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General trends in TMS solutions

TMS’s have evolved over time and especially the last couple of years with a huge jump in technologies. Treasurers are wondering how TMS can help further modernizing the finance function in the coming years. How to best choose your IT treasury solution in a complex and competitive environment? What are the general trends we saw in the industry? These are the questions the article will try to answer to.

Current context post pandemic

The strategic and key role of treasury teams has increased steadily over last decade. The evolving role has significantly impacted the structure and scope. This evolution reflects the increasing complexity of business and C-level expects TMS’s will continue to respond to the increasing pace of changes. Finding the right responses to face these emerging challenges makes the difference in a complicate economic environment. To be successful and resilient, treasury needs a scalable and well-defined target organization, a forward-looking governance structure and obviously appropriate and adjusted IT architecture but alos state-of-the-art solutions. Furthermore, especially after a strong crisis, shareholders are putting more pressure, as well as regulators, on transparency and improvement of the financial performance. It leads to further centralization of activities. At treasury level, the central technology is the calculation and processing power of Treasury Management Systems (i.e. TMS’s). They are at the forefront of driving automation of treasury tasks, Straight-Through Processing, and integration with other systems. To reduce the need for customization, the TMS choice is key to focus on most appropriate options to fit with specific business requirements, today but also in the future. Beside this TMS evolution, there are disruptive technologies proposed by Fintech’s which change way customers and business interact. And we must also list RPA’s, robotics, and AI which open new possibilities of machines performing cognitive tasks based on historical data and even learning how to do it. More systems are implemented in the cloud, as pure Software as a Service (i.e. SaaS) application or in private clouds on dedicated customer databases. This trend is of course driven by cost reasons to outsource IT infrastructure and security to dedicated vendors. All these evolutions will enable to deliver more “Treasury-On-Demand” (i.e. TOD) functionalities.

Tech dependency of Treasury

Treasury management has maybe been for too long tech dependent. Nevertheless, technologies have never been so sophisticated and multiple. Innovation offers new opportunities but could also increase further the IT dependency. The fast-evolving IT technologies will present lots of new challenges for treasurers (e.g. How to further automate? How to use AI? Are robots the panacea? Need for more predictive analytics and dashboards. How to enrich data visualization? etc.…). Treasurers will move from routine reporting to dynamic reporting to ideally become more strategic. A challenge but also an opportunity. Treasurers should develop what I call “TI” (i.e. “Treasury Intelligence”), a fantastic (potential) win. That’s the real challenge of treasury in the coming years. The challenge number 1, which can make their job different and push them up within the finance organization.

The modern TMS’s have evolved to encapsulate treasury’s needs in a superior, more secure, and compliant framework. We must admit that TMS’s have come a long way since their introduction in the early 90’s when they were only implemented at large corporations’ level. It is also fair to notice that technologies offer tons of new opportunities, besides challenges (e.g. Bots, AI, BI, new API’s, etc.…). For example, API’s and PSD2 will open a wide new world: an IT revolution has been launched and we need the right TMS partner to succeed. Nevertheless, IT architecture of treasury departments will continue to complexify over time, with add-on’s or best-of-breed specific solutions. Unfortunately, today, despite these fantastic evolutions some TMS solutions seem not to be able to fully cover 100% of a treasurer’s needs. They need to add some specific solutions to complete the main tool and to produce ad hoc reports and somehow fragment further the IT treasury landscape. Choosing properly its TMS provider becomes crucial. COVID crisis has crystalized the need for modernizing the whole finance function, treasury being a major piece of it.

TMS’s are vital IT tools we love to hate

Very often treasurers are not entirely happy with their TMS. These tools been around for so long now, but there is still a vast chasm between what treasurers expect from a new solution and what it can deliver, generating a form of frustration. One useful step towards alleviating this disappointment would perhaps be to not have too many fixed ideas about what the tool and to define the solution that best fits your needs. If you start from the belief that you are seeking the best or most suitable solution possible rather than perfection itself, you are more likely to be able to avoid that so common exasperation. This approach can best be summed up as the Coué Method, i.e. the calibration of your expectations and the setting of (more) reasonable ones, without allowing yourself to be thrown of course by an over-enthusiastic vendor.

Technological threshold reached

When it comes to treasury systems, a certain level has basically been reached and it is fair to assume that the next one is considerably higher and will take a fair bit of time to be attained. Such huge progress has been made in recent times that getting any higher seems challenging to say the least. It’s a bit like skiing with and the advent of “carving” and parabolic skis, or bicycles with carbon frames and then disc brakes. Whenever a technological or technical threshold is reached, a certain amount of time is required before the next major innovation can occur. For us treasurers, maybe it will involve artificial intelligence…? But in any case, I believe we’re in one of these lulls at the moment and the effect is perhaps accentuated by the fact that today’s TMS’s are all cloud-based in the form of SaaS – Software-as-a-Service solutions (which display certain advantages regarding updates, i.e. their automation). However, just like any coin, standardisation has a flip side: the more one standardises and produces “off-the-shelf” solutions, the less one can customise and tailor adjustments. But this is a choice that TMS publishers seem to have made. They want to produce a standard with a limited range, not present a mind-boggling Porsche-like selection. Too many solutions are cannibalising other products, while too many products are costly in terms of development and maintenance. There’s a clear trend among publishers of targeting and limiting their production to one or other model but, to use the car comparison again, when making a purchase, it makes little sense to opt for an end-of-life model, as it will soon be obsolete and/or will depreciate even faster. Longevity is important. Yes, your vehicle will still get you from A to B, but it will lack the latest options and innovations that make new products safer, faster, etc…

Viability of TMS vendors

When choosing a new TMS, it’s also important to factor in the resilience and size of the software publisher. Many TMS vendors are not too keen on developing new personalised functionalities for cost reasons and even if they pass on the cost to the client, this has little impact in the medium term. There’s often a severe lack of development staff, which also explains this trend towards focusing on the standard, which must then be accepted as is. It’s then left to the treasurer to adapt to the tool rather than vice versa, so it’s inevitable that there will be shortcomings that the treasurer will have to accept or work around. It remains common for publishers to consolidate the market (less vertically) and more horizontally, to cover more treasury tasks. Size and horizontal integration will be the norm, with combination of specialized tools covering different functions.

TMS market consolidation or fragmentation?

A sort of mixed solution between best of breeds for different tasks. No one can properly cover the full range, even the biggest, although smart TMS players will cover several functions and integrate them. That is in my opinion the coming trend. While it may be reasonable to think that consolidation of the TMS market is possible and likely, it is also fair to assume that size alone does not solve everything, but a minimum size helps. The shareholders of some TMS’s, i.e. private equities or pension funds, have vertical/acquisition expectations to grow the business and sell it at a higher price. I do believe in growth but a more horizontal one, as the recent acquisition of BELLIN by COUPA, which makes lot of sense in terms of treasury role evolution. Strategic alliance and business combination make more sense than vertical acquisitions pushed by Private Equity shareholders to solely create a bigger size. The TMS growth should serve customers. The size or the number of TMS solutions piled up do not serve treasurers.

The 8 predictions

Although it remains tough to predict the future of this industry, we can try to make 8 predictions for the future, I would plump for the following:

(1) Consolidation of the market through acquisitions (disappearance of some vendors) although wide spectrum of niche solutions and fragmentation with new Fin tech comers (2) Demise of TMS in mini-ERP mode - Different deployment model – horizontal acquisitions to cover other future treasurer’s tasks (3) Stabilisation phase with few new products but an opening up towards other solutions to help the optimisation of solutions - Larger digital adoption post-COVID (4) Off-the-shelf range of products which are easy to use but less flexible in terms of their implementation - TMS solutions become more generic and less open to specific developments required by users (5) Focus on IA and reporting/dashboarding, robotization will be everywhere and common practice for all - Everything in the cloud (SaaS for all/no more license of software) (6) Search for maximum IT security, a major objective of clients (7) New functionalities for predictive analysis, decision-making and dashboarding, primarily via add-ons that can be grafted onto the solution as complements, (8) TMS will cover other areas and functionalities like bank connectivity for B2B payments, procurement synergies, etc… enabling treasury scope enlargement

And that is to name but a few. Having said that, the software’s structure will undergo little in the way of fundamental transformation. The Holy Grail for treasurers remains (total) automation and the interfacing of all tools.

Adopt more performing technology but make the right choice!

I think that the pressure on treasurers to deliver more or better-packaged information is growing. We entered the era of TOD. There is also more pressure in terms of the cost of tools, so our strategies are having to change, and the solutions may also follow suit in response to treasurers’ increasing requirements regarding reports and regulatory compliance. In order to increase productivity and quality, it’s vital to harness the development of IT tools, but it will require creativity and talent within treasuries to achieve this objective. Treasurers therefore need to think about recruiting differently in the future and technology should be envisaged as an opportunity to review our role and its scope. In the future, it may be more as a catalyst for the development side, but the difficulty consists of adequately assaying the technology and maximising use of existing resources. After all, to revolutionize your function you need establish clear Treasury IT strategy. This amounts to travelling without map or compass, but these days, we simply must contend with cyber-attacks, fraud, tight regulations, obligatory reinforcement of internal controls, greater centralisation, a disrupted economic environment and an absence of standardisation (which prevents the task’s facilitation). Treasurers are going to have to become “data consumers”.

“Multi-tenant solutions” the future

The “single-tenant” solution has admittedly permitted the specific configuration and development of the most suitable solution for each client. However, this type of solution is starting to disappear in favour of “multi-tenant solutions” preconfigured in terms of functionalities and hosted and maintained on the vendor’s cloud, where each client uses the same version of the software. Their price and deployment time will be necessarily lower as a result, but treasurers will have to adapt to these predefined models instead of adapting the system in line with their way of working. However, “one size does not fit all” applies here and this will compel users to bend to the tool rather than vice versa, except when demonstrating the usefulness of the functionality for all users.

A digital disruption looms on the horizon

It’s clear that the boundaries between solutions are becoming more fluid and that barriers are being lowered, offering new opportunities. Cost pressure and efficiency improvement will help convince treasurers to review their technological strategy. The need for more real-time information and a more predictive approach is forcing us to reinvent ourselves. COVID has increased further need for real-time treasury, the “Treasury-On-Demand” concept. Unfortunately, our old road maps and strategies have all too often come up short, so that is the first piece of advice to be taken on board. The entire ecosystem is changing, with the arrival of SWIFT “gpi”, instant payments, KYC registers, API’s with the PSD2, new e-payment methods and new business models, RPA’s, AI; machine learning, etc… Of course, a treasury’s IT strategy cannot be frozen for ever. It needs to evolve… and fast. Selecting the right partner is key. Automation, in whatever form, is the primary objective. The treasury is the depository for a mass of financial data. To evolve, it needs to transcend its initial roles and focus more on data science.


COVID may be an opportunity for Treasury IT architecture revamping

Finally, everything will hinge on a treasurer’s appetite and capacity for change. Technology is the saviour and the future, at least for treasurer’s adept at mastering and harnessing it. Only technology can lighten the workload to leave you free to focus on analysis and strategy. Over the coming 5 years, the biggest challenge will lie in this capacity to gradually evolve, bit by bit, towards greater digitisation. Virtualisation is and will be more dominant and prevalent in the shaping of treasuries’ futures, more so than in any other financial profession. TMS technology will eventually (more long than short-term) allow the grafting on of robotics, artificial intelligence, algorithms, etc… in order to move up another level and enter a new dimension. But let us give the software developers a little more time to meet our insatiable appetite for new functionalities. We should bet on players with best horizontal strategies. As you see, the choice of the ideal treasury IT architecture is complex and to be contemplated on a case-by-case basis. It is necessary to find the ideal formula and the right mix between different modules either provided by a single provider or in combination with specialists of their field (i.e. “best of breeds”) and by interfacing them. Believe me, this IT strategy to be determined is a true case of conscience and deserves careful attention as the decisions that will result will have major and long-lasting impacts on your function. So be prepared and cogitate before embarking on modernizing your Treasury IT infrastructure. Some IT vendors by their smarter strategy will help us repositioning treasury higher into the finance department. Is not it said that "the best is ahead"? (as far as you are prepared for the future).

François Masquelier, Chairman of ATEL Luxembourg July 2020

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