and automated treasury solution that will immediately solve all of your treasury management issues and while such a system may be imaginable, it could take years to fully deploy and require fairly frequent maintenance," he argues in his article, Best Practice in Business-to-Treasury (B2T): Part 2 - Key Phases of a B2T Project. "A solution provided through a SaaS platform can be the perfect intermediate tool because SaaS-based services are typically fast and simple to deploy and cost is based on usage. As soon as the implementation of the perfect vision is complete, the temporary SaaS solution along with the related costs can be discontinued quickly."

In order to gain approval for any technology investment, it is clear that treasurers have to become more savvy in creating a solid cost-benefit analysis and business case. It is also important to consider whether the technology they currently have in place is being used to its maximum potential before seeking further investment.

In his article, Getting the Most Out of Your Investment in Technology, Bruce Lynn, managing director of The Financial Executives Consulting Group (FECG), suggests that the pursuit of more technology is, by itself, not sufficient to power a treasury function to the status of 'world class' and can result in a waste of money and time. "Treasury should devote more time to directing current technology towards predefined goals, such as enhancing profitability, maintaining sufficient liquidity and creating an ability to recognise the risks inherent in its chosen businesses," he says.

It is also interesting to note that in terms of technology penetration, the Treasury Strategies survey reveals that Europe has a higher adoption rate than the US. PwC's Candries attributes this partly to the fact that (based on his experience with treasuries in Europe), they have traditionally been more internationally focused while similar sized companies' treasuries in the US can be more domestic by nature. "Even some of the larger US corporations have been dominated by domestic business and therefore have not needed to worry about sophisticated risk management issues that European treasurers contend with." In terms of technology, there is clearly room for growth in the US and Asia and Candries believes they will follow the European example, as their awareness and the functionality of the offerings available converge.

Future Developments

One important technology development for treasurers has been direct corporate access to the SWIFT network and there has been much discussion among the treasurers of larger companies about the value of connecting with SWIFT for both bank balance and transaction reporting, and for making payments. SAP's D'Addario believes that corporate access to SWIFT will be a huge development going forward and that more corporate IT departments will encourage their organisations to adopt SWIFT standards in order to reduce maintenance and infrastructure costs required in maintaining multiple proprietary bank channels. "The new corporate access model, SCORE, provides corporates with a much more economical way of connecting to their banks directly in a standardised and secure way, which will allow treasurers to download bank balances in real time and therefore manage their global cash more efficiently," he says.

According to Patrick Coleman, director of sales & marketing at IT2 Treasury Solutions (IT2), another likely technology evolution involves the treasury dashboard in which all the information needed by treasury executives will be presented in a customised information set, incorporating policy, documentation and process management. "Such solutions are becoming available in the more technically advanced systems, and may well become best practice standards in time, as they contribute to optimising treasury management," he says.

He also believes the provision of complete management reporting will emerge as a best practice requirement for effective treasury technology."The treasurer is confronted with the monthly task of generating management reports which address business issues, such as global cash position and cash investment portfolio," he says in his article, What are Corporate Treasurers' Technology Requirements Today?. "Technology can ensure that the production of this critical management reporting is complete, accurate, compliant and transparent - and that the required reporting is produced in a timely manner, with minimum manual effort."

A further trend highlighted by a recent PwC survey is that, for the largest Fortune 50 companies, integrated systems may not be sufficient and that this will drive the increasing use of 'middleware' and enabling technologies that can support the standardisation and consolidation of information across activities both within and outside treasury. "More focused best-of-breed solutions will continue to find popularity in meeting the needs of companies for whom integrated solutions are not practical or do not meet their needs," predicts PwC's Scott. "The increasing popularity of hosted and smaller systems indicates that the fertile and relatively unexploited marketplace in the balance of the Fortune 1000 and even many smaller companies with increasing treasury demands."

Conclusion

When it comes to technology for treasurers, every organisation will have its own requirements and demands, depending on their infrastructure, business and internal priorities among other important differentiators, but there are certainly some common denominators. Corporate treasurers, overall, are becoming more sophisticated in their demands from technology and their expectations of what they want to achieve from the solutions they implement are higher. Technology is rising to the challenge and adapting to changing needs by improving flexibility, functionality and integration capabilities.

Gaining management buy-in for investment in treasury technology still seems to be a stumbling block for many treasurers but, as their role expands and they take on a more strategic role, they should also gain more sway in persuading senior management to invest in technology and direct budget spend.

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