Corporate treasurers in growth companies must invest in flexible technologies that can expand with the business without creating a fixed-cost base
Online firms have an enormous capacity to grow in terms of customers and geographies, but that requires them to be as flexible as possible. For music streaming giant Spotify, which handles around 200 million transactions a year, the right technology has been fundamental to its treasury function as the business expanded.
Johan Bergqvist, Spotify’s group treasurer, says: “For us the pressure has been to keep up with the business. Over the last few years we have grown from 800 employees to 1,500, with revenues doubling or tripling. In 2013 alone we entered 32 markets. The treasury has to align with everything that comes with that growth, handing the foreign exchange part, the transactional part, financial risk and infrastructure for payments.”
More traditional firms with legacy infrastructure need to compete with new entrants by lowering cost and complexity. At the same time operational pressure is growing within treasury functions as their financial services partners step away from certain business lines and less profitable customers. For example, at the start of the year RBS announced it was closing its non-UK/Ireland wholesale cash management and trade finance operations.
Corporations are engaging in shadow banking activities themselves to fill in gaps in funding for partners or counterparties, and supporting parts of the supply chain. Small to medium corporates may also find they are no longer profitable enough to be taken on by banks for low-margin activities.
With pressures to push down costs, increase flexibility and provide evermore complex facilities, treasurers need to acquire the systems that will allow them to function
Bob Stark, vice president of strategy at treasury platform provider Kyriba, says: “Corporates are in some cases going to provide financing to their own supplier base to avoid disruptions due to lack of cash or liquidity. If you are a growing company, you are relying on a growing supplier base and you need them to be uninterrupted otherwise you have a problem yourself. We have seen large organisations providing finance to their own customers for some time in industries like aeronautics.”
With pressures to push down costs, increase flexibility and provide evermore complex facilities, treasurers need to acquire the systems that will allow them to function.
Paul Bramwell, senior vice president of treasury solutions at software and services provider SunGard, says: “Even if you have a very basic treasury function these days, you can pick up technology that will automate a significant amount of the processes you have, achieving straight-through processing for dealing, confirmation matching, filing and reporting.”
The adoption of new technologies is gaining momentum. In a recent survey by the Association of Corporate Treasurers and Kyriba, just a third of treasury professionals said that they still used spreadsheets as their tool for treasury management. More sophisticated systems were used by other respondents, with 35 per cent using installed systems, 16 per cent using a function of their company’s enterprise resource management system and 10 per cent using a software-as-a-service (SaaS) cloud-based platform.
The growth of cloud-based platforms reflects the need to reduce the complexity of firms’ own technology infrastructure, either through investment in new systems or by pushing the complexity to system providers to manage.
Hubert Rappold, chief executive at TIPCO Treasury & Technology, says: “In the payments area, traditionally you had a treasury management system and then connections with the 20 banks that you had worldwide for banking. Now cloud-based technology providers are getting a strong hold. They take the data and take care of all the connections with the banks. So the complexity is still there, but the corporate doesn’t need to worry about it.”
Beyond the reduction in cost that this provides, it also creates flexibility for the treasurer. Firms that are growing will often place some treasury functions in overseas offices, but wish to operate centralised controls and reporting.
Mr Stark says: “You can never let go of central visibility and control of treasury cash flow. If the technology to manage that is complicated to implement, it doesn’t really help. You need one system that everyone can use regardless of where they are in the world.”
As a consequence cloud-based systems are providing just the sort of expansibility that nimble firms need.
Mr Bergqvist concludes: “We try to remove ourselves as much as possible from having local installations. Things that need maintenance or upgrades can slow you down, so most of the things we are looking at are cloud-based solutions where you can scale seamlessly. Versus a local installation, it is really the right way to go, especially if you are a fast-growing company.”
CONSIDERING THE CLOUD
If you want a platform to have the advantages of reduced maintenance and support but with dedicated technology, you can host it in a private cloud
- A vendor providing a service or software through the cloud can gain substantial economies of scale; offering a single solution to multiple clients can mean their price goes down
- Security concerns in the cloud should reflect risks; if a payment file is lost or made public that is one thing, but if your complete cash-flow forecast becomes public, it is a bigger issue
- There are local rules and regulations that affect the ability to use cloud-based systems; being aware of restrictions around data transfer is crucial particularly across borders
- In some European jurisdictions components such as payments or reporting may be operated in the cloud, but not an entire treasury management system
- As an organisation the provision of remote software will mean you do not need to worry about how much processing is being undertaken or how many resources are required
- Internal IT resources can be reduced as they are no longer needed to manage system implementation and integration when new functionality is needed