Picture this: you have one appliance in your kitchen. It’s a large, glossy white unit – very expensive and multifunctional, an all-in-one fridge, hob, oven, microwave and dishwasher.
Great idea, right?
That is until the latest oven technology comes to market – technology that you need, but realise that in order to obtain it you will need to scrap your old all-in-one appliance, even though it was still refrigerating your food and washing your dishes perfectly well.
Perhaps in the long run it would have been more efficient, in terms of both costs and effort, to have purchased separate appliances.
There is an analogous situation in treasury technology. Currently, the majority of organisations use an all-in-one treasury management system (TMS), but we may be at an inflection point.
Fintechs are disrupting the market with a number of stand-alone products, and treasurers are increasingly considering if a more optimal systems strategy is to have a stable of specialised platforms.
So, is there a paradigm shift ahead?
When considering the deployment of new treasury technology, organisations would often consider whether to develop in-house, purchase several best-of-breed platforms to satisfy all requirements or purchase an all-in-one TMS.
There are good reasons why many opted for the off-the-shelf, all-in-one approach.
Larger organisations decided to move away from several legacy systems developed in-house; over the years, expertise in those custom platforms had been lost as original developers moved on.
And over that same period, treasury’s requirements changed, so without full support or documentation around their platforms’ technical configuration or functionality, workarounds were put in place to enable new functionality.
It is important to consider some of the benefits of the multiplatform approach
As requirements continued to evolve, workarounds had been built on top of the workarounds. These organisations recognised the need for treasury to not be overly reliant on their in-house IT teams, and the most cost-effective solution to that was an all-in-one TMS.
At the other end of the spectrum, some organisations saw inherent inefficiency and risk in running their treasury operations via spreadsheets, and at that time the only option to cover their requirements within the limitations of their budget and internal IT capabilities was an all-in-one TMS.
So, the conceptual benefits of an all-in-one solution were clear: a single platform to handle all treasury processes, requiring limited internal IT support and delivered by a single vendor providing support and ensuring it would evolve to accommodate changing requirements.
And all of this delivered at a cheaper cost than developing in-house or using multiple platforms.
In reality, the all-in-one TMS satisfied most of an organisation’s requirements, but often compromises had to be made.
Having assisted several organisations with the TMS selection process, it was often the case that each shortlisted platform could deliver 80-90% of their requirements – some systems stronger on their ability to handle a variety of financial instruments and the related accounting over the deal life cycle, but not so strong on the cash-flow forecasting side – a feature that we see becoming ever more important during selection processes.
Some would provide a great user experience, but lacked depth of functionality or reporting capabilities.
One of the most common shortcomings was that of dealing and confirmation matching. Many readers will be accustomed to using a TMS with bolt-on, multibank, multi-asset trading platforms with a separate trade confirmation-matching system.
In each selection process, the organisation was forced to weight their requirements in order to select the system that was the best fit for their highest priorities, but the functionality gaps meant this was by no means a 100% fit.
Increasingly, as consultants, we find ourselves helping to define what is the ‘best fit’ for an organisation.
Those organisations that have been using an all-in-one TMS over the past few years are now in the market for something new, and expect that since their last selection process, the functionality gaps they had previously accepted would no longer exist.
Often this is not the case, and the reality remains that off-the-shelf, all-in-one systems are rarely a 100% fit for a specific organisation’s needs.
But there is now another option – to deploy a stable of best-of-breed stand-alone solutions, fully integrated with each other and each delivering specific areas of functionality in great depth in order to satisfy all requirements.
This is in fact an option that has always existed, so to understand why it is becoming increasingly viable, we must revisit why the all-in-one TMS was previously the preferred option and understand what has changed since then.
1. Rise of the fintechs Only recently have we seen an increasing number of platforms focused on specific areas of treasury functionality hitting the market, such as cash-flow forecasting, fraud detection and sanction screening, payment hubs, guarantee management and many more.
Previously, there were very few platforms for those specific tasks. These products are low cost to implement, and increasingly dispensing with per-user licence fees, making them even more compelling.
2. The API revolution System interfaces could traditionally be described as the automated production of files containing data, transferred from one system’s source folder to another’s destination folder.
Issues often arose such as files sent but not received by the other system, or sometimes received but not readable, requiring internal IT resource.
The advent of application programming interfaces (APIs) significantly improves the reliability and flexibility of sharing data between two systems, removing the need for internal IT resource to manage interfaces.
3. The power of cloud Cloud technology and software as a service means that multiple platforms can now be rapidly deployed and easily maintained across organisations and geographical locations – previously, an organisation looking to implement and maintain a single TMS on their in-house servers would require heavy involvement from both their own and the vendor’s IT teams.
For this reason, having to install not one but multiple platforms from different vendors was often highly undesirable, both from initial implementation and ongoing maintenance perspectives.
4. Single sign-on is the new normal A valid concern when considering the use of multiple platforms was that of identity and access management (IAM). Users would need several login IDs and passwords for those multiple platforms, and would need to physically log in each time.
The level of access (ie, user permissions) to each platform would need to be maintained by the organisation’s IT team, along with the inevitable task of resetting forgotten passwords and other general user maintenance.
Larger organisations with dedicated IAM systems that automate the maintenance tasks could cope with this, but for most it was not viable.
Nowadays, most platforms accommodate single sign-on. The wider adoption of IAM means that multiple role-based access profiles can easily be assigned with very little human intervention.
5. Other considerations Additional key elements that influence the choice between using multiple platforms versus an all-in-one include cost, user training, user experience and vendor relationships.
For each one of these, careful consideration should be given as to whether the choice would result in a positive or negative impact. For example, it could be possible that cost is positively impacted as the implementation and ongoing fees for multiple platforms from several start-up vendors may be lower than overall cost of the all-in-one, but the opposite may also be true depending on which systems are being compared.
Alongside understanding how systems and the market have evolved, it is also important to consider some of the potential benefits of the multiplatform approach. One key benefit to mention is around reporting and business intelligence (BI).
A number of treasury functions are now using a combination of systems to feed data into central data warehouses or lakes, overlaid with powerful BI tools to deliver more detailed and meaningful business analytics and insights – a marked improvement on the limitations of reporting functionality for most TMSs.
Dashboards can finally become a reality.
The landscape has changed significantly since TMSs became a must-have to achieve the goal of an efficient treasury function.
The arguments against multiple specialised treasury platforms may no longer be valid for some organisations due to technological enhancements and an increasing number of options on the market.
Now more than ever, serious consideration should be given to the optimality of each approach.
In some cases, the all-in-one remains the best choice, but not for those wishing for improved functionality and increased flexibility.
If you recognise the benefits of a modular approach that allows rapid adoption of new technology in order to keep up with the latest standards and regulatory requirements, there has never been a better time to consider your options.
Anil Khurmi is a manager with Zanders Treasury and Finance Solutions
This article was taken from the December 2020/January 2021 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership