Drilling Down in Treasury Tech

Niche vendors duke it out with workstation and ERP providers.

SunGard's Paul Bramwell SunGard's Paul Bramwell

Core treasury functionality is mature. Providers of treasury workstations are surviving, but innovation is occurring at the margins and in the delivery channel. ASP hosting never turned into the down-market sales bonanza some predicted. Consolidation among vendors continues. When demand for new functionality crops up, niche players often get there first. They could be eating the core systems providers’ lunches, except that the core providers are inviting niche players to lunch and forming the partnerships and interoperability arrangements that both need to increase sales. Banks are finding new roles, more often as conduits of technology than as inventors. 

Sales of treasury workstations seem to be good but not great. Paul Bramwell, senior vice president for treasury solutions at SunGard AvantGard, insists that his company is enjoying growth in both clients and revenue. “It’s pretty buoyant,” he says. “The price of software is falling, but we see offsetting revenue growth from peripheral services like our SWIFT service bureau; corporate-to-bank connectivity services like our Echos and eBAM products; and through the increased demand for our hosting services.”

But Bramwell concedes that the “enormous profits that would attract new players” are missing. “It is a good market but not a hot market with massive growth.” Hence there’s been a continuing wave of consolidation as surviving players buy up smaller firms to build market share and operational scale.

The middle market—companies with $500 million to $2 billion in annual revenue—is still dominated by bank proprietary systems and even spreadsheets. Penetration of the midmarket by treasury workstations is “still relatively low but a real growth segment,” Bramwell says. “We’re gaining customers, but not hundreds a month.”

Laurie McCulley, a managing director at consultancy Treasury Strategies, reports that SunGard is making investments in its bank connectivity infrastructure to enhance its existing treasury management system portfolio. Meanwhile, WallStreet Systems acquired Citi Financials and Treasura to expand its product portfolio, then was itself sold, to Ion. And Reval will be leveraging its acquisition of ecofinance, a little known Austrian treasury software company, to bring a new competitor to the global treasury workstation market, she notes.

Mergers among vendors may rationalize markets, but they can create havoc for users. “M&A can be really disruptive to operations, and it can throw you back to a vendor you wanted to get away from,” notes Maggie Scarborough, managing director of FinServ Strategies in Baltimore.

Steve Bullock, senior vice president and general manager for treasury workstation provider IT2, says IT2’s sweet spot is multinationals that seek global cash visibility and sophisticated risk management functionality, operate multiple treasury centers, and need complex applications like hedge accounting. About two-thirds of IT2’s clients still use installed software, just one-third a hosted software-as-a-service solution, he reports.

“The preference among our clients is to host it themselves, although IT2 is available both as an in-house or externally hosted application,” Bullock explains. And the hosted option is growing. “We don’t have the IT resources in house to host our own system,” observes Michael Rowan, assistant treasurer at $3.5 billion Styron, which recently installed a hosted IT2 system.

For IT2, as for most treasury workstation vendors, being prepared for SWIFT has become a requirement. “We’re SWIFT-accredited and have been tested on SWIFT procedures,” Bullock says. “Integration is a given, whether the client uses a service bureau or a direct connection.”

After the extensive industry consolidation driven primarily by SunGard and WallStreet Systems, GTreasury’s selling point is that as a family-owned business, it is small, personal and responsive. “You call us and you’re quickly talking to the person who can help you,” says COO Orazio Pater. About half of GTreasury’s new business is companies buying their first treasury workstation. Other customers are changing vendors, sometimes to get away from systems like XRT and Treasura that are no longer getting development dollars from the companies that acquired them, Pater reports.

Occasionally GTreasury replaces an SAP treasury module, he adds. “The ERP systems can be inflexible,” Pater says. “I know of one case where a treasury had to manually reenter BAI files because their SAP module could not take them out of order.”

ERP vendors like SAP and Oracle are trying out a strategic move to hosted, cloud-based delivery instead of installed software, says Hubert J.P. Jolly, managing director for channel and enterprise services for Citigroup Global Transaction Services. “We’re watching it closely to see what it will mean to our connectivity. Such a change should be good for corporations.”

When treasury staffs need the core systems used in financial analysis, planning and budgeting (called enterprise performance management or EPM), they usually deal with licensed software installed behind the firewall from two or three providers that have been gobbled up by ERP vendors. So far the cloud and SaaS have had little impact on how EPM is delivered in practice, reports Jay Laabs, managing director at Blue Stone International, a Chicago-based consultancy that relies heavily on Hyperion Strategic Finance software.

While the cloud wave has not swept through the EPM space yet, spreadsheet reports are disappearing. The need for more sophisticated planning is sparking a move to EPM systems for financial and strategic planning, analysis and budgeting, Laabs reports. “People used to run an upside scenario and a downside scenario and call it a day,” he notes. “Now they want to run hundreds, if not thousands, of scenarios and apply probabilistic analysis. That’s not practical on a spreadsheet.”

Usually EPM and treasury systems still operate separately, Laabs says, although they have interests in common. “Someone in a plant with bottom-up budgeting can make a change in production that will consolidate up and ultimately drive treasury’s availability calculations for an asset-based line of credit,” he notes. Treasury owns the projects Laabs works on about a third of the time; the rest of the time he works for a separate planning function, he says.

Event-driven needs for functions like risk assessment and compliance have opened the door to further inroads by cherry pickers—tech companies that hone in on a specific activity and do it exceptionally well, and try to sell it to treasuries as something they need to supplement their core systems. Treasuries regularly must choose between sticking with a comprehensive ERP or treasury workstation solution that comes with full integration or acquiring best-of-breed solutions for niches and then wrestling with the challenges of integration.

“It is a constant effort to provide a truly holistic solution,” admits SunGard’s Bramwell. “It’s not easy to keep a large, complex system on the leading edge in all categories. New players spring up to address specific portions of the overall solution very effectively.” SunGard’s response is to keep improving its functionality but also to partner with niche players it sometimes competes against. It has formal partnerships with FiREapps for currency exposure management and with HedgeTrackers for hedge accounting. “There are situations where our clients are better served if we partner with niche players, so we do,” Bramwell says.

When a treasury is starting from scratch or overhauling its technology, IT2 pitches itself as a complete solution, Bullock says. When companies are already using other specialized systems like Reval or FiREapps, IT2 integrates with them.

Niche software players have prospered both because they provide functionally deep solutions for specific activities and because they carry lower price tags, says Jeff Wallace, managing partner at Greenwich Treasury Advisors in Boulder, Colo. “The price of a comprehensive treasury system can choke a CFO,” he says. “That gives niche players with their lower prices a real opportunity at companies that need a specialized tool.”

Wallace is part owner of a niche software product that manages debt covenant compliance, and he has no inclination to jump the niche. “We have looked at expanding our capabilities beyond compliance, but it didn’t make business sense,” he says. “We’re not missing any sales because we don’t offer debt portfolio accounting.”

The rise of treasury tech cherry pickers like FiREapps has reduced dependence on treasury workstations and ERP systems and made those choices less critical, says Wolfgang Koester, CEO of Phoenix-based FiREapps. “There are interoperability challenges, but they are manageable, and prepared companies have good tools to create interoperability.” The huge benefits, Koester says, include installations that can be completed in weeks, not months, and demand treasury time measured in hours, not days. He estimates that he can get a client up and running in less than a week, a process that requires only around 10 or 20 hours from clients.

Speed and agility have allowed niche players to prosper, but their narrow focus can be a trap as well as an edge, Wallace points out. He cites Reval, which enjoyed a meteoric rise by offering hedge accounting but now sees that onerous restrictions on hedge accounting could well be relaxed, reducing demand for its niche services. So Reval has made acquisitions to expand into risk analytics and cash management, he says. Reval is using last year’s purchase of ecofinance to convert itself from a popular add-on to a provider of core systems.

While niche players are cooperating with core systems providers to make integration easier, they’re turning to banks as their preferred sales channel. For example, Fifth Third Bank now offers its retail customers DTS, a product of International Financial Services (IFS) of Westminster, Md. The service is particularly attractive to treasuries that have to track a lot of deposits from a lot of stores. A store manager fills out a virtual deposit ticket online, where it is visible to various people at the retailer and the bank, then prints out a copy and includes it in the cash bag picked up by an armored courier. The deposit is taken to a bank branch or to a contract vault site for processing, and the virtual deposit ticket is adjusted if necessary to square with the vault count.

“The biggest advantage is the clear line of sight that everyone has into the status of the deposit,” says Lou Salafia, president of IFS. “It’s easier to see what’s happening at the stores and with the courier. You can wrap performance data around the reports and score stores and courier companies based on on-time deposits and adjustments. It’s richer data and it supports better control across what could be a vast network of stores. It’s useful for loss prevention and sales audits.”

It’s also useful for business development, Fifth Third has found. “It’s very popular with the stores,” says Katherine Ebacher, vice president and senior treasury management project manager at the bank. “It’s bringing us new relationships and new revenue.”

Of course, banks continue to modify their own technology to make their cash management and payment services more efficient. Bank of America has chosen to emphasize the front end of its payment services hub instead of just thinking of it as a back-end service to connect to payment-clearing networks. For example, a rejected payment can now be recognized immediately and online prompts will identify the required repair instead of waiting for it to be gathered up on the back end as an exception item, explains Cindy Murray, head of global treasury product infrastructure, platforms and ecommerce. This way the payment is immediately repaired and not sitting in a queue for the bank to address, she adds.

Breadth in treasury software has come a long way, Murray summarizes. The greatest opportunity now may lie in depth—specific software applications that focus on doing everything around a discrete activity and interfacing with treasury workstations or ERP systems, she suggests. Murray predicts social media and mobile devices will spawn innovation. The primary driver for today’s technology, she concludes, is delivering efficiency.

 

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