Tech to take care of business

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

CONSIDERING THE CLOUD