Published: August 28, 2024
Once the new kid on the treasury technology block, the TMS concept is now in its fourth decade. While, for some, it remains the pinnacle of technology and treasury process in perfect harmony, certain TMS offerings sit on legacy stacks that cannot capture the full potential of AI and automation. This is compounded by alternative options for treasurers that could be more cost-effective and simpler to implement.
Originally housed on-premises and the preserve of the largest, wealthiest companies on the planet, the TMS has become a more attainable technology solution over the past decade. The global TMS market was estimated to be worth $5.1bn in 2023, which is tipped to reach $12.6bn by 2030 with an anticipated compound annual growth rate of 13.8%.[1] Much of the recent growth has been attributed to TMS providers offering SaaS or cloud-based solutions that do not take up real estate in a corporate headquarters.
Jan-Willem Attevelt, Co-Founder, Automation Boutique reminisces: “When I came into corporate treasury 12 years ago, the cloud was not even a ‘thing’. Everything had to be installed on-premises. This led to higher costs as treasury had to involve the IT department to plan the implementation, keep it running, and back it up.”
While the total cost of ownership of a TMS may have become slightly more affordable in recent years, there are still some significant barriers to entry for companies looking to deploy a ‘single source of truth’ for their treasury departments.
“If you look at the dominant players in the TMS markets, the subscription costs are still quite high because of their market power,” notes Attevelt. “Also, implementing a fully-fledged TMS still takes many months.” That level of time and effort is achievable only for some companies. The cloud has also not wholly solved treasury’s reliance on IT.
“A company implementing a TMS will want to integrate data sources, such as from the ERP,” Attevelt suggests. “Some TMSs have out-of-the-box connectors, but other systems require more custom integrations, so the reliance on IT remains.”
Treasurers can also be tripped up when looking for a ‘cloud TMS’ because of the critical difference between cloud-hosted and cloud-native systems. Cloud-hosted systems are traditional applications adapted to run on cloud infrastructure. In contrast, cloud-native systems are explicitly designed for the cloud environment, using those features and services to achieve scalability, flexibility, and resilience.
Brett Turner, CEO and Founder, Trovata, asserts: “AWS, Microsoft Azure, and Google Cloud are building services attuned to using applications or building natively on cloud infrastructure. New players can build off the back of these giants that have spent hundreds of billions of dollars developing advanced tooling that they themselves use.”
Comparing this with some of the big TMSs that host their application in the cloud, Turner argues that their software is monolithic and code-based, so centralised hosting is all that is on offer for treasurers. “If your software isn’t architected from the ground up and built natively with modern web services that are rapidly evolving every few months, you won’t get the true benefits of cloud,” he warns.
Turner shares that the rule of thumb is if the TMS company you are buying from is older than seven or eight years, there is a significant prospect that it is not cloud-native. Quite simply, the web services that cloud-native infrastructures are built on have existed only since that point. As an example, he notes that AWS Lambda, which builds serverless tech stacks, only launched in November 2014.[2]
“For treasury technology vendors to migrate to a cloud-native tech stack and get all the benefits of massive speed, agility, AI and all these factors that drive digital transformation, they have to replatform,” Turner comments.
That means rebuilding a TMS from scratch. Vendors would have to take everything they have and build it in a new way with different tooling and services from the ground up. “For a legacy incumbent, that could cost US$100m and take five years,” Turner adds. “On top of that, they would have to hire an army of cloud engineers with the expertise to do that, so that’s why it hasn’t been done in the TMS world. It’s also why new features roll out only once or twice a year.”
One of the original drivers for the development of TMSs was that ERP systems did not fully satisfy treasury’s unique requirements for cash and risk management technology tools. However, ERP vendors have not stood still following the emergence of TMS providers.
Anish Kapoor, CEO, AccessPay, outlines: “The big ERP vendors are recognising that they can do the accounting part and the cash forecasting element well because they have more data than the TMS has to start with. If those two things are added into the ERP, what does it leave for the TMS?”
That is not to say that treasurers will migrate away from TMS and back to ERPs in droves. But it does leave those looking to buy a TMS facing a decision as to whether they will instead use some of the extra features of the organisation’s ERP system and then integrate that with their banks. That’s becoming a more compelling and cost-effective option for some because the price point of the service from the ERP is significantly lower than from a TMS vendor.
“Both SAP and Oracle have launched treasury modules that are focused on the accounting side, such as FX and hedge accounting, and lease accounting,” explains Kapoor. “However, when it comes to consolidated cash forecasting, which is part of a TMS, we’re not seeing the ERP vendors go into that as much.”
Despite that, cash forecasting from a known dataset is an area that ERPs have entered because all the relevant data is already in the system. This enables the ERP treasury module to build sophisticated forecasts.
“There are companies that could buy a TMS if they wanted to, but if you look at Sage as an example, apart from the FX and hedge accounting, they have the rest of that functionality,” notes Kapoor. “Users can consolidate forecasts, apply AI to roll that out and look at their cash. AccessPay has then added in the bank connectivity piece for them.”
While the improvement in the treasury management modules offered by ERP vendors may cause corporates to pause for thought while considering their technology options, some downsides persist.
Attevelt reflects: “ERP treasury modules are often built on quite old technology that is not all that user-friendly. Extra licensing costs can be involved for some modules, so treasurers should question whether the investment solves their needs.”
Aside from ERP treasury modules, some more modern solutions offer a certain level of TMS functionality to solve basic needs. While this again does not provide the whole TMS experience, it highlights how fintechs and other vendors have specialised in distinct and specific areas, enabling treasurers to string together various smaller pieces of kit to try to build their own technology stack. APIs offer one option to connect disparate systems and open up access to data around cash flow and bank balances.
“A first step today for companies that have not yet invested in treasury technology is often to examine if they can use an API to obtain their bank balances and transactions and build cash management reports on that data stream,” Attevelt explains.
Integrating these APIs into reports is now relatively simple, often building on Excel. While the mention of the Microsoft Office app might seem like a retrograde step following years of technology vendors urging treasurers to leave spreadsheets behind, the software still has some new tricks up its sleeve.
“There’s an engine in Excel called Power Query that enables the user to make Excel-based processes more robust, auditable, and less time-consuming,” elaborates Attevelt. “Users can even automate a large part of the data flow.”
Traditionally, treasurers had to copy and paste data in an Excel spreadsheet or, even worse, enter data manually. Now, treasurers can press a button and Power Query fetches all the required data from different systems. It can call APIs, scrape data from different sources, and automatically populate a spreadsheet. Every step of the automation is clearly defined and can be easily understood by anyone looking at the model, which is helpful during audit season.
“Power Query is a popular option for companies that might not have a business case for a TMS but still want to have a reliable process-driven tool,” Attevelt adds. “We have some clients with a TMS that have found Power Query to be a handy addition to their treasury toolbox.”
One source of APIs available to treasurers is from their banking partners. Banks have developed API libraries to open up all manner of data to clients. The challenge for corporates is that there needs to be more standardisation between the banks as to their APIs. Treasurers are left dealing with subtle differences in how their data is transferred to them.
Turner states: “Bank APIs are designed and built differently. Some are better for data, some in real-time, and others are better for fast client onboarding. APIs are rapidly evolving and we’re helping to drive an eventual API standard.”
While most banks have invested considerable time and resources in their API connections, adoption by their corporate clients has not yet reached critical mass.
Kapoor acknowledges: “While bank APIs are relatively new, we haven’t seen a huge level of adoption by corporates. While, philosophically, it might seem great because the treasurer can obtain all this real-time data, there’s the reality of who in the treasury team will do the development work and connect the systems to these APIs.”
Another option for completing everything in-house is to outsource the API connectivity to fintechs such as AccessPay or Trovata, which can plug into all the APIs and present the relevant information to the treasurer in a dashboard. But while the prospect of instant data is tantalising, treasurers first must ask whether that is an absolute requirement in their specific situation.
“Treasurers approach us wanting to use an API or to have real-time data. We then ask them if they are literally moving money second by second,” Kapoor reveals. “Often, they are not, but they want to empty a certain account every few hours. They don’t need data every second for that.”
For more on-demand data rather than a constant flow of information in real time, host-to-host connectivity or Swift could be a better option. Treasury could arrange to receive an MT942 intra-day bank statement message every 15 minutes or every hour, which would solve their issue.
“Corporates want to talk about APIs, but when we get into the conversation we find there are very few organisations that can justify the investment it takes to make APIs work,” adds Kapoor. “If they are operating a sophisticated in-house bank or a financial services business, that is when it can make sense for them.”
Aside from APIs, there are various other smaller tools that treasurers can put to use either individually or as a stack of technologies. For example, RPA presents another option that treasurers could use to gather data from a legacy system. Attevelt explains: “A robot can go into a system and automatically get data out or put data in. By doing that, it can create different treasury reports, such as a cash management report or a cash flow forecast.”
Elsewhere, many companies already run the Microsoft technology stack, which offers some out-of-the-box tools that treasurers can use, such as the aforementioned Power Query in Excel, the business intelligence suite Power BI, and Microsoft Lists, which is similar to Excel in some ways.
“Microsoft Lists is a light database with a front end on top,” outlines Attevelt. “You need to be tech savvy as a company to veer off from the traditional path of a TMS. But if you have a certain way of working that you are used to, these tools are available at fairly low costs, and the implementation time is quite fast.”
Treasurers can definitely circumvent the need to implement a TMS. However, the challenges of doing so can go beyond the technical skills department and company personnel. If treasurers are building their own models, they can fall into the trap of becoming their own product managers. It is vital that knowledge about the functions of the technology stack is shared and retained in the event that the treasurer leaves the company, for example.
Trovata’s Turner muses: “Every time something changes in the business, the treasurer must update the product they built. Nobody can manage that tool except for the person who created it. So, while developing that tool might have solved the problem, they’ve also increased risk around errors, transparency, security, redundancy, and continuity.”
A TMS will be the logical technology investment for some treasury departments to manage all their cash and risk management requirements. For others, the ERP treasury management module might be the most efficient option for their needs. At another company, the treasury team might be utilising technology tools that did not even exist a decade ago to automate data collection from various systems that are then displayed in a user-friendly dashboard.
Every company is different, and so, when it comes to technology, treasurers must interrogate what the needs of their department are, which technology solutions might be the best fit for them, and whether the marketing and promotional material from the vendors they are reviewing match up to what the system can deliver.
To explore what the company’s existing ERP(s) might offer, treasurers can speak to the vendor, whoever put that system in, either internally or via a consultant, and discuss the matter with their finance counterparts.
Kapoor posits: “Treasurers and CFOs probably don’t talk enough, but this issue can drive that conversation. If they can understand what capabilities are within their ERP, they could get some rapid wins.”
While that might require some extra integration with the company’s banking partners, there are vendors that can do that relatively cost-effectively and simply. Alternatively, that conversation might lead to the realisation that a TMS would be a better option for the company if it also wins approval from the IT department.
Turner advises: “Treasurers should get their CIO involved. Ask somebody who understands, as a cloud architect, how the TMS is architected and don’t be fooled by the marketing and the FUD [fear, uncertainty, and doubt]. If a TMS provider says they offer a cloud solution, what do they mean by that?”
Asking those difficult questions early about the tech stack and understanding how it’s built can save potential disappointments later. For example, is it built using a web services architecture or cloud-hosted?
“If the vendor says they’re using APIs, treasurers should ask to be walked through that,” adds Turner. “If Bank A provides specific data points, how is that used in the TMS?”
Even treasurers who are content with their technology stack should not be complacent, particularly given the speed at which new technology evolves. Perhaps the very first question treasurers need to ask should be directed inwardly at their current tech environment and whether it is really fit for purpose in today’s world or even three years down the line.
Attevelt enthuses: “We always recommend carrying out a treasury technology scan. Evaluate all your current processes and the systems being used for these processes.” Some companies may have implemented a TMS but use it for only 20% to 30% of their treasury processes, for example. This realisation enables finding which other functionality could be applied to existing treasury processes.
“Sometimes the scan conclusion will be that, with a few optimisations either in the TMS itself or using RPA or API integrations, some efficiency gains can be realised,” adds Attevelt. “But treasurers might find that the TMS they invested in five or 10 years ago is no longer up to the job.”
As always, the treasury community is often the best sounding board for fresh insights into the various systems and vendors on the market, as Attevelt concludes. “It’s good to talk to peers, try to reach out to companies that recently carried out an implementation. Ask them what lessons they learnt and to describe their experience with a specific vendor.”
Dominic Lynch, Co-Founder of Your Treasury and Head of Group Treasury & Asset Liability Management at Exinity, comments: “Banks are eager to join the chase: over the past decade, they have significantly expanded their offerings to customers. However, much remains unknown about these services within the treasury space.” He explains that a tier-one bank can provide access to its FX portal, market intelligence, and intercompany loan management, which offers real-time access to data and services that may not even be available in traditional TMSs.
“If you’re running a marketplace business, managing payments in both directions is crucial. Banks can now offer real-time updates on payment receipts and statuses through their Swift network. This means you can receive official bank confirmations directly or redirect them via email to the relevant parties, enhancing automation and reducing support FTE costs,” says Lynch.
The possibilities are promising, comments Lynch, and the next challenge is helping treasurers understand the desired outcomes for their treasury operations and their company’s business model. “We need to rethink the education provided to treasurers, equipping them with the knowledge to leverage these choices and drive meaningful impact,” he says.
By focusing on the expanding role of banks and the evolving needs of treasurers, Lynch underscores the importance of education and empowerment in navigating the complexities of modern treasury management.
The challenges with TMS solutions
In the arduous case of payment confirmations and obtaining an official one from the bank, it is now possible to receive confirmation as soon as the payment is sent for settlement. Additionally, banks are gradually rolling out features for cash pooling and intercompany loan management, Lynch explains. For 60% of cases, a tier-one bank can offer substantial benefits. However, for the remaining 40%, treasurers will still need a TMS for managing exotic loans, derivatives, and hedge accounting, he says. “These critical functions remain the domain of TMS, which is why TMS providers are pivoting their offerings to stay competitive. Treasurers constantly seek value and, unlike ERP systems, they have more flexibility to adjust. This flexibility should be leveraged to improve TMS solutions,” Lynch says
The saturated market and customisation issues
Many treasurers see a saturated market for TMS solutions and similar products, which often have core components that appear similar on the surface, Lynch continues. However, beneath the surface, the actual pipelines differ significantly, as each of these TMS solutions could be specialising for a particular sector, and if a detailed RFP and implantation analysis is not done operational misalignments or worse out of scope functionality will occur. “TMS solutions are typically out-of-the-box, and customisation is limited and costly due to extensive change requests, often requiring in-house workarounds or resources.”
Recognising these issues, tier-one banks have invested heavily in opening their databases with API connections, Lynch says. These APIs enable real-time acknowledgement of new inflows and outflows, access to verified market data, and automated payment confirmations that can be remitted to vendors.
The disconnect and the need for education
The disconnect lies in treasurers’ ability to understand and strategically use data, navigate their company’s IT landscape, and grasp what is possible with current technology, says Lynch. “With the introduction of AI, treasurers need to learn how to effectively utilise available data, organise a strategic plan within the business, and develop the necessary skills to implement these processes within their teams, including business intelligence and analytics,” comments Lynch.
“As treasurers, many of us enter this role from other areas of finance, without a dedicated education in treasury management. This often leaves us unaware of the full scope of our potential skills and the advanced technological solutions available to us. This disconnect hinders our ability to strategically utilise data, navigate our company’s IT landscape, and understand what is possible with modern tools,” explains Lynch.
He adds: “Teaching the ‘art of the possible’ is critical for treasurers. The current skills gap and lack of understanding hinder the full potential of these advancements. Therefore, there is a pressing need to unlock and cultivate these skills to drive meaningful impact in the treasury space. Is there still a place for TMS, banks, and Microsoft Excel in Treasury 4.0? Absolutely.” He adds that these tools remain essential, but the offerings need to be enhanced. “Treasurers must upskill to understand and leverage what can be offered,” says Lynch.
Lynch gives the example of Python, a dynamic and accessible programming language that can bridge the gap between these systems and bring meaningful change in treasury through automation, scalable analytics, and custom visualisations. “Not only must the tech stack of treasury evolve, but treasurers must also be empowered with new levels of training,” he says.
By focusing on the expanding role of banks and the evolving needs of treasurers, education and empowerment are vital for navigating the complexities of modern treasury management, Lynch adds.
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