Supplement: Technology in Treasury Management Guide
by Jack and Wolfi Large
New technologies are supposed to free up time and resources in the corporate treasury department. But they often take a long time to implement, cost a great deal of money and bring little obvious benefit.
Steve Whalley, managing director of treasury management systems provider CityFinancials, wants to change all that. In our development of treasury management solutions, he says, it is important for us not to lose focus of the fundamentals of all good software development, namely that the software must bring benefits in efficiency and control. Our goal is to continue to improve corporate treasury department efficiency, visibility and control. (See figure 1).
The bulk of day-to-day time and resources are taken up by basic processing and administration, and transaction execution, as shown in Figure 1. In many corporate treasury departments much of this has already been automated using existing systems. Treasury personnel are now looking for two new types of technology and automation. The first is to streamline and improve processing and the level of straight through processing (STP). The second is to enable them to focus on more strategic areas, such as improving real-time control over cash, investment and risk, and subsidiary treasury activities.
Increasingly, large corporate treasury departments and even medium-sized companies are looking for fully integrated regional and/or global cash and treasury management solutions. This requires a level of integration, automation, and STP impossible a few years ago. This article reviews important examples of new corporate treasury technologies and automation that can now make it possible.
Data standards and connectivity
All corporate treasury departments use computers, which to be really useful must communicate with other systems and services. In almost all parts of the world, adequate telecommunication networks exist to connect them. The problem now is the standards used in data communications.
As described in the review of payment systems development (see page 30), companies are, at long last, driving the development of standards. Significant progress has already been made. Over the past year, new standards have been published for the billing of bank services, e-invoicing, remittance advice and dispute management. The different bodies involved are now making agreements to harmonize their standards for example, TWIST, Fix and FpML for end-to-end foreign exchange transaction processing. These are important developments that will lead to considerably higher levels of STP in corporate treasury departments.
Another important development for large corporate treasury departments is the great improvement in connectivity to SWIFT. This began in 1998 with treasury department counterparties exchanging confirmations with other SWIFT members. In 2001 Member (Bank) Administered Closed User Groups (MA-CUGS) on SWIFT were approved, operated by member banks for their corporate clients. One major French multinational corporation now has access to eight MA-CUGs with banks in Europe, Asia-Pacific and North America, improving the efficiency of its cash pooling by 67% and reducing borrowing. It also implemented a SWIFTNet payment factory, eliminating more than 5,000 paper wires each year. Many of the 108 registered MA-CUG users have reported considerable savings.
The next stage in corporate connectivity to SWIFT, the Many to Many Closed User Group (M2M-CUG), is in development. Here companies and banks will need to join just one CUG, as shown in Figure 2. This new service will be SWIFT-administered, though the bank-administered MA-CUG model will remain available for those that require it. (See figure 2).
Banks and companies around the world are eagerly awaiting the introduction of the M2M-CUG. It will remove the overhead of joining multiple MA-CUGs and make it much simpler to connect to and manage corporate connectivity with SWIFT. Not only will it improve STP levels in corporate treasury departments, it will make it easier and more cost-effective for medium-sized companies to connect to SWIFT.
Automation and STP
Continuous expansion in the responsibilities of corporate treasurers is creating even more demand for automation and improved levels of STP. Corporate treasury management systems suppliers are delivering a whole range of fully integrated STP solutions to replace the basic activities in treasury.
Receiving requests for foreign exchange from subsidiaries, dealing on the FX market, receiving confirmation of deals, matching confirmations and deals, and then making covering payments are tasks large corporate treasury departments face many times a day. CityFinancials has developed a fully integrated solution for this process, described in Figure 3.
Key features for members of a SWIFT MA-CUG are the real-time matching of deal confirmations and, when deals are fully matched, the automatic execution of related payments. The system is highly secure, with encrypted payment data and encrypted communications to and from the SWIFT box.
Another key area for automation in the corporate treasury department is the settlement of Continuous Linked Settlement (CLS)-eligible FX trades. SimCorps IT/2 system provides a fully automated solution enabling users to route their CLS-eligible settlements direct for final settlement. One major multinational corporation is already using the system to trade in sterling, US and Canadian dollars and euros. Each trade is processed and confirmed by its CLS member bank in less than 10 seconds.
Corporate treasury management systems are also being used to provide full STP for end-of-day investments or borrowings. XRTs Globe$ Treasury system is now linked direct to clients investment banks. At the end of the day, the cash manager reviews the forecast cash position and the money market options, decides on the appropriate actions and instructs the money broker. After this everything is automated, including the movement of the funds and the updating of the records in the corporate treasury management system, as shown in Figure 4.
This example of the automation of day-to-day processes is typical of the reduction in the number of discretionary decisions taken by members of the corporate treasury department. It could go further, to include the automatic review of money market options and the decision on where to place or borrow funds. Investment strategy is often defined by the general policy and operating rules of the department. So it, too, could be automated.
Impact of further automation
Some new technologies have a greater impact on the way companies and their finance and corporate treasury departments operate. Intel is one of the founder members of the RosettaNet standards organization, which has been promoting collaborative commerce over the past seven years, with the aim of setting up a global network supply chain. More than 500 companies worldwide, primarily in the high- tech industry, endorse these standards, which have enabled Intel and many other companies to reduce trade cycle times and inventory costs, and improve productivity.
If all parties in the supply chain use RosettaNet standards integration can go way beyond what is usually envisaged. Users have achieved, among other things, 100% error-free forecast-to-cash procurement processes, an 80% reduction in manual transactions, a 4 to 2 week reduction in inventory and 78% fewer shipments. The scale of the difference the RosettaNet standards can achieve is shown by the ERP to ERP system integration Intel has with its trading partners, described in Figure 5.
Citigroup is also aiming high with its new internet-based service, TreasuryVision. This offers rather more than your average portal as Paul Galant, global head of cash management at Citigroup, enthusiastically points out. "Today's needs focus around end-to-end control and actionable information, not simply reporting history, which is multibanking, where you are getting yesterday's news. Instead, TreasuryVision integrates connectivity, transparency, analytics and execution into a single, holistic treasury tool. The most important benefit to clients of using TreasuryVision is obtaining true transparency and control over their financial supply chain and driving precision surrounding credit use and excess balance investing to achieve optimal returns.
TreasuryVision was driven by complaints from major multinational corporate clients that they were spending too much time and resources collecting data on current cash and trading positions, and not enough on analyzing and managing exposures. So Citigroup developed services to meet these needs and improve central control over treasury activities throughout the company.
Citigroup realized it needed to develop services that could be quickly and easily integrated with existing systems and infrastructures and that it would have to work with many different partners to provide a leading-edge, comprehensive treasury tool. TreasuryVision is built on Microsofts.net technology, enabling the seamless incorporation of many different applications. The core services focus on three areas: data aggregation and normalization, financial analytics and information distribution, as shown in Figure 6.
The data aggregation and normalization services aim to collect all the data necessary to make sound cash and treasury management decisions. This requires the collection not only of bank account balance and transaction data but also of data from internal ERP systems, money management funds not on SWIFT, and more. Citigroup clients try to work only with banks and suppliers that can provide data in real time, replacing wherever possible those that cannot, so that users really can see their up-to-date position. TreasuryVision then normalizes the data to show a full and accurate assessment of the current position.
The financial analytics services help users focus on optimizing financial performance. Modules available and planned include cash management analytics, cash flow forecasting, investment and debt analytics, FX risk management, bank guarantee management and market data.In the information distribution area, TreasuryVision focuses on delivering aggregated data and analyses in the appropriate form, including reports and dashboard displays, to whoever requires the information.
TreasuryVisions other functions include workflow modules to support and control cash and treasury management, such as a bank account opening module. It even allows clients to design new services. "TreasuryVision is groundbreaking," says Lionel Nowell, PepsiCo's SVP and treasurer. "It allows us to initiate new services, not just choose from what's available, and that gives us a real competitive advantage." (See figure 6).
Many of Citigroups competitors, including cash and treasury management systems suppliers, would argue that most of the features in TreasuryVision are available elsewhere. The real difference is that all these features will be brought together with seamless data aggregation and will work together as an integrated whole with treasury management and ERP systems. If this is fully achieved, Citigroup will have a world first. Even today, Galant argues: TreasuryVision is driving the transformation of the cash and treasury management business. It is also transforming Citigroups business, with 10 TreasuryVision clients already in implementation and a sales pipeline of more than 150 others.
On the horizon
Inevitably, treasury management systems suppliers and banks are reluctant to talk in any detail about what they will be developing in the next couple of years. But all agree that there will be more integration between the different systems and services involved in cash and treasury management and therefore much higher levels of STP will be achievable.
Euromoney asked leading systems suppliers to list the top three developments they expect in corporate treasury technology and systems over the next year or so. The replies, given in Figure 7, show that they all expect to be making full use of new communications and integration software to continue the general move to higher levels of STP.
Slowly but surely, new technology and systems are transforming the workload in corporate treasury departments, freeing up time and resources for corporate treasurers to concentrate on important discretionary decisions, strategy and policy.