Sunny outlook through the cloud

Fifteen years ago, treasurers generally occupied a remote corner in the far reaches of the finance department. Today, they have become advisers both to the board and the front-line business on strategy and risk, with a diverse and growing range of responsibilities from centralised payments processing to enterprise risk management.

While this transformation has often been long overdue, the speed and scale of the change creates problems for treasurers investing in treasury technology as they cannot necessarily predict what functionality they may need in the years ahead.

Treasurers of companies outside the FTSE 100 face particular challenges. While they are tasked with a growing range of responsibilities, their transaction volumes may be relatively low. As a result, they may only have the budget for a runaround when they need all the functionality of a 4x4, albeit with low mileage.

Just as a car dealer is unlikely to be impressed by the argument that you won’t use the car as much as your wealthier neighbour and therefore should not pay the same price, many treasurers have been unable to afford a specialist treasury management system (TMS) in the past.

Instead, they have limped along with outdated software or cobbled together spreadsheets and homegrown applications. However, both scenarios will prompt auditors to raise an eyebrow and “make a note” – at best.

Cloud-based treasury solutions that operate under a software-as-a-service (SaaS) model are fast emerging to help address these challenges. Companies rent access to a usually shared TMS accessed through a web browser, with a single version across all users.

There is no local infrastructure or IT support required and the vendor integrates the solution with other systems, such as market rate feeds, online dealing portals and e-banking. By sharing the service, the costs are lower, implementation is quicker and less complex than traditional TMS projects, and there is no need to dedicate IT resources.

I would expect that it will take another eight to ten years for cloud-based treasury to become universal

Rémy Dubois, executive vice president and managing director, Europe, the Middle East and Africa, at Kyriba, a SaaS-based TMS vendor summarises: “We would emphasise the benefits of lower costs, greater flexibility and a single version of the software globally.”

It is not only smaller or less complex treasuries that are opting for SaaS solutions. Justin Brimfield, chief marketing officer of internet solutions provider Reval, explains: “Originally, cloud-based SaaS applications for treasury were designed for those that had been underserved by existing software through prohibitive cost or resource requirements. Today, SaaS solutions are just as relevant to mid-cap and larger corporations.”

By sharing a solution with others, Mr Brimfield notes: “As the community grows, each customer further reduces their risk and gains access to new functionality that supports their changing role without having to commission new developments or incur additional costs.”

There are other advantages that may be less immediately apparent, but no less compelling. One is accountability. Scott Coffing, group president, corporate liquidity and energy, at SunGard outlines: “In the past, when a problem occurred, treasurers had to talk to their IT departments and vendors to work out where the problem was and who was responsible for fixing it. Today, if the vendor manages the cloud and the application, there is just one point of responsibility. This eliminates complexity and promotes better vendor relationships.”

This is a major advantage for treasurers who are still in anger management therapy having been told that their system not working is someone else’s problem one too many times.

A second benefit is integration, particularly with banks. This may involve the TMS being directly connected to each of a company’s banks’ e-banking systems so that payments and other messages pass securely between the TMS and the bank without intervention.

Although these e-banking tools are easy to use and offer useful functionality, it is inconvenient to connect to each one individually, particularly when each bank’s system typically uses different formats for transmitting and receiving information. There is also the issue of risk. Prompted by the global financial crisis, treasurers want to avoid being tied to their cash management banks.

A solution to both the technical and risk issues associated with reliance on individual banks is to adopt bank-agnostic technology, such as SWIFT, the network used for bank-to-bank communication. This is a single, secure, bank-neutral channel that replaces connections with multiple e-banking systems. Companies expanding into new regions can add new banks easily or switch banks quickly without having to unwind complex infrastructure.

Although SWIFT has proved more attractive to larger treasuries with multiple banks in the past, this is changing as companies of all sizes globalise and seek to manage their risk more effectively.

As Mr Dubois says: “Cloud-based solutions offer unique opportunities for bank independence. We have an integrated SWIFT service bureau to allow companies to connect to their banks through a single channel. While larger companies may have the resources to maintain separate software for bank connectivity, an integrated solution is convenient, secure and allows treasurers to switch their banking partners without infrastructure being a consideration.”

Treasurers looking longingly towards the cloud still need to keep their feet on the ground. However convenient or compelling a SaaS solution, it is no different from any other technology in that flawed policies or processes will not be magically transformed.

Saas solutions may also not yet offer treasurers with complex or bespoke requirements the flexibility they need, and many companies, irrespective of size and complexity, will have security concerns over holding business-critical data outside their firewall. By becoming more dependent on the vendor, treasurers need to be fully confident in their financial viability and ongoing strategy.

Mr Coffing concludes: “I don’t think that every treasury is yet ready for cloud-based treasury although we are seeing a definite trend in that direction. It has taken five years to reach this point, with around a quarter of customers now opting for a cloud solution, and I would expect that it will take another eight to ten years for it to become universal. Consequently, we enable customers flexibility in how they use our software, whether installed, hosted, or via a private or public cloud.”