Core treasury functionality is mature. Providers of treasuryworkstations are surviving, but innovation is occurring at themargins and in the delivery channel. ASP hosting never turned intothe down-market sales bonanza some predicted. Consolidation amongvendors continues. When demand for new functionality crops up,niche players often get there first. They could be eating the coresystems providers' lunches, except that the core providers areinviting niche players to lunch and forming the partnerships andinteroperability arrangements that both need to increase sales.Banks are finding new roles, more often as conduits of technologythan as inventors.

Sales of treasury workstations seem to be good but not great.Paul Bramwell, senior vice president for treasury solutions atSunGard AvantGard, insists that his company is enjoying growth inboth clients and revenue. “It's pretty buoyant,” he says. “Theprice of software is falling, but we see offsetting revenue growthfrom peripheral services like our SWIFT service bureau;corporate-to-bank connectivity services like our Echos and eBAMproducts; and through the increased demand for our hostingservices.”

But Bramwell concedes that the “enormous profits that wouldattract new players” are missing. “It is a good market but not ahot market with massive growth.” Hence there's been a continuingwave of consolidation as surviving players buy up smaller firms tobuild market share and operational scale.

The middle market—companies with $500 million to $2 billion inannual revenue—is still dominated by bank proprietary systems andeven spreadsheets. Penetration of the midmarket by treasuryworkstations is “still relatively low but a real growth segment,”Bramwell says. “We're gaining customers, but not hundreds amonth.”

Laurie McCulley, a managing director at consultancy TreasuryStrategies, reports that SunGard is making investments in its bankconnectivity infrastructure to enhance itsexisting treasury management system portfolio. Meanwhile,WallStreet Systems acquired Citi Financials and Treasura to expandits product portfolio, then was itself sold, to Ion. And Reval willbe leveraging its acquisition of ecofinance, a littleknown Austrian treasury software company, to bring a newcompetitor to the global treasury workstation market, shenotes.

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

Steve Bullock, senior vice president and general manager fortreasury workstation provider IT2, says IT2's sweet spot ismultinationals that seek global cash visibility and sophisticatedrisk management functionality, operate multiple treasury centers,and need complex applications like hedge accounting. Abouttwo-thirds of IT2's clients still use installed software, justone-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 hostedapplication,” 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, beingprepared for SWIFT has become a requirement. “We'reSWIFT-accredited and have been tested on SWIFT procedures,” Bullocksays. “Integration is a given, whether the client uses a servicebureau or a direct connection.”

After the extensive industry consolidation driven primarily bySunGard and WallStreet Systems, GTreasury's selling point is that as afamily-owned business, it is small, personal and responsive. “Youcall us and you're quickly talking to the person who can help you,”says COO Orazio Pater. About half of GTreasury's new business iscompanies buying their first treasury workstation. Other customersare changing vendors, sometimes to get away from systems like XRTand Treasura that are no longer getting development dollars fromthe 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 onecase where a treasury had to manually reenter BAI files becausetheir SAP module could not take them out of order.”

ERP vendors like SAP and Oracle are trying out a strategic moveto hosted, cloud-based delivery instead of installed software, saysHubert J.P. Jolly, managing director for channel and enterpriseservices for Citigroup Global Transaction Services. “We're watchingit closely to see what it will mean to our connectivity. Such achange should be good for corporations.”

When treasury staffs need the core systems used in financialanalysis, planning and budgeting (called enterprise performancemanagement or EPM), they usually deal with licensed softwareinstalled behind the firewall from two or three providers that havebeen gobbled up by ERP vendors. So far the cloud and SaaS have hadlittle impact on how EPM is delivered in practice, reports JayLaabs, managing director at Blue Stone International, aChicago-based consultancy that relies heavily on Hyperion StrategicFinance software.

While the cloud wave has not swept through the EPM space yet,spreadsheet reports are disappearing. The need for moresophisticated planning is sparking a move to EPM systems forfinancial and strategic planning, analysis and budgeting, Laabsreports. “People used to run an upside scenario and a downsidescenario and call it a day,” he notes. “Now they want to runhundreds, if not thousands, of scenarios and apply probabilisticanalysis. That's not practical on a spreadsheet.”

Usually EPM and treasury systems still operate separately, Laabssays, although they have interests in common. “Someone in a plantwith bottom-up budgeting can make a change in production that willconsolidate up and ultimately drive treasury's availabilitycalculations for an asset-based line of credit,” he notes. Treasuryowns the projects Laabs works on about a third of the time; therest of the time he works for a separate planning function, hesays.

Event-driven needs for functions like risk assessment andcompliance have opened the door to further inroads by cherrypickers—tech companies that hone in on a specific activity and doit exceptionally well, and try to sell it to treasuries assomething they need to supplement their core systems. Treasuriesregularly must choose between sticking with a comprehensive ERP ortreasury workstation solution that comes with full integration oracquiring best-of-breed solutions for niches and then wrestlingwith 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, complexsystem on the leading edge in all categories. New players spring upto address specific portions of the overall solution veryeffectively.” SunGard's response is to keep improving itsfunctionality but also to partner with niche players it sometimescompetes against. It has formal partnerships with FiREapps forcurrency exposure management and with HedgeTrackers for hedgeaccounting. “There are situations where our clients are betterserved if we partner with niche players, so we do,” Bramwellsays.

When a treasury is starting from scratch or overhauling itstechnology, IT2 pitches itself as a complete solution, Bullocksays. When companies are already using other specialized systemslike Reval or FiREapps, IT2 integrates with them.

Niche software players have prospered both because they providefunctionally deep solutions for specific activities and becausethey carry lower price tags, says Jeff Wallace, managing partner atGreenwich Treasury Advisors in Boulder, Colo. “The price of acomprehensive treasury system can choke a CFO,” he says. “Thatgives niche players with their lower prices a real opportunity atcompanies that need a specialized tool.”

Wallace is part owner of a niche software product that managesdebt covenant compliance, and he has no inclination to jump theniche. “We have looked at expanding our capabilities beyondcompliance, but it didn't make business sense,” he says. “We're notmissing any sales because we don't offer debt portfolioaccounting.”

The rise of treasury tech cherry pickers like FiREapps hasreduced dependence on treasury workstations and ERP systems andmade those choices less critical, says Wolfgang Koester, CEO ofPhoenix-based FiREapps. “There are interoperability challenges, butthey are manageable, and prepared companies have good tools tocreate interoperability.” The huge benefits, Koester says, includeinstallations that can be completed in weeks, not months, anddemand treasury time measured in hours, not days. He estimates thathe can get a client up and running in less than a week, a processthat requires only around 10 or 20 hours from clients.

Speed and agility have allowed niche players to prosper, buttheir narrow focus can be a trap as well as an edge, Wallace pointsout. He cites Reval, which enjoyed a meteoric rise by offeringhedge accounting but now sees that onerous restrictions on hedgeaccounting could well be relaxed, reducing demand for its nicheservices. So Reval has made acquisitions to expand into riskanalytics and cash management, he says. Reval is using last year'spurchase of ecofinance to convert itself from a popular add-on to aprovider of core systems.

While niche players are cooperating with core systems providersto make integration easier, they're turning to banks as theirpreferred sales channel. For example, Fifth Third Bank now offersits retail customers DTS, a product of International FinancialServices (IFS) of Westminster, Md. The service is particularlyattractive to treasuries that have to track a lot of deposits froma lot of stores. A store manager fills out a virtual deposit ticketonline, where it is visible to various people at the retailer andthe bank, then prints out a copy and includes it in the cash bagpicked up by an armored courier. The deposit is taken to a bankbranch or to a contract vault site for processing, and the virtualdeposit ticket is adjusted if necessary to square with the vaultcount.

“The biggest advantage is the clear line of sight that everyonehas into the status of the deposit,” says Lou Salafia, president ofIFS. “It's easier to see what's happening at the stores and withthe courier. You can wrap performance data around the reports andscore stores and courier companies based on on-time deposits andadjustments. It's richer data and it supports better control acrosswhat could be a vast network of stores. It's useful for lossprevention and sales audits.”

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

Of course, banks continue to modify their own technology to maketheir cash management and payment services more efficient. Bank ofAmerica has chosen to emphasize the front end of its paymentservices hub instead of just thinking of it as a back-end serviceto connect to payment-clearing networks. For example, arejectedpayment can now be recognized immediately and onlineprompts will identify the required repair instead of waiting for itto be gathered up on the back end as an exception item, explainsCindy Murray, head of global treasury product infrastructure,platforms and ecommerce. This way the payment is immediatelyrepaired and not sitting in a queue for the bank to address, sheadds.

Breadth in treasury software has come a long way, Murraysummarizes. The greatest opportunity now may lie in depth—specificsoftware applications that focus on doing everything around adiscrete activity and interfacing with treasury workstations or ERPsystems, she suggests. Murray predicts social media and mobiledevices will spawn innovation. The primary driver for today'stechnology, she concludes, is delivering efficiency.