From the September 2009 issue of Treasury & Risk magazine

Hungry for a World of Digital Data

The efficiency of straight-through processing (STP) has taken a back seat to business survival that requires smart decision support (SDS) as alert treasuries are aggressively turning to tools that can help them make sharper judgments.

"The financial market crisis has shown everyone the value of having comprehensive, real-time information," says Google treasurer Brent Callinicos. "In the past 18 months, Google treasury has gone live with three FX systems, a new cash management workstation, a new portfolio analytics system, a risk management system and numerous analytical and market-linked tools. This has enabled us to scale our activities in every area, improving our hedging and investment performance and gaining virtually instantaneous, on-demand visibility into our worldwide cash."

Make way for the technologically informed treasurer. "Treasury staffs want every piece of information we can sell them," reports Nick Alex, senior vice president and director of product management and development for treasury and payment solutions at SunTrust Bank. "They'll take anything that helps them predict their [accounts receivable] or [accounts payable] better. I've never seen such a hyper-focus on pushing for information to gain the greatest possible point of knowledge." This craving for data is driven by companies' aggressive liquidity management in the face of tight credit but also by credit concerns around counterparties and supply chains, he says.

For treasurers, "information is like oxygen," observes Louise Gorman, managing director of electronic channels for treasury services at JPMorgan Chase. "They have to have it, and the better it is, the better they can perform." The evolving technology infrastructure is proving adept at feeding this huge appetite for actionable information. As technology improves the delivery of information, treasury staffs cut through "administrivia" and go right to the heart of adding value, Gorman reports.

That describes $7.2 billion Yahoo, which boasts technology that provides "daily visibility into our investment portfolio as of any date or for any time period, by account or in aggregate," says Veselina Dinova, the Sunnyvale, Calif.-based company's corporate treasury manager. "Because of the transparency and data quality, we think we've been able to make better investment decisions." Traditionally, the reward for improving processes through automation was that it freed small treasury staffs from manual busywork and allowed them to "add value." Now that value is no longer an abstraction but a very tangible struggle to control rampant risk.

Liquidity management has become a fear-driven activity, says Bob Stark, director of marketing strategy for corporate treasury services at Thomson Reuters, which sells Treasura, a hosted treasury workstation. "Treasury staffs have to be more creative and forward-looking in how they protect liquidity. They've seen how even credit agreements can be affected by events."

The demand for enhanced reporting around counterparty risk has exploded, reports Laurie McCulley, principal at consultancy Treasury Strategies in Chicago, and so has the definition of a counterparty. The banks that hold your cash are now counterparties. So are the banks in your credit syndicate, the issuers of your investments, your customers, your suppliers, your insurance underwriters and your outsourced service providers, she says.

"You hear a lot of horror stories," says Jeff Wallace, managing partner of Greenwich Treasury Advisors in Boulder, Colo., "about how companies that had derivative contracts with banks that were going under scrambled to close them out before the banks fell apart." Anything that gives treasuries a better handle on such risk now seems like a good investment, he suggests.

The stature of and demands on treasurers have grown during the crisis, notes Andrew Woods, group vice president for global treasury solutions at SunGard's AvantGard. "We're seeing demand for more forward-looking ways to view risk. People are stress-testing vigorously and putting unusual factors into the stress tests. And they must make all this visible to the board in ways that boards can understand." A lot of bad decisions can be traced back to bad information, he adds.

Gauging and mitigating economic risk is one issue; Wallace says, and accounting for risk under FAS 157 is another, one that is driving treasury's need for valuation technology. "The days of cheap accounting for financial instruments is over," he insists. Companies used to take free monthly statements from banks and use them to value their derivatives, but that's not good enough now that the book value of a derivative has to reflect the credit quality of the counterparty and the company's own credit risk. "Companies with large derivative books are being forced to hire outside pricing services like Reval, FXpress, SunGard and Chatham Financial to evaluate those financial instruments," Wallace says.

Treasury staffs do enjoy greater visibility across various liquidity sources, risk exposures and reporting services, reports Craig Jeffery, managing partner of Strategic Treasurer, an Atlanta consulting firm. "A lot of competing services are offering all the connections you would want, which is making it much easier to gather information. That's enormous progress. The demand for visibility has never been greater."

The visibility of external data--anything that can be imported from outside the company--is better than that of internal data--information that is scattered in various subledgers, spreadsheets and minds within the company, Jeffery notes. "Getting at internal data is still a challenge for treasury, but if you're going to manage liquidity and risk effectively, you have to be plugged into what's happening with core business activity."

Meanwhile, with the "laser focus on risk" these days by CEOs and boards, says Tim Hesler, director of corporate treasury risk services at KPMG, treasury is getting funds to buy risk management technology at a time when other IT spending is being squeezed. "For years companies underspent on treasury technology," Hesler says. "That's being corrected now."

While some treasuries have halted or slowed down technology projects to save money, at least as many have launched or speeded up their projects, Stark reports. "Last year boards and CEOs started asking questions about cash that treasurers couldn't answer to their satisfaction, particularly about overseas cash," he says. "They discovered an urgent need for better visibility and technology that would speed the flow of critical information."

Leading-edge treasuries today enjoy much more information, as well as control over how and when they get it, and that includes mobile devices. "2010 will be the year for mobile," predicts Mike LaCava, director of channel management and integration services in Deutsche Bank's U.S. product management group.

Rather than expecting users to log on to particular applications, technology now lets them work in the application they are using and see alerts pop up with links to other applications if something has happened that needs their attention, he says. For example, a treasury pro can be working in a forecasting module when a toaster pop-up alerts him to an outgoing wire that must be approved or the arrival of a payment from a customer whose credit has been suspect. "Serious treasury folks want to know stuff when it happens," LaCava says.

The migration to global standards like those offered by SWIFT is helping to make the data flow. Electronic communication continues to benefit from a "convergence among standards like BAI, ANSI, EDIFACT and NACHA into the new XML ISO 20022 standard," says Manish Jain, managing director for electronic channels in the treasury technology group at Citigroup.

That standard has had little practical impact so far but holds great potential. JPMorgan Chase is using new XML formats to exchange information with large multinationals either through SWIFT or the bank's direct channel but not through its Internet channel, Gorman reports. The smaller companies that rely on the Internet channel are not yet pushing to use XML, she explains.

While proponents tout the XML format's ability to deliver richer, more detailed information, simply switching from a BAI file to an XML file doesn't immediately provide richer information if it hasn't been captured, Gorman concedes. The real breakthrough will come when payers provide full remittance data in XML along with their payments, she says. And yes, that sounds a lot like EDI. There is an emerging standard that will carry heavy traffic, but senders and receivers will have to modify their systems
to use it, she says.

But any move to universal standards makes technology vendors happy. "It's easier for us to support one common standard than different standards in different parts of the world," says Thomson Reuters' Stark. The eroding barriers to communication are having a real impact on technology vendors. When integration was difficult, a handful of vendors prospered by offering large, integrated software packages in the treasury workstation and enterprise resource planning (ERP) space.

Now that integration advantage is fading. The new technology is making it easier for treasury staffs to cherry-pick best-of-breed solutions and make them work together efficiently, says Scott Montigelli, vice president of business development for Kyriba, a Web-hosted treasury workstation. "We're seeing the proliferation of tightly focused niche players because of it," he observes. "It's easier to integrate multiple providers in the software-as-a-service world."

KPMG's Hesler says providers like Kyriba, FXpress, Reval, Clearwater Analytics, FiREapps and Weiland offer great functionality in their specialized niches, attractive pricing and now a relative ease of integration into other systems.

While the market would seem to be moving away from massive installed software systems, those vendors have been adept at introducing hosted versions of their systems and accommodating treasury demands. "If the client wants to pay monthly, they're happy to sell it that way," Treasury Strategies' McCulley says.

The need for building interfaces to bridge complementary software silos would seem to be shrinking, but that has not stopped a flood of announcements of vendor alliances, McCulley notes. Wall Street Systems (WSS) is linking up with Speranza for bank account management and with Reval for hedge accounting, while Kyriba and FXpress have announced plans to work together on hedge accounting, foreign exchange and interest rate risk management and Gateway is teaming up with SimPro for debt functionality, she reports.

Although users of Wall Street Treasury may already have been connected to Reval, the alliance means the companies will develop a generic interface that will have more bells and whistles and make connecting easier. "Something we may have done for one or two customers becomes generic and part of the core system, which improves integration," explains Mark Lewis, business development director at WSS.

Alliances are good, because while interoperability has improved, cross-system communication still has a ways to go, says Google's Callinicos. "The next step in scaling up is focusing on straight-through processing via developing data links between related systems, thereby eliminating as many manual processes as possible," he says. "Unfortunately 'out of the box' solutions are often missing and so each link has to be developed." Treasurers will pressure vendors to work together to build these ready-made solutions, Callinicos suggests.

With information flowing more freely, treasury staffs have become less concerned about which channel delivers which data, McCulley says. They're just happy that the integration of various channels and the accumulation of a comprehensive global view have become easier, she adds.

Collecting such a wealth of information is just the first step to high-tech risk management. But collecting it sets the stage for real progress in analyzing and reporting it. "CFOs can have a dynamic dashboard configured as they want it, with drill-down capability," Montigelli says, but they also can have the ability to distribute it anywhere in the organization, along with directions.

While the big themes in treasury technology are epic, on the ground, in real treasuries, they often take shape as a series of pedestrian but useful steps toward smart decision support. Goodrich Corp. had trouble with visibility due to two older treasury systems, both from SunGard's AvantGard, that wouldn't talk with each other. Soon it will have that problem fixed with a new system, also from AvantGard, that not only houses all the workstation data but plays nicely with other systems, reports Jeannot J. Jonas, director of global treasury operations at the $7 billion Charlotte, N.C., provider of aerospace and defense equipment.

"We had to compile data from two different systems, one for domestic operations and one for international," Jonas says. "Soon we will have much greater visibility, thanks to having it all in one system but also thanks to better connectivity with other systems, better analysis of the data that we compile and better reporting capabilities, which our senior management and directors appreciate. We'll be able to track activity as it happens, pretty much instantly."

For foreign exchange management, for example, the new system tracks compliance, valuation and effectiveness of hedging, all activities that had been cumbersome with the old system.

When $6 billion Pulte Homes switched from an older installed treasury workstation (ICMS) to a contemporary software-as-a-service model (Treasura), the time it took to do the daily cash routine shrunk from four or five hours to one or one and a half, "which gave us critical time to do more analysis," reports Dory Malouf, senior treasury analyst at Pulte. Analysis is no small matter for the Michigan-based homebuilder as it navigates the staggering economy.

Now Pulte is preparing to adopt another new technology solution that will further improve visibility--using an investment portal to do transactions and receive reports on its $1.5 billion in cash investments. "We'll be able to see the whole portfolio in one report, and we won't have to call banks to make trades--just do it all online," Malouf says. While it's a Bank of America solution, the portal is bank agnostic enough that some of the money fund holdings accessed through the site are those of other banks. Pulte needs to spread its investment business to keep the more than 20 banks in its credit facility happy, Malouf explains.

To improve controls and gain a little precious revenue, Pulte is also introducing a travel and entertainment card that promises to track spending better, allow the company to negotiate discounts with frequently used hotels, airlines and car rental agencies, and even earn rebates for the company and personal rewards for cardholders, Malouf says.

Better technology is reaching smaller companies, as well, like $20 million Dixie Escalante Electric Co. in Beryl, Utah, which recently went from manually opening mail and applying payments to the accounts of its electricity users to using the digital imaging and electronic transmission features available in the Wells Fargo Commercial Electronic Office (CEO). The change saves a lot of time and prevents a lot of errors, says CFO Chery Hulet.

Online banking also brings online visibility in real time or close to it, which is a mixed blessing, Hulet says. "Our cash management is better. I can even check our balances on my BlackBerry when I'm not in the office." But because the information is always available and could change any time, "we take time to check more often."

Nimble technology, easier interoperability, and sophisticated analysis and reporting tools were all invented to expedite straight-through processing for the efficient treasury. Now they are proving more critical than anyone expected, as companies battle to keep risk from becoming fatal.

Tracking Investments, Seeing Downgrades as They Happen

What's happening in the treasury technology world can be seen in microcosm in the cash investment business, where concerns about liquidity and credit quality are particularly acute and specialized technology vendors are chalking up successes.

Since choosing Clearwater Analytics in 2006, $560 million Electronics for Imaging in Foster City, Calif., is able to see daily just what is in the portfolios of the outside managers it uses to invest about two-thirds of its cash, which lately has run between $300 million and $500 million, reports Fred Stewart, the company's director of tax and treasury. "We see every day just what those managers are holding. We don't have to wait for monthly reports, like we used to. If they're holding a security that is downgraded, the system reports that right away." When credit and liquidity events hit the cash market last year, "we saw warnings right away and were able to react promptly," he reports.

The system also tracks compliance with the company's investment policy daily, and it saves time. "We've been able to reduce the monthly close of treasury accounts from four days to one day," Stewart says.

Technological virtuosity helps, but so does targeted functionality. In the cash investment space there are good systems built for fund managers and global custodians, but Stewart is especially pleased with the documentation and reporting he gets. "The big advantage is that this system was built by people who understand the needs around corporate cash--daily transparency and the robust documentation you need to support the financial audit of cash accounts and the SEC and FASB disclosure requirements," he says.

Up-to-the-minute reporting and analytics count for a lot when waves of economic trouble are sweeping away credit quality. The service meets two acute needs of treasuries with large cash pools to run: its instrument panel gives them timely information to make informed investment decisions and its reporting features allow them to show senior management at a glance where the company's cash is and that it is prudently distributed, says Courtlandt Gates, Clearwater's CEO.

Before last year, a satisfactory system provided a soft warning that a trade you'd just executed exceeded the issuer concentration limit in your investment policy, says Laurie McCulley, a principal at Treasury Strategies in Chicago. Now cash investors want systems that block trades that would exceed policy limits, and they want limits that reflect issuer concentrations that go beyond the investment portfolio (i.e., a company might invest less in the securities of a customer with a large trade receivable) and restrictions that reflect changes in issuer credit ratings, based on feeds from Bloomberg or Reuters, she explains. --Richard Gamble

Online Bank-Treasury Connection Gets a Face-lift

Will the rush to bank-agnostic technology leave online banking portals, already showing their age, in the dust? Not if Citigroup can help it. That organization is gearing up for a big push into the next generation of online bank-treasury connections.

"We stepped back and took stock of our online banking platform [CitiDirect], which was 10 years old," reports Gary Greenwald, chief innovation officer for global treasury services at Citigroup. "Should we maintain it or invest heavily to reinvent it?" The results of Citi's reinvention will start appearing later this year.

So get ready for CitiMedia, which will look a lot like YouTube. Instead of hiring agencies to produce slick videos with narrators, music, makeup and lighting, Citi will pass out a lot of $29 video cameras to experts throughout the bank so they can set them up on their desktops. "We'll ask these people to turn on the cameras and shoot 60 seconds of themselves answering three questions we've sent them, and then post the footage right away to the site," Greenwald says. "It will be available instantly. Viewers will be able to comment, and comment on each other's comments."

Citi will also be introducing new self-service analytics and reporting, the fruit of a joint project with IDA Ireland, an Irish government agency. "It will take the data we collect from collection and disbursement flows and organize them in a way to provide insight," Greenwald explains. A treasury pro might see payment repair rates by payment type or initiator, or the balance of wires and ACH transactions along with suggestions on which wires could be converted to ACH. "To replace wading through a lot of reports and calling customer service, we'll give them a rich dashboard with drill-down options," he says.

Mobile banking would open the door to applications like one for route drivers collecting from convenience stores for small deliveries of soft drinks or chips, explains Manish Jain, managing director for electronic channels in the treasury technology group at Citigroup. Rather than take cash from the register or wait while the manager writes a check, the driver could pull a mobile device from his or her pocket and get the manager or clerk to authorize an electronic debit from the store's account. Or the manager or clerk could use his or her own mobile device to authorize a funds transfer.

Despite its well-publicized credit and liquidity problems, Citi has kept its treasury technology business on a fast track. "We're spending 21% more on new technology developments in 2009 than we did in 2008," Greenwald reports. "That part of our business reported $9 billion in revenue and $3 billion in net income. We're a technology company with a banking license." --Richard Gamble

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