Treasury
Management
Systems
Guide

2017

Treasury's greatest challenges and opportunities in 2018

Advertorial

By Thomas Leitch - Vice President Strategy, Treasury Express

A New Treasury Management UX is Here - Isn’t It About Time?

Tired of User-Unfriendly Treasury Management Systems?

We have a better solution.

From enterprise TMS to a la carte treasury management products and APIs, TreasuryXpress’ frictionless and on-demand TMS user-experience makes it easy to automate and scale treasury operations.

Over 125 treasuries worldwide have chosen TreasuryXpress as their partner because of our unique easy-to-implement, easy-to-use, and easy-to-afford treasury management solutions.

Achieve Cash Visibility with Zero Implementation Costs

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CLIENT-CHOICE DEPLOYMENT

Clients can choose the delivery method that fits best with their unique technology culture.

  • On-Premise
  • Multi-Tenant SaaS
  • Single-Tenant SaaS
  • Direct-to-Private Cloud
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MULTIPLE PURCHASING OPTIONS

From a la carte APIs and standalone products to a full TMS suite, we have a solution for very need.

  • C2TreasuryTM
  • C2Treasury LiteTM
  • The TreasuryXpress Store
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ON-DEMAND PRODUCT ACCESS

Built for speed and convenience, clients can access the solutions within an hour of registration and can fully deploy between 2 – 8 weeks.

  • Rapid implementation
  • Low and no cost implementation
  • Self-Service set up for Store products

Treasurers have been in limbo for the past decade, waiting for the promised technology breakthroughs they need to transform the way they do business. It’s been a decade since the financial crisis – and resulting global economic downturn that forced treasurers to take a closer look their cash and financial operations and better plan for future contingencies. Over this time, technology has been continuously touted as the solution. Treasury Management Systems (TMS) providers have been promising the power of automation to help treasurers globally to quickly gain control, optimize resources, and plan for scale. But how far have we really come?

Different Day, Same Expectations

Fast-forward to today. Many Treasury professionals are still searching for solutions to address legacy challenges such as bank connectivity, cash visibility, reporting, payment security, and overall operational automation. Moreover, when searching for a solution, treasurers unfortunately have the same assumptions about treasury management solutions as they did in 2007/2008:

  • Costs: TMS’ subscriptions and implementation are expensive
  • Time: Implementations will take months, or sometimes even years
  • Resources: A significant amount of staff time will need to be devoted to this project
  • Downtime: Both the implementation and subsequent user training will result in system downtime
  • Status Quo: Once a solution is in place, for better or worse, it often stays in place – the switching pain is too great
  • Future planning: It will be challenging to modify or to scale as business needs change

Why have expectations remained unchanged? Because despite all the promises, there has been little change in available TMS technology…. until now. Modern Treasury Tech Removes Friction from the Experience and Delivers Business Agility While not much has changed in enterprise technology in the last decade, the personal experience has been radically transformed. Consumers expect on-demand accessibility, intuitive interfaces, rapid transactional processing, scalability, and seamless integration with other systems/technology. Those expectations are increasingly converging with enterprise aspirations and treasurers are beginning to expect the same from their TMS.  Contemporary TMS solutions, leveraging enterprise web services and APIs, makes it possible for treasurers to get what they need: solutions that are instantaneously available, easy to understand, highly affordable, and fast.

Rules of thumb for a frictionless treasury technology:

  • The TMS should be reasonably priced and easy to purchase. If it is not, your TMS provider is passing along their cost of maintaining legacy, outdated technology onto you.
  • Bank connectivity, shouldn’t induce headaches.
  • Simple treasury tasks should be easy to automate.
  • Access and implementation should be inexpensive, rapid, and on-demand.
  • Scalability should be simple and intuitive – you shouldn’t experience major growing pains.
  • Integration of your TMS should economic, secure, and easy to accomplish with APIs.

Is the Market Ready?

At TreasuryXpress, we’ve found that our customers want solutions that are highly capable – but equally important they should be simple, fast, affordable, and scalable. Using a frictionless, agile TMS model, solutions we are in a perpetual state of development and innovation, giving our clients the peace of mind that their chosen solution will grow and scale along with them. “At Ancestry, good technology is important to us. A major reason we selected TreasuryXpress was because we knew that we would not experience a lot of growing pains with them as we scale our business over the next few years,” says Sam Peay, Senior Treasury Analyst at Ancestry. “I believe, TreasuryXpress, with their frictionless TMS model is a real sweet spot for us and the market at large where solid, clean technology intersects with affordability and advanced capabilities.”To be strategic, one needs to be nimble. Contemporary TMS solutions that incorporate enterprise web services and APIs removes the friction and barriers to automation. This approach translates into a low-cost business model that help treasurers quickly deploy highly configured systems – freeing up more time to focus on strategy and business transformation. Frictionless treasury is here – isn’t about time?

 

Cash Management and Visibility | Liquidity Management & Working Capital | In-House Banking | Payments Management & Security BAM/eBAM | Self-Service Custom Reporting | Automated Daily Operations | Payment Validation and Messaging API

Visit www.treasuryxpress.com to learn how you can optimize and economize your treasury operations with our frictionless treasury management experience.

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Advertorial

Spice Up Your Treasury!

Spice up your treasury!

We help you season your ERP to your taste. Discover our unique approach:

  • Specialized treasury consulting – to get the best out of your existing ERP
  • Award-winning solutions – to give your ERP/SAP the extra bit of an edge

www.hanseorga-group.com/treasury-with-an-edge

About Hanse Orga Group

Hanse Orga Group is renowned as the global powerhouse for solutions along the entire financial value automation chain. Over 2,000 global clients including IBM, Philips and Dow already rely on our high quality, award-winning products and SAP treasury consulting. One key aspect is that we deliver significant value add to our customers by providing innovative solutions for all aspects of the entire financial value chain, from the order-to-cash and procure-to-pay cycles to treasury, corporate performance management, tax and compliance as well as powerful data and document management. Our solutions are designed for organizations of all industry sectors, from medium-sized to global players. This includes both SAP-based add-on solutions and ERP-agnostic cloud software so that companies have the choice of the solution that best fits their individual technology strategy. Founded in Hamburg, Germany, in 1984, Hanse Orga Group today has over 16 regional offices spanning across North America, Europe and Asia.

Products and Services

Robotic Process Automation is the current ‘in fashion buzzword’ that is resounding in the world of finance and treasury. It is much more than just a trend, it’s the available next level in the evolution of treasury technology. Hanse Orga Group has been developing intelligent software for many years and with it has supported companies around the world to achieve automation levels of typically up to 90% in areas that are characterized by repetitive and manual tasks, for example, in the order-to-cash cycle. Besides automation, the other great concern of finance and treasury professionals is the need for data in real-time and graphically visualized for transparent decision-making and reporting. For this reason Hanse Orga has developed modern Business Intelligence Reporting tools to ensure companies can take control and move forward with comprehensive analytical options that can be flexibly individualized.

The busy treasury and finance professionals have thus instant access to the key performance indicators (KPIs) on a central dashboard adaptable to their needs, can analyze the evolution and trends of cash flows, evaluate processes and benchmark them to further enhance existing processes. A ‘traffic light’ system helps to immediately identify any areas that need urgent attention. By joining forces with the US-based companies Dolphin Enterprise Solutions Corp and e5 Solutions Group as well as a couple of Germany-based solution providers in 2017, Hanse Orga Group has strategically expanded the offerings to support companies worldwide with further complimentary intelligent automation tools for treasury and finance processes.

Cash, Liquidity and Treasury Management

For financial decision-makers it is essential to always know where the cash is. They rely on robust data available in real-time for strategic decisions for the company. We provide you with the tools as well as specialized consulting to make optimal use of existing SAP Treasury applications you need:

  • Company-wide visibility into cash positions
  • Automated proposals for cash pooling
  • Analyses, simulations, and scenarios
  • Flexible granularity for defining plan groups
  • Integrated cash management
  • Cash flow-based liquidity planning
  • Automated actual data assignment
  • Financial transactions management
  • Intercompany netting

Procure-to-Pay Processes

Centralizing and automating the management of all payment processes as well as the communication with banks delivers greater transparency and efficiency and helps you save time and costs.

  • Accounts payable
  • Approval workflow automation
  • Configurable business rules
  • Validation of invoices and auto-posting
  • Automated invoice processing
  • Real-time tracking of invoices across multiple locations, companies, or SAP systems
  • Optimization and standardization of payments / Payment factory
  • In-house banking
  • Secure bank communication in any format and with any protocol
  • Fraud monitoring
  • (electronic) Bank account management: System-based opening, closing, maintaining bank accounts and signatories
  • Automated bank fee analysis, reconciliation, dispute handling, and forecasting
  • FBAR reporting

Order-to-Cash Processes

Along the entire order-to-cash cycle, there is a vast and often hidden potential for many companies to cut costs and maximize liquidity with automated solutions.

  • Accounts receivable
  • Cash Application
  • Credit Management
  • Dispute and Deductions
  • Collections Management
  • Business and Credit Information
  • Credit Insurances

Data and Document Management

Data and documents are incurred with any financial transaction. Depending on the size of the company this could amount to even millions every day. By compressing data by 95% with our data solutions it is possible to reduce the growth of data to lower IT costs and improve performance.

Audit, Risk and Compliance

Strategic policies and procedures are required to mitigate risks and to ensure compliance with international regulations.

  • Audit-proof compliance management
  • Direct connection to credit rating agencies and providers of sanction lists
  • Archiving strategies to comply with retention requirements
  • Encryption of sensitive data and purging of data
  • Flexible storage of data

Working Capital Management

Continuous and up-to-date analytics are key for optimizing processes and releasing trapped cash. Our innovative business intelligence tool provides you with the analytics you need for that.

  • Robust reports, analytics, and metrics
  • Acceptance of SAP and other ERP data
  • Configurable settings for KPI reporting

Build on our innovative, flexible, and SAP-embedded software or our ERP-agnostic cloud solutions. We support with tailored consulting to identify the pain points and to configure the solutions so that the maximum efficiency can be gleaned from your systems and processes.

*The Hackett Group’s Global Business Services (GBS) performance study, 2016

Germany
Oldesloer Strasse 63
22457 Hamburg
Phone: +49 40 51480-0
USA
205 N. Michigan Avenue / Suite 4110
Chicago, Illinois 60601
Phone: +1 (312) 620 1200
EMEA
Nieuwe Prinsenkade 9
4811 VC Breda, Netherlands
Phone: +31 765780500


office@hanseorga-group.com
www.hanseorga-group.com

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Interviews

By Patrick Moore

Disruption: Do US middle market firms have their heads in the sand?

ONLY ONE IN SIX US MID-SIZED FIRMS ARE PREPARED FOR DISRUPTION, DESPITE 80% SAYING THEY HAVE ALREADY OR EXPECT TO EXPERIENCE IT IN THE NEXT THREE YEARS

While many mid-sized US companies believe their industry is vulnerable to disruption, most believe that their company is shielded from it, a recent survey has found. Many of these businesses were underprepared for such an event, Capital One found in its recently released 2017 Disruption in the Middle Market study.

As many as 80% of respondents said their companies have already experienced disruption or expect to experience it during the next three years. However, only one in six believe they are prepared to deal with a disruptive event. While 43% said that their industry is vulnerable to disruption, just 18% believe that their own company is vulnerable. “It was actually quite interesting as there seemed to be some contradictory views from the respondents on disruption,” Patrick Moore, head of treasury product management and innovation at Capital One, told journalist Victoria Beckett. “Many of the respondents felt that the industry of their specific market segment was particularly vulnerable to disruption but they were far less worried about the impact of their own company,” he says. However, 15% of middle-market companies claim they have already faced a disruption that had a material impact on their finances, and an additional 73% expect to experience a disruption within the next three years, the survey found. Middle-market executives as a group cited the Internet of Things and big data analytics as likely causes of disruption, but this finding varied considerably by industry. “One could argue there is a lot going on in their ecosystem but there is a sense that they are being shielded from it,” he says. This may be due to the way companies view ‘disruption’, Moore agues. Disruption has taken place in the industries of most of the respondents and it has impacted their banks, but they may not view it that way. “Often people think disruption is a big bang event, but disruption and innovation can be incremental as well,” notes Moore.

Using digitalisation to change the way a bank interacts with its clients has been ‘disruptive’ considering how quickly things have changed in the past five years. But as the changes were more incremental it does not feel as unsettling. Better prepared firms are more vested in digital products. The survey showed that adopting “disruptive” technologies – including digital treasury management and corporate finance tools – were seen as a good defence by middle market firms. Many of the better-prepared companies share a common approach, with 95% of middle market executives surveyed showing some level of interest in digital products. Online and mobile payments were considered the most promising digital product by 54% of respondents. More than half of the more prepared companies surveyed use new technology for bills, transfers, accounting, and payroll and benefits. Market disruption will undoubtedly be industry specific. Airbnb is an example of this in the travel industry, while Amazon is transforming the retail experience. This is also true for financial services and banking. “Today’s emerging technology must focus on digital and the openness of middle market customers to embrace digital change will push out a number of legacy providers that are not as responsive to changes in the banking interaction model,” argues Moore. “Some of the work we are doing in very much positioning us in a different light to our competitors. We are very focused on the client experience and not delivering a product such as ACH or wire transfer,” he adds. Capital One’s survey found that companies with revenues between $2bn and $3bn are much more likely to see disruption as an opportunity than companies in the $100m to $499m range. They are also more likely to be better prepared for a disruptive event, the survey found. More than their counterparts in smaller companies, the largest companies in the survey have created contingency plans and purchased interruption insurance. They are also investing heavily in research and development (R&D). Half of them have increased their R&D budgets by 11% to 25% in the last year. Compared to smaller companies, these companies are also more likely to be pursuing a disruptive strategy of their own that could lead to a competitive advantage. Smaller companies (revenues between $100m and $499m) are likely to take the opposite view, according to Capital One. They are more likely to view disruption as a threat, primarily because they have difficulty mustering the financial resources for preparation, the survey reported.

A willingness to seek alternative financing

Financial institutions remain the preferred source of funding for most middle-market companies, who are especially interested in asset-based lending and asset securitisation as well as access to private equity, Capital One reported. This is particularly true of those US firms that were better prepared for disruption. The survey revealed, however, a surprising willingness to seek alternative sources of capital like peer-to-peer lending and crowdfunding, although it is primarily the smaller companies and delayers that are exploring these alternatives. Smaller businesses may have alternative lending opportunities, notes Moore, but “treasury management is very often tied to lending,” he says. “As the clients become more sophisticated and climb up that continuum, their need for more sophisticated treasury management products will grow and they will need to engage with more ‘traditional’ financial services. That creates a dynamic where often treasury management and other services are tied in with lending, so there is probably a tipping point where that [alternative financing] model may not be as attractive or lucrative for the company,” he explains.

Change in banking client relationship

Due to market disruption, the relationship between clients and their banks are at an inflection point, argues Moore. “Capital One are taking a more client centric view of how we engage our customers,” he says. “We are not building [our business] and hoping that clients come to us – which has historically been the banks’ approach. “We are trying to understand, through various mechanisms, our middle market clients’ day-to-day activities and processes so that we can help them more broadly better manage their business and not simply be a payment settlement institution – a role that historically banks have played,” he adds. Capital One has had a “very warm reception” from its clients when doing this as banks traditionally hold the status of being a trusted adviser, Moore says. When asked what advice he would give to treasurers operating in markets that are undergoing disruption, Moore says: “Be open and see the disruption as an opportunity not as a threat. It will lead to significant improvement in efficiency and allow for a much broader view around data which will help treasurers to better manage their business. “Treasurers should work with their financial Institutions beyond the traditional ACH or lockbox. Think more holistically about how the relationship with your banking partner can be richer and more expansive, beyond what you traditionally thought of the bank doing for you,” Moore adds.

Capital One is taking a more client centric view of how we engage our customers

Patrick Moore

Interviews

What will the biggest challenge for treasurers be in 2018?

ADJUSTING TO CHANGING REGULATION, DIGITAL DISRUPTION AND INCREASED STRATEGIC IMPORTANCE WITHIN BUSINESSES: TODAY’S TREASURIES FACE A RAFT OF NEW HURDLES AND OPPORTUNITIES. WE ASKED FOUR LEADING TREASURERS TO EXPLAIN WHAT THEY BELIEVE WILL BE THE BIGGEST CHALLENGES WILL BE IN THE YEAR AHEAD.

Tim de Knegt is the manager for strategic finance and treasurer for the Port of Rotterdam – the largest port in Europe.

“The importance of integrated decision-making is becoming much more important with the geopolitical tensions, the effects of Brexit looming and the potential economic impact of the unwind of the quantitative easing programs by European and US central banks. In my opinion the biggest challenge for treasury teams next year is to further strengthen its role as a strategic business partner to ensure they can give their invaluable input. Furthermore, innovation is changing the life of corporate treasuries on a daily basis, it is important to keep on track with this to ensure that there are no unnecessary (cyber) risks taken.”

Steve Card is the group treasurer at Dechra Group – an international specialist veterinary pharmaceuticals and related products business.

The UK-based company has offices across 21 countries in Europe and North America, and exports to over 40 countries worldwide from three manufacturing sites. Dechra employs over one thousand people with its 2015 annual revenue 2015 reported at £203.5m. “For Dechra, the challenges of 2018 are the same as 2017 – uncertainty. What is happening with Brexit? What will Donald do next? Will Italy, Greece and Germany continue their dance of a thousand deceptions? Which way will the Central Banks of Europe, UK and America go – and when? Risk management –and therefore treasury strategy – is the process of identifying, assessing and controlling threats to an organisation’s cash, capital and earnings. Absent the ability to identify those risks with any degree of certainty, that treasury strategy must attempt to manage a wide range of (known and unknown) unknowns, leading to a strategy that is fundamentally defensive in nature. Beneficial opportunities will arise, but mainly of a tactical nature. In a Dechra world where the risks range from acquisitions to Armageddon, retaining flexibility to react to change remains, again, the biggest challenge.”

Alistair Cotton is the treasury manager at Clearsettle – a global payment gateway that connects payment service providers to hundreds of payment methods used worldwide.

“Looking ahead to 2018 we see two key drivers of changing market conditions that treasurers will find challenging. Firstly, developments in the US. Throughout 2018 the Federal Reserve will be unwinding its huge portfolio of bonds it bought since the financial crisis. Interest rates across the yield curve will rise at a pace dictated by the Fed’s sale of securities, so paying attention to central bank announcements in 2018 will be crucial to anticipate how funding costs will change. The US dollar should also begin to rise as interest rates drift higher but the pace of appreciation will be more linked to Donald Trump’s proposed tax reform and if US corporations, currently holding huge USD balances offshore, decide to begin to repatriate funds. “The second key theme treasurers should be paying attention to in 2018 is the ongoing Brexit talks between the UK and Europe and the associated volatility in the pound that accompanies the negotiations. It is still far from clear what sort of deal the UK will get, and what deal is finally agreed will have huge ramifications for other European countries who might also have desires to leave the currency union. Foreign exchange (FX) hedging will become even more important for treasurers as overall volatility climbs as negotiations move towards a climax in autumn 2018.”

Manny Sandhu is the treasurer of high street fashion label Ted Baker.

“The biggest challenge to corporate treasuries in 2018 will continue to be the management of foreign exchange risk. Uncertainty over Brexit implications, global geopolitical tension and a changing US political climate continues to drive volatility in exchange rates and putting pressure on margins. It is hard to imagine exchange rates stabilising in 2018 so corporate treasuries will need to identify rates they are comfortable with and to be opportunistic with hedge trading when these rates are achievable.”

Bob's Guide to TMS 2017

About to invest in a new TMS system? Read this first

BOB’S GUIDE TO TREASURY MANAGEMENT SYSTEMS 2017

Earlier this year we launched a survey among bobsguide readers who were in the process of procuring a treasury management system, or have worked with vendors to implement one. Nearly 200 of you responded – thank you again for your time – giving us illuminating insight into your experiences with treasury management systems and the evolving challenges you face as a treasurer.

Here we share the findings from the survey, and explore the issues it has uncovered in a series of articles aimed at helping you with the TMS procurement process, including how to select the right system for your organisation and what you should consider before making your decision. Respondents to the survey included corporate and banking treasurers, though we also received responses from many consultants, analysts, and vendors. The findings that follow reflect the attitudes of the entire sample. On occasion in this article, we have referred to respondents as a whole as ‘treasurers’ for simplicity.

Being a treasurer today

The majority of respondents to the survey have a TMS. Of the remaining 40% who have not invested, slightly more than half (21%) plan to in the next 12 months, but 19% have no plans at all. Larger companies are more likely to use a TMS: while less than half (45%) of smaller companies (those with an annual revenue of up to $500m) have a TMS, 79% of larger organisations (taking more than $5bn a year) do. Smaller companies are also, unsurprisingly, far more likely to say that they have no plans to implement a TMS than their larger counterparts; 28% and 4% respectively. As regulatory pressures and shifting economic conditions promise greater volatility in the near future, and TMS providers develop offering that are perhaps more suited to the pared down needs of smaller organisations, we’ll be interested to see which way the needle moves in coming years. Overall, satisfaction with treasury management systems is high. 82% of respondents to the survey said that they are at least ‘somewhat satisfied’ with their TMS, while the remaining 18% say they are either ‘not very satisfied’, or ‘not at all satisfied’ with theirs. Meanwhile, unsuitable functionality, difficulty of operation and need of an upgrade are some of the most common reasons for dissatisfaction with a TMS. Treasurers also cited systems not being fully utilised, limited capabilities, and difficulty learning to use as reasons for their dissatisfaction.

Treasurers’ concerns

When it comes to buying a new TMS, treasurers worry most about the potential difficulty of integrating their new solution with existing systems. Of the four options we presented, this was selected most frequently – by nearly two-thirds (62%) of respondents. However, treasurers are almost equally worried about the cost of adopting a new system – 58% of respondents selected this as one of their premier concern.

In fact, cost was by far the most cited reason among those who have not invested in a TMS for not doing so. 67% of non-TMS owners said that investing in a system would be ‘too expensive’, while the next most common reason for not investing, 30 points behind, was finding spreadsheets are sufficient for the needs of the organisation, selected by 37% of respondents. Other concerns the survey identified included perceived complexity of the treasury management system. One respondent said that their greatest concern was being able to use all of the system’s capabilities – if your organisation is investing a lot of time and money into a solution, it’s important that you can take advantage of everything it offers. Treasurers are also concerned about possible disruption to their everyday business processes during the process of implementation, how long the implementation might take, and not having the adequate and appropriate resources to do so. We asked respondents to select up to three of their greatest concerns, and found that not far behind ‘lack of cash visibility’ (cited by 51% of respondents), and ‘FX risk/exposure (41%) was ‘regulatory compliance’, cited by 39% of respondents. With PSD2 and GDPR on the horizon, ensuring compliance with these regulations and avoiding fines will be high on treasurers’ agendas over the coming months. In the next article of this series, we’ll explore what organisations need to comply with different regulations, and how a treasury management system might help weather the changes. What do you think of the survey findings? Does anything resonate with your experiences? Did you find anything to be unexpected? We invite you to share your comments with us at alex.hammond@contentive.com.

Bob's Guide to TMS 2017

How to tell if it’s time to invest in a TMS.

BOB’S GUIDE TO TREASURY MANAGEMENT SYSTEMS 2017

Since the financial crisis, the treasurer has taken on a more strategic role, meaning they must know at a moment’s notice the financial standing of their business. Treasury management software gives treasurers a way doing this with real-time reports, and visibility of the flow of transactions within their organisation.

But given the cash and time investment required for successful implementation of the TMS, are they right for every business? For many years, spreadsheets have proven sufficient for the job, but according to bobsguide’s treasury management system survey, conducted earlier this year, 33% of treasurers are concerned about spreadsheet errors. With greater regulatory pressures and ever-shifting market conditions, how can treasurers determine whether it’s time to invest in a TMS? In this article of the bob’s guide to… treasury management systems series, we’ll look at the different capabilities of the market’s many treasury systems, what they could do for organisations of different sizes, and what businesses need to consider before they invest in their own solution.

How popular are treasury management systems?

Before we look at what a TMS might achieve for an organisation, let’s refer to the main finding of our survey from earlier this year. Three-fifths (60%) of treasurers are using treasury management software in their organisation. Of those who are using a TMS, 82% are at least ‘somewhat satisfied’ with the software’s capabilities, citing full automation, centralisation of all treasury positions, efficiency and good connection to banks as reasons for their satisfaction. However, nearly one-fifth (19%) have no future plans to invest in treasury management solutions, and nearly half (45%) of all the organisations that took the survey rely on spreadsheets ‘to a great extent’, or ‘fully’. Cost and perceived difficulty of integrating the new solution seamlessly into existing solutions emerged as the top two concerns about implementing a new TMS, or augmenting it. But could there also be a case of fear of the unknown – as there are many different systems with many different functionalities available. How to determine which system is right for the needs of the business? First, it’s important to understand what a TMS lets the treasury function achieve.

What should a treasury management system allow treasurers to do?

So, broadly speaking, what’s the main purpose of treasury management software? “It allows treasurers to sleep well at night,” says Dimos Dimitriadis, partner and founder of Treasury Technology Associates, a UK-based treasury technology consultancy. “Having a system allows you to control things better,” he adds. “You can set it up in such a way so you know the flow of activities within the treasury – it’s all captured somewhere – and that is a very powerful tool to have.” These are perks that aren’t just office-based, too. As Dimitriadis explains, with some systems, it’s now possible to access your TMS via mobile or tablet, and review the situation in real-time. “There are two things that a treasury management system should do,” says Lars Schroeder, senior engagement manager at consultancy SkySparc.

The first basic requirement is an automation of processes, from front office to back office and accounting, and the second is a centralised place to store data, he adds. “You can then also run data analysis and use this to make more strategic decisions, such as investment decisions.” Dimitriadis continues: “A TMS gives you quick access to information, because everything is in the same place. The treasury information is at your fingertips. You’ve got the full lifecycle of a trade, of a deal and provided that your system has a good reporting functionality, you can access this information in an instant, which means that you can then react to anything.” For example, if a business is looking to acquire another, they know exactly how much is in the bank, and how to fund the acquisition. If the business is being taken over, it’s possible to show what its position is to the interested party. And if the business is being monitored, it can prove that its treasury works in a robust way, Dimitriadis says.

Having all of your data in one place is key to overcoming challenges with regulation

Lars Schroeder

What are the key differences between all the treasury management systems on the market?

There are many different treasury management systems on the market – in the bobsguide directory, it’s possible to browse more than 300. Which system, however, would best suits the needs of a particular business? “There is a TMS out there to suit any budget,” Dimitriadis says. These systems run the gamut from simple and easy to implement, to complex systems that take more time to integrate into the working practices of a business, and these tend to track with price, Dimitriadis says, quickly adding: “Just because something is cheap, it doesn’t mean that it’s not good, because every TMS out there will suit a particular treasury.” The three main differentiators between the systems, according to Dimitriadis, are user-friendliness, functionality and coverage, and whether the solution is truly software as a service, a point that has caused some confusion. Schroeder identifies out three main different types of treasury management software. Some have a “high level of completeness”, and can be used by corporate treasuries, central banks or asset managers. Other systems are specialised in many different ways, or have certain functionalities for specific tasks, Schroeder explains. Another type covers the full front to back automation, but are developed for specific industries. It’s also important to consider the demands when it comes to hosting. Schroeder adds: “The simpler systems have some limitations and the complex systems have more flexibility, and the demands when it comes to hosting, whether it’s on site or not, make a difference.”

How can a TMS help me overcome challenges present by a volatile market, or new regulations?

Along with shifting market conditions, treasurers and the banks they work with will soon also be subject to new regulation, including MiFID II and PSD2. How can a TMS help treasurers cope with these new challenges? “Having all of your data in one place is key to overcome challenges with regulation,” Schroeder says. “It is very helpful to have it in one system rather than spread over multiple systems, because usually what is connected to the regulation is a lot of reporting requirements,” he adds. Treasurers need to combine the different types of data from their system to meet those requirements laid down by the regulation, and they need to be able to access it quickly. Dimitriadis adds that a TMS can also help treasurers cope when there is a change to regulation that affects the banks.

Is now the right time to invest in a TMS?

The decision of whether to invest in a TMS is personal, and will be different factors to consider for each organisation, but there are a few considerations that might help. As we found earlier, the top two reasons for not investing in a TMS are cost, and difficulty of implementation. Certainly, the process of implementing new treasury management software does take time – from three to 18 months depending on the system, the business, and where it started – and it does carry a large cost, which may not be entirely clear at first. But the investment now may save a lot of difficulty in three to five years’ time, when most systems will be automated and the need for instant reporting intensifies. According to Dimitriadis, the cost of a missed payment, such as an interest payment on a loan, which might have been avoided with a more efficient system, could be enough to cover the cost of the TMS. It’s a big step to take, but working with an IT specialist or external consultant may allay any fears. Later in the bob’s guide to… treasury management systems series, we’ll walk you through the process of implementing a TMS, and what to expect.

Bob's Guide to TMS 2017

How to ensure your TMS is a perfect fit.

SO YOU’VE DECIDED THAT IT’S TIME TO INVEST IN A NEW TREASURY MANAGEMENT SYSTEM. WHAT NOW?

Investing a great deal of money into new technology, and implementing the system in a process that could take up to 18 months is a daunting prospect, made worse by the fact that it’s likely no one within the business would have undertaken such a project before.

Choosing a system that aligns with the needs of the business while streamlining everyday processes is just the first step of this journey. But how do you ensure you choose the right one? Over the last few months, we’ve been speaking to experts in treasury technology about how to get the TMS selection and implementation process right, and making the process as manageable and efficient as possible. We’ve boiled down what we learnt about the process into the following four steps:

  1. Assemble your team
  2. Settle on the system requirements
  3. Meet with the vendors, and test the systems
  4. Make your selection, and put it into place

ASSEMBLE YOUR TEAM

Each step in the TMS procurement process should prepare the treasury function for implementation, the most important stage. Although it’s a step that comes much later in this process, in order to get it right, treasury teams must ensure they have the right people on board from the outset.

Treasury is becoming an integral and critical point in any organisation, therefore the effort to design the future scenarios must be a team effort

Enrico Camerinelli

Who should be involved?

“Treasury is becoming an integral and critical point in any organisation, therefore the effort to design the future scenarios must be a team effort,” says Enrico Camerinelli, a senior analyst from Aite Group.

According to Richard Warren, a senior manager from Brickendon, many different areas of the business need to be consulted at the beginning of the TMS process. These include: Treasury department, and its related investment teams, such as foreign exchange and money markets, both front office and back office. “Consulting with the risk managers will provide an understanding into the day-to-day activities, workflow management, current limitations and any particularly problematic areas that need to be addressed,” he adds, such as complex spreadsheet processes that currently fall outside the ability of the existing system. CFO, CEO and company strategy team, so that you can understand the future direction of the company and possible new areas of research, says Warren. “This will enable the firm to plan for scalability in the event of growth and/ or acquisitions, whilst ensuring transparent and comprehensive reporting.” IT development and implementation teams, to understand the required level of integration, the feasibility of timelines, and to determine the current skill level of employees that will need to support the implementation, Warren adds. IT security and audit/compliance teams, Warren continues, should also be involved to analyse the authentication and the fraud prevention capabilities, and put a value on the level of risk and possible reputational damage.

This final point is a serious consideration for emerging fintechs, he adds. Each of these teams should also be involved during the implementation process, but in varying amounts, Warren says. “A delegate from each team should be involved in all the stakeholder meetings to provide transparency to their wider teams for each element of research,” he adds. “It is essential that all parts of the business, including the IT and change departments, are involved to ensure the company’s infrastructure and employees can support the new system,” Warren adds. Ken Lillie of consulting firm Lillie Associates recommends including key personnel from treasury, accounts, and IT, but warns against making the team too big to manage. Nominating a project manager for the treasury and project management experience, as well as getting backing from stakeholders, is also recommended, he says.

One of the common pitfalls when selecting a new system is to think either too big or too small

Richard Warren

SETTLE ON THE SYSTEM REQUIREMENTS

After assembling the project team, it’s possible to create a list of functions that are required from the treasury management software. This list should reflect the needs of each of these teams, and will help the team determine what is most important, so the business doesn’t invest in functions it does not need. In 2014, research by software provider Bottomline Technologies and treasury consulting firm Strategic Treasurer found that just 28% of businesses investing in treasury management software use 80 to 100% of the modules they purchased, and nearly half use less than 60% of the modules they acquired. This was due to a variety of factors, including not just buying modules that weren’t needed, but also misunderstanding the functionality, lacking the resources to implement the services in a timely manner, or failure to train staff on how to use the module. If staff don’t know how to use the system, they’ll fall back on old ways of working, rendering the new system useless.

How do I work out what features I need from the software?

“One of the common pitfalls when selecting a new system is to think either too big or too small,” Warren continues. “This results in either the adoption of expensive systems, which as well as being confusing a difficult for users, leaves much of functionality redundant, or an inadequate system that isn’t scalable.” He says that it crucial to have full knowledge of the current day-to-day functions employed by the treasury team in order to understand the business requirements of a TMS. Camerinelli recommends mapping the organisation’s ‘as-is’ processes, and defining the desired or expected configuration of the system. “The organisation should operate by scenarios, selecting a technology solution that can accommodate multiple possible outcomes,” he says. The arrow goes the other way, too. As well as understanding the treasury function’s processes back to front, it’s important to understand what the TMS can offer, Warren says.

“The understanding of what a TMS can offer is a great starting point for analysing the synergies between the business’s current processes and system architecture.” He advises running a series of team workshops to determine the TMS requirements, ensuring that all key members of the business are consulted and listened to. “It is also important to involve the CEO and CFO to ensure any decision is in line with the direction the company is moving,” he adds. Lillie continues: “Take a step back and review all of your current treasury processes and how technology is currently employed.” If budget allows, hire an experienced treasury consultant who can take an objective view of the existing environment, he adds. Lillie also recommends building a Requirements Definition document, detailing everything the business will want from a new TMS, distinguishing essentials from nice-to-haves.

These systems can be very expensive, so suppliers are keen to conduct demonstrations based on the use-cases of their anonymised existing clients

Richard Warren

MEET WITH THE VENDORS, AND TEST THE SYSTEMS

By now, the treasury team should have a shortlist of possible systems that are right for the company. The next step is to meet with the vendors, and run the prospective systems through their paces with a test run. Meeting with the vendor is a chance to ask questions about the system and determine whether it can handle business(-critical?) operations in a more efficient way, serving the needs of the company now and in the future, which can take the form of a presentation. Enrico Camerinelli, says that the vendor must show knowledge of treasury operations and have done similar implementations in the past. He recommends that before meeting, the buyer prepares a set of business scenarios, so that the vendor can present how their solution will address those issues, and resolve them differently from how the company currently does.

What questions should I ask the vendor?

“The vendor presentation agenda should be set by the buyer and agreed with the vendor,” says Ken Lillie of treasury technology consultancy firm Lillie Associates. “Ask questions about functionality as listed in the requirements definition, [and] ask about implementation resource requires, [such as] time scales.” Richard Warren, a senior manager at consultancy firm Brickendon, recommends that during the meeting with the vendor, buyers ask the following questions: Is the solution customisable to the workflows of the business, or will the business have to re-engineer existing flows and retrain staff to fit the TMS software? “An extensible solution for all workflows is a must and ensures the system is easily upgradable for future requirements,” he says. Are the support staff available 24 hours? Check the support line staff, Warren says. Do they answer when the business calls with a problem or query, and can they help? Also, and even more importantly if the business operates around the world: Is the support available in your language? Where else has the TMS been deployed and are there any similar use cases or workflows and operating models? “If the vendor can articulate an understanding of your business it is likely that they have similar clients already successfully using their software,” Warren says. If this is the case, it may be possible to learn from these companies, and how they work with the system.

Can I learn from how others have used the system?

There is no need to go into this process blind. With some research, treasury teams can see how other similar businesses use their treasury software and acquire an understanding of leading industry practices. Lillie says that although such information, beyond vendor-sponsored case studies, is not publicly available, it may be possible to obtain by speaking to colleagues and associates in other companies to understand their experiences. Buyers might also consider working with a specialist consultant, who should have experience with a number of implementations – on a no-names basis, he adds. Buyers can also get this information from the Request for Proposal and Request for Information processes used when evaluating potential suppliers, Warren says. “These systems can be very expensive, so suppliers are keen to conduct demonstrations based on the use-cases of their anonymised existing clients.” He adds: “Setting one-day workshops with the company’s key stakeholders is a great way to see and challenge the processes and functionality. To maximise the value of the vendor-selection process, scoring should be applied by an internal team with experience and knowledge of the business and functional requirements.”

Can I test drive any transactions?

After an initial meeting with the vendor, and during a second more detailed workshop, when the shortlist of vendors is down to two or three, buyers can ‘test drive’ some transactions in their prospective systems, Lillie says. Camerinelli says that test driving some transactions in the vendors’ systems will give buyers an idea of how flexible and adaptable the system is. “The company cannot expect to have all the problems solved during the demo sessions, but the level of appreciation of the flexibility of the system must be ensured within the user community,” he says.

MAKE YOUR SELECTION, AND PUT IT INTO PLACE

By now, buyers should be in a position to make an informed decision about which treasury management solution to invest in. Meetings or workshops with the vendor will give an idea of how long the implementation will take, and internal discussion within the company will determine who should be involved in the process. But how much will it cost? Our research found cost to be treasurers’ second greatest concern when it comes to implementing a TMS. 58% of survey respondents selected ‘cost’ as one of their greatest concerns, putting it not far behind the top concern, ‘difficulty integrating new solution seamlessly with existing systems’, selected by 62%.

So how can buyers get an idea of how much a new treasury management solution will cost before implementation starts?

The cost of the system can depend on a number of issues depending on the individual supplier, Lillie says, but initial conversations with vendors will give buyers a guide to costs. He continues: “The system may be modular so you pay for the modules you need, complexity of instruments used, accounting requirements (e.g. hedge accounting), connectivity to TMS (banks, market, rates, dealing systems, etc.), number of users, etc.” The system may be “bought” for a one-off licence upfront, with ongoing maintenance and support fees as a percentage of the original cost, or rented for a monthly fee (typically the case for SaaS solutions) after an initial set up cost, Lillie says. “The vendor will also charge consulting fees for implementation at a daily rate or for a fixed price so discuss these at the outset.” It’s worth remembering that no single system can do everything the business needs. This is why getting the selection process right is so important – the key is picking the best possible one.

Bob's Guide to TMS 2017

How to avoid disruption during TMS implementation.

BOB’S GUIDE TO TREASURY MANAGEMENT SYSTEMS 2017

The importance of ensuring a new treasury system is properly implemented cannot be understated. Get it wrong and not only might the new software make everyday operations more cumbersome and less efficient, but the treasury team will be driven back to old systems, and the time and resources taken to install the solution will have been wasted.

Good communication and a prepared client – vendor team can resolve and smooth out most bumps on the implementation road

Mathilde Swanson

“You might have chosen the right system, but if it’s mis-implemented, or ill-implemented, then your user won’t be able to use it. They’ll go back to the spreadsheet,” says Dimos Dimitriadis, partner and founder of consultancy Treasury Technology Associates. It’s a concern shared by many of you when it comes to TMS implementation. In our treasury management systems survey among bobsguide readers, conducted earlier this year, ‘difficulty integrating new solution seamlessly with existing systems’ emerged as the top concern about implementing a TMS, with 62% respondents selecting it, closely followed by cost, at 58%. By working closely with the vendor, and a consultancy if necessary, treasury teams can ensure their new system is optimally configured for their everyday operations. But during this transitional period, which calls upon many different players with many different roles, how can treasury teams avoid disruption to their day-to-day operations? The first step is preparation.

How can my treasury team prepare for the TMS implementation process?

Before implementation even begins, treasury teams must organise which personnel are going to be involved, and who will work closest with the vendor during the process. We covered assembling a team in an earlier instalment of this series. The next step is establishing a relationship with the vendor. Patrick Cannon, head of professional services and customer success for SaaS provider Reval, says that the key to successful implementation is to involve the vendor’s professional service team early – in the pre-sales process. “Engagement starts with an understanding and alignment of the client’s vision,” he says. Corporate treasury teams need to have better alignment internally as well, he adds. “[They need] a clear understanding and commitment to achieving the business goals in a deployment, top to bottom. “Where projects succeed or fail is measured by the organisation’s clarity of vision and designation of an executive sponsor – there needs to be an internal counterpart to the vendor who works in step to achieving value in the relationship.” Mathilde Sanson, chief client officer at cloud treasury solutions provider Kyriba, says that assuming evaluation of the TMS is complete, and that an extensive list of requirements was identified during that stage, the implementation process will be smoother, guided with clear business requirements. To prepare for a TMS implementation, she says, “a treasury team should understand the strategic functions of the organisation that they wish to automate, where in their workflows they would benefit from increased financial controls, security, auditability”. She continues: “Having their requirements understood by the implementation consultants will help to ensure the project is completed according to plan.” Cannon suggests a straightforward way of confirming mutual understanding of the project, and what it is expected to deliver: “If I were part of a corporate treasury team, I would want professional services to articulate my vision back to me to make sure they understand what I want to achieve, and leave no stone unturned when it comes to functionality and what the system can do.”

What are some setbacks we need to be prepared for?

With so many individuals from different teams involved in TMS implementation, and many moving parts in the system itself, it’s expected to hit a few obstacles on the journey. What should treasury teams expect, and how can they prepare for any setbacks? “Many project risks can be identified during the discovery process and mitigation plans can be made,” Sanson says. “Good communication and a prepared client-vendor team can resolve and smooth out most bumps on the implementation road.” For Cannon, sticking to project best practices, including open communication, regular status reports, and strong governance, is crucial for keeping the wheels moving. “Don’t underestimate the commitment to getting this right,” he says. Depending on the complexity of the system, and the nature of the organisation, it can take six, 12, even up to 18 months to fully implement a TMS. There’s a risk the project will lose momentum, that the project will take even longer, that it will be disruptive, and treasury teams could lose enthusiasm. Sanson, like Cannon, recommends executive sponsorship and regularly scheduled status calls to ensure there is ongoing triage and prioritisation to meet goals. She continues: “A treasury team should expect to have a clearly defined process with key milestones and checkpoints identified to recognise progress and maintain quality controls.” Lars Schroeder, senior engagement manager at consultancy SkySparc, says that working with a consultancy can take some of the load off the treasury team during TMS implementation, particularly when it comes to testing. “We help with implementing the new system, by allowing our clients to learn the new system but without doing all the testing which can be boring for them,” he says.

Five tips for avoiding disruption during TMS implementation

Sanson has five tips for treasury teams looking to minimise disruption during TMS implementation:
Establish your team lead and main point of contact
“This person should be able to validate processes against the state requirements.”
Ensure the initial discovery phase is a priority for your internal stakeholders
“Having all the requirements agreed upon up front will greatly reduce day-to-day disruption.”
Communicate frequently and clearly about reaching check points and expected milestones
“Ensuring everyone on the treasury team understands what should be done and when will keep the project on track.”
Set aside a time in the day that you can dedicate to the implementation
“If you do this proactively, your meetings will be predictable and according to your schedule. If you cannot free up your staff from day-to-day roles then an external consultant should be hired to have the project move forward.”
Enable your vendor’s implementation team to become your trusted partner
“Not only will this increase productivity, but you will also gain more out of the process.” Schroeder says that the key to avoiding disruption is involving the vendor in a “smart” way, “but it will depend on your size and ambition, and how much you want to outsource. If you are smart you can outsource the boring stuff and have your key people be involved in the interesting part”. As is the case with many things, preparation is key to minimising disruption during a TMS implementation project. Success in implementation will depend on assembling the best possible team, ensuring everyone on the team has a defined role, and good communication with the vendor throughout the project.

 

Bob's Guide to TMS 2017

How financial professionals can prepare for GDPR.

BOB’S GUIDE TO TREASURY MANAGEMENT SYSTEMS 2017

The countdown has started. From 25 May, 2018, any company that holds personal data on EU residents will be required to comply with the General Data Protection Regulation (GDPR).

The GDPR updates the 1995 EU Data Protection Directive for the digital age, and is designed to give EU citizens more control over their personal data by governing the way organisations handle data. It also expands the definition of personal data from names and addresses to include any data that can be used to identify an individual, such as IP addresses and internet aliases. “Any information that has the potential to identify a specific individual must ensure it is compliant with the GDPR legislation,” Nathan Snyder, partner at Brickendon Consulting, told bobsguide. The penalties for non-compliance are high: any breaches incur a maximum penalty of 4% of the organisation’s global annual turnover, or €20m, whichever is more. But many studies have shown that many organisations are not aware of the fines they could face after GDPR comes into effect, or lack the technology to allow for compliance. So, with less than a year to go, how can financial professionals ensure they do not fall foul of the regulation? How might banking treasury systems, or corporate management systems, help treasurers comply with GDPR?

The important thing with GDPR will be to think ahead when building IT systems and at an early stage address questions such as what data do we need, why do we need it, how long will we need it for and who will process it for us?

Nathan Snyder, Partner at Brickendon Consulting

What does GDPR obligate financial professionals to?

“All companies, including corporate treasurers, that handle client data now have clearly defined obligations, including appointing a Data Protection Officer and notifying the authorities should a data security breach occur,” explains Snyder. GDPR also requires that organisations can locate, control and dispose of information should they need to. Individuals will be entitled to know how organisations are using their personal data, why they are using it and with whom they might be sharing it. While the penalties for breaches are high, GDPR doesn’t have to be a purely compliance exercise for financial organisations, as there are benefits to be had from good data management. According to Elizabeth Denham, information commissioner at the UK Information Commissioner’s Office, by getting data protection right, organisations can see a “real business benefit”. “The benefit for organisations is not just compliance but also providing an opportunity to develop the trust of its consumers in a sustained way… Because I think it’s clear that a lot of people feel they’ve lost control of their data,” she said in January. As Catherine Moore, European president and MD for JP Morgan Merchant Services told bobsguide, complying with the GDPR requirements will help merchants get to a more standard operating procedure.

Are organisations ready for GDPR?

Despite GDPR being such a wide-reaching piece of legislation, affecting any business that handles personal data, and carrying hefty penalties for non-compliance, many organisations aren’t entirely prepared for it. According to research by YouGov and UK law firm Irwin Mitchell, less than one-third (29%) of the more than 2,000 businesses surveyed have started preparing for the GDPR, and just 38% of senior decision makers of those businesses are aware of the new GDPR rules. The research also found that more than two-thirds weren’t aware of the penalties for non-compliance, and, perhaps most worryingly, four in 10 businesses would have to let staff go or fold if they suffered the maximum fine. Research by data management company Veritas, published in April 2017, also highlighted concern about the reputational cost of non-compliance, and the impact it might have on the brand image if a breach is made public. The Veritas survey also found that 32% of respondents are concerned that their organisation lacks the technology to manage data effectively, which is crucial for GDPR compliance.

How should treasurers be preparing for compliance with GDPR?

In an April 2017 report, PwC explains that instead of an “add-on” or “afterthought within business operations”, protections for personal data should now be designed “into the very fabric of data processing systems, meaning that entities will need to re-examine how they approach the use of technology in their organisations”. The report continues: “Technology is… the principal problem that data protection law is trying to solve. As such, it is obvious that, as well as being the problem, technology must provide the solution.” While technology is an important component in ensuring GDPR compliance, it makes sense for organisations to take a wide view of how the legislation will affect their business, and engage different teams. “Firms will need to embed a mindset where data privacy is at the heart of the company culture and not seen as a regulatory-imposed burden that slows down the business,” Snyder says. “The key, as with any upcoming legislative changes, is to ensure you know where your business is now, decide what areas will be affected, what needs to be changed and how you are going to facilitate the changes,” he continues. “The important thing with GDPR will be to think ahead when building IT systems and at an early stage address questions such as what data do we need, why do we need it, how long will we need it for and who will process it for us? “If you can answer these questions, you are part of the way towards compliance.” It will also be important to remember any third parties that might have access to any personal data held by the business. Snyder adds: “Corporate treasurers should also ensure that all partner contracts have a clearly defined minimum set of data protection requirements and a clear outline of roles and responsibilities.”

Do I need a treasury management system?

A flexible TMS will help an organisation comply with GDPR by providing access to the data and helping implement business rules, Snyder says, adding: “A good TMS will make the task of accessing the customer data to action the data privacy rules that GDPR has set forth (e.g., removing or obfuscating personal data upon request) easier without relying on upstream systems.” Organisations don’t specifically need treasury management software to comply with GDPR. But “if the TMS does not allow an organisation to be compliant with GDPR, that system needs to be either updated or replaced”. While the right technology has the potential to help organisations comply with GDPR, good data management will require efforts from throughout the organisation. Kuan Hon, a consultant lawyer for Pinsent Masons in London, wrote in Out-Law.com: “While it is important for organisations to be able to identify and map or track the personal data that they process at a more granular level, GDPR compliance is not just a technology issue. “It will be essential to involve not just IT but also legal, risk and compliance functions, and compliance will involve people, policies and processes, not just technology.” With all hands on deck, 12 months may indeed be enough time to prepare for GDPR. And with a greater understanding of the potential benefits compliance offers, perhaps organisations will be open to the change of mindset needed to realise these benefits. By next May, we’ll know.

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SWIFT has released a set of core security standards that are mandatory for all corporates and financial institutions connected to SWIFT. By implementing these standards, you will:

  • Raise the security bar on the SWIFT network,
  • Support their efforts to prevent and detect fraudulent use of their infrastructure, and
  • Increase security awareness and education in the on-going fight against cyber-related wire fraud.

Important dates:

  • To ensure adoption, SWIFT requires all corporations and financial institutions and financial institutions on SWIFT, to provide self-attestation against the mandatory controls by the December 31 2017 and on an annual basis thereafter.
  • Enforcement of controls January 01 2018 onwards

Architecture Types

Each institution must identify which of the three reference architecture types most closely resembles their own architecture deployment to determine which components are in scope. Depending on the architecture type, some security controls may or may not apply.

The three reference architectures are as follows:

Architecture A1 – Full stack

Both the messaging interface (SAA or equivalent) and communication interface (SAG, SNL, HSM and VPN box) are within the user or Client environment. This architecture type also includes hosted solutions where the user has the licenses for both the messaging interface and communication interface.

Architecture A2 – Partial stack

The messaging interface is within the user environment, but a service provider (for example, a service bureau, SWIFT Alliance Remote Gateway or a group hub) owns a license for and manages the communication interface. This architecture type also includes hosted solutions of the messaging interface where user has license for the messaging interface.

Architecture B – No local user footprint

No SWIFT-specific infrastructure component is used within the user environment. Two type of set-ups are covered by this architecture type:

  • Users only access SWIFT services via a GUI application at the service provider (user-to-application)
  • Users’ back-office applications communicate directly with the service provider (application-to-application) using a middleware product (for example, IBM® MQ or similar) or APIs from the service provider. Categorizing this set-up as architecture type B is in line with the scope of the security controls which excludes user back office and middleware applications.

Enforcement of mandatory requirements by SWIFT will start from January 2018, including inspections from internal and external auditors conducted with samples of customers to check quality. The detailed compliance status of each customer will be made available to their counterparties (for example via the KYC Registry), providing transparency on their self-attestation and inspection results; allowing other users on the network to apply risk based decision-making to their counterparty relationships.

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Advertorial

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With Exalog’s software: Allmybanks

Software key benefits

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Streamline your cash management processes with Exalog

Exalog’s web-based cash management software, called Allmybanks, enables corporates to have the best cash visibility and to enhance treasury processes at both the holding and subsidiary level.

It features payments processing (STP), automated forecasting and bank reconciliation, advanced intercompany loans administration, bank charges control and net cash personalised reports – all within a single interface.

Four modules in one single interface

Exalog’s software is composed of four modules in which every function is linked one to another.

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Exalog’s software centralises all relevant data needed to manage your transactions at headquarter or subsidiary level, according to user rights.

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Exalogs treasury module gives you a complete decision support toolkit.

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Users can easily see the company’s key figures via customisable charts.

  • Multi-currency reporting
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4. Security and connectivity

This module brings together the necessary functions to enhance security and interface with both your banks and IT system.

  • User rights management
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  • Straight-through processing (STP) from your ERP

Mobile application for nomadic validation

Thanks to the mobile interface, users can validate banking payments according to internal rules, consult their consolidated and detailed banking statements on their smart-phone, and receive configurable alerts on transactions and balances.

Multi-bank communication matching your needs

Exalog’s integrated communication platform connects you to your banks worldwide via SWIFT, FTPs and EBICS, depending on your requirements. Yearly, it processes more than 175M financial transactions.

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Simplified and direct access to SWIFTNet

Exalog is one of the few editors in the world chosen by SWIFT to offer the L2BA solution (Alliance Lite2 for Business Application). This plug & play offer gathers both Exalog’s software (Allmybanks) and the SWIFT connectivity. It’s the easiest and quicker way to connect to SWIFTNet, without going through neither a Service Bureau nor any intermediary bank.


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Features

By CRYPTOCURRENCIES

Do cryptocurrencies have a role to play in the future of treasury management?

VICKY BECKETT EXAMINES WHETHER THE SURGE IN FINANCIAL SERVICES’ INTEREST IN BITCOIN AND ETHEREUM WILL TRANSPOSE INTO THE TREASURY MARKET

As one all-time high in its value rapidly succeeds another, bitcoin’s rise in value has been nothing short of meteoric this year.  On August 17, the digital currency charged past the $4,400 barrier, meaning that its total value went above that of payment giant PayPal.

The currency is moving out of the realms of the dark web and into the light as it becomes increasingly accepted in the mainstream. There are several benefits to treasurers using cryptocurrencies. These include avoiding paying large transactions fees to banks, immediate payments and the ability for transactions to be kept open or private, so the business interests can be still followed. If cryptocurrencies are to enter widespread usage by businesses they must demonstrate superiority over current payment technology, such SWIFT, in security, speed or scalability. But as new cyrptocurrencies and blockchain systems, the technology cryptocurrencies rest on, are being brought to market at a rate of knots, it seems like this is could soon be a reality.

Cryptocurrencies will gradually creep into corporations as finance departments receive inquiries from suppliers or partners asking, “Can we pay your invoice in Bitcoin?”, predicts Gabriel Dusil, co-founder of blockchain technology incubator Adel. “As Bitcoin moves into the mainstream in the next three to ten years, then inquiries will follow. Bitcoin will be just another method of commerce to settle transactions,” he argues. Cryptocurrencies provide businesses with the ability to move assets outside of the normal banking regulatory framework, explains David Putts, chairman and managing director of Billon, a Polish fintech that encrypts everyday currency. You can see the benefit of this when it comes to foreign exchange. “Cryptocurrencies can definitely help treasury manage foreign exchange (FX) risks. You can use blockchain to do real time hedges in FX,” Tim de Knegt, treasurer and manager of strategic finance and treasury, Port of Rotterdam tells bobsguide.

We are reducing bank transfer costs to 0%. This means those that were previously financially excluded can now be included

Gabriel Dusil, Co-Founder of Blockchain Technology Incubator Adel

“Some banks are enticed by the potential operational benefits of using the secure messaging technology behind a cryptocurrency, but as the technology is linked to the cryptocurrency, banks have to trade off the operational benefits that the technology may provide against the added cost of needing to buy and sell a cryptocurrency to make a transaction,” says Putts. “Therefore, the benefits are low when dealing with efficient ‘corridors’ such as USA and Europe, but higher when transacting with Zimbabwe,” he adds.

A threat to the status quo

There is something undeniably anarchistic about cryptocurrencies, which has made some financial institutions reluctant to embrace them and adds to both the bitcoin opportunities and risks. This is not because it has a reputation for being used by criminals, it is due to transactions being anonymous. The anonymity of cryptocurrencies is a common misunderstanding. The technology they are based on – blockchain – permanently retains all information attached to any transaction. If law enforcers have adequate technical expertise, the associated data can create a forensic trail that can suddenly make a criminal’s entire financial history public information. This is how the Federal Bureau of Investigation (FBI) arrested Ross Ulbricht in 2013, a 31-year-old American who created Silk Road, a bitcoin cryptocurrency market facilitating the sale of $1bn in illegal drugs. There are other ways that the use of cryptocurrencies challenges the status quo – businesses no longer need to use mainstream financial regulatory frameworks. “Some aspects of blockchain (the technology that cryptocurrencies are built on) ideology conflicts with corporate culture,” says Dusil. “[It] advocates decentralised governance where corporations want to centralise that function,” he adds. Blockchain technology also brings up questions of open source versus proprietary solutions; public versus private data; open versus encrypted data. “It’s all about finding a niche where blockchain can shine. If the leaders of corporations can address the cultural challenges and effectively implement change management, then their world opens to a paradigm shift in thinking,” argues Dusil.

Banks are shedding their reservations

Some banks are leading the way in this shift. In the last month, several of the world’s central banks are overcoming their reservations and have recently come out in favour of the cryptocurrency. In its latest budget in May, the Australian government agreed that bitcoin would be treated as money in Australia instead of an intangible asset from July 1, exempting the virtual currency from goods and services tax and ending the double taxation of bitcoin trading that was previously imposed during transactions, firstly on the product being bought and then on the bitcoin itself. The Czech National Bank outlined its attitude to bitcoin and other digital currencies on its website. It argued that bitcoin was “negligible in its size and scope” and that banks have no reason to fear either.

A relentless advance

Whether this currency will continue to be negligible in size remains to be seen. Bitcoin’s relentless advance hasn’t been upset by a new version of the cryptocurrency – dubbed bitcoin cash – being spun off earlier this month in reaction to plans for speeding up trade execution times. The so-called ‘bitcoin fork’ – an ideological clash that saw a subset of the currency’s community breaking away from the software it employs – was expected to detract from bitcoin’s value. Fat chance: it seems only to have provoked its further dramatic expansion. The fast-paced tech world is seeing a high-level amount of innovation around digital currencies and the blockchain technology they sit on, meaning the scope of cryptocurrencies is expected to grow. One example of this is Ardor. It is a cryptocurrency built on a new a blockchain-as-a-service platform that bypasses a lot of the common issues when creating a blockchain ecosystem as well as securing it with enough nodes. It uses features such as decentralised phasing, voting, and trading. Not only can this currency be bought and sold but it also operates as a scalable blockchain platform that can be used by businesses. “Ardor can be easily adapted to support any blockchain based application. Being written in Java makes it especially corporate-friendly and simple to extend,” Lior Yaffe, Ardor’s core developer and senior developer and managing director of tech firm Jelurida, tells GTNews.

One of the key benefits to making business payments using cryptocurrencies is that it cuts out banks in the transaction completely, avoiding large transaction fees. Payments can also get transferred immediately anywhere in the world. While transactions are generally free, conversions between fiat and cryptocurrency are not. These are often not included in the bitcoin exchange rates shown on bitcoin exchnage rate charts. As of March 21, 2017, Coinbase, a mainstream digital asset exchange website, announced conversion fees will be paid by customers. “Fees will be assigned dynamically based on the current network conditions and will be paid by customers when they send an on-chain transaction. Transactions between Coinbase accounts will continue to be off-chain and free,” states the cryptocurrency exchange website. The base conversion fee when using a debit or credit card is 3.99% for North America, Australia, Europe and the UK, for example. Putts is the chairman of Billon, a Polish e-money transfer start-up which allows customers to transfer money, withdraw cash from a cash machine and pay bills by mobile. He argues Billon has a solution more cost-effective than bitcoin cryptocurrency. “We are reducing bank transfer costs to 0%. This means those that were previously financially excluded can now be included,” he tells GTNews. “When using cryptocurrency, people haven’t completely eliminated the costs. They have reduced it. With a cryptocurrency system, you can directly move money around the world which is great but the fundamental challenge is that you need a whole ecosystem built to manage cryptocurrency,” he argues. For example, bitcoin has hundreds of computers around the world that are “bitcoin mining” and all of them require bitcoin mining hardware.

Features

Can robots and data stop banks terror financing?

TERROR FINANCING REGULATIONS ARE NOW NUMEROUS AND VARY BY JURISDICTION, SO CAN AI HELP IN THE BATTLE FOR COMPLIANCE? WORDS VICKY BECKETT

Buying a new printer from ISIS is probably not how many people envision their stationary shopping proceeding. But it was only a month ago that the FBI announced that it had found a senior Islamic State (ISIS) official sent money to an alleged operative based in the US via a global financial network that used fake eBay sales to mask payments. US citizen Mohamed Elshinawy allegedly pledged allegiance to the Islamic terrorist group and received about $8,700 from the organisation through PayPal under the cover of fake computer printer sales, it was reported. This is a timely reminder about how vulnerable businesses can be to terrorist financing. Terror financing is moving clean money to a criminal destination. Whereas money laundering is moving criminal money to a clean destination.

It’s now less than a month until the UK’s Criminal Finances Act comes into force on September 30. The regulations give the UK’s tax, payments and customs authority, HMRC, a global mandate to pursue the possible facilitation of terror financing, money laundering and tax evasion anywhere in the world should it involve a UK tax liability. “The Criminal Finances Act is extremely far-reaching and will put the spotlight on a huge range of businesses, meaning many people have a lot of work to do in less than a month to ensure their firm is compliant,” says Marie Barber, managing director of tax consulting and accounting services at Duff & Phelps. “This new legislation is not dissimilar to other legislation designed to influence corporate behaviour, such as the Bribery Act and the GDPR, and as such requires a similar approach to assess risk and put measures in place to prevent the targeted activity from occurring,” she continues. Corporations already face a host of anti-money laundering regulations which vary by jurisdiction. Key legislation includes The Patriot Act 2001 in the USA, and the Money Laundering Regulations 2017 in the UK. Companies risk facing heavy penalties and restrictions for any breaches.

Terrorist atrocities are now being conducted with barely any capital; transactions for the hire of a van or purchase of a knife, for example, would not normally raise alarm bells

High tech terror

As the eBay case shows, groups like ISIS are increasingly using advanced technology to accomplish their goals. ThetaRay is an algorithm-based anomaly detection company, established to allow financial institutions to uncover previously undetectable threats in large amounts of unstructured data. James Heinzman, ThetaRay’s executive vice president of financial services solutions, explains that one way terrorists are funding their activities, for example, is by hacking into tens of thousands of online bank accounts and transferring small amounts into their own account. These amounts are so small that they are difficult to detect or trace, but when taken in aggregate they can amount to large sums. In addition, increasing cases of ‘lone wolf’ terrorists and dormant sympathisers are also a growing challenge as their financial transactions can be much more difficult to identify as terror related, says Michael Harris, director of financial crime compliance and reputational risk at LexisNexis Risk Solutions. “Terrorist atrocities are now being conducted with barely any capital; transactions for the hire of a van or purchase of a knife, for example, would not normally raise alarm bells”. “Geopolitical conflict and uncertainty intensifies these issues, leaving financial services with the challenge of monitoring people’s international movements when, for example, displaced ISIS members return to the UK,” Harris explains. The way in which terrorists conduct their crimes has evolved significantly too. “Terrorist atrocities are now being conducted with barely any capital; transactions for the hire of a van or purchase of a knife, for example, would not normally raise alarm bells, but unfortunately, as recent news has shown, these items are now utilised to perpetrate significant terrorist events,” says Harris.

It is difficult to detect terror financing because it’s hard to separate legitimate activity such as migrant workers sending money home from terrorist financing activities. It is difficult to find the needle in the haystack – it’s really more like a needle in a needle stack

Jim Heinzman

An improvised explosion (IE) device may cost about €5,000, which is relatively small in a western country but in some high-risk countries, this is a huge amount of money. Terrorist and criminal organisations know that they can’t just sell oil and receive a lump sum of $10m – it would be identified as money laundering and intercepted by law enforcement agencies. But through a flood of micro transactions, they can escape detection, acquire the necessary funds, and continue their terror operations. “We have seen cases where a few customers were acting in concert, using multiple channels, payment methods and low dollar amounts” “They use credit cards to take cash advances from an ATM in a foreign country, but in small amounts as little as $100. Terrorists then pay off the credit card in a different country with a cash equivalent payment (CEP) such as a traveller’s check or money order, effectively moving money between two countries. We have seen cases where a few customers were acting in concert, using multiple channels, payment methods and low dollar amounts. In total, they might move as much as $15,000-20,000 in this way,” says Heinzman. In the recent eBay case, the terrorists were using multiple channels in small accounts. From a data analysis perspective, financial services face three significant challenges when identifying threats, according to Harris. These are firstly ensuring the reliability of the information or media content used. Second is possessing the resources and operational capabilities available to conduct extensive research. Thirdly, financial services must have the capabilities to monitor lower value transactions and identify those that may be related to terrorist activity, argues Harris.

Banks are struggling

“Globally, the banks realise they are struggling to catch all that they can,” says Heinzman. “Many banks have a rules-based approach, where they have to define different rules in order to identify specific problems. But it is very difficult to write a rule about how someone uses a selling platform like eBay, for example. It is difficult to write something that no one has thought about before. “The people who write these rules are smart, but they can’t keep up. The banks’ systems and processes can also be very slow to respond. They often use behaviour models to identify these risks,” he adds. ThetaRay has been working with many large global banks, using its data analysis technology to improve the companies’ terror financing protection, Heinzman says. By analysing all possible transaction data (amount, IP address, telephone number, operating system in use, and thousands more) as well as the relationships between them, ThetaRay can warn banks of potential criminal activity. The company claims its data analysis can spot false positives as well to prevent muddying the waters. “Many of the rules for the banks’ criminal detection processes, embedded in their legacy systems, are published on the dark web.”

“Dark web experts have told us that many of the rules for the banks’ criminal detection processes, embedded in their legacy systems, are published on the dark web. So, if someone wanted to circumvent them, they could find the rules and develop schemes that go around them,” explains Heinzman.

Finding the needle in the needle stack

“It is difficult to detect terror financing because it’s hard to separate legitimate activity such as migrant workers sending money home from terrorist financing activities. It is difficult to find the needle in the haystack – it’s really more like a needle in a needle stack” he says. One example of this is a medical aid worker who was gathering donations for a charity organisation and was therefore moving funds from low risk countries to high risk countries. The activity was not captured by the bank’s rules-based system, but was brought to the attention of the bank by a regulator, according to Heinzman, who claims ThetaRay identifies cases like this immediately. “Terrorist financing is by its nature a random threat,” notes Harris. “Traditional rules based transaction monitoring systems find it hard to detect terrorist financing activity and the financial services industry is rapidly turning to predictive and advanced behavioural analytical systems to assist with the task,” Harris adds. ThetaRay claims it can take alerts from banks’ legacy systems and reduce the false positives. “If a system generates 10,000 false positives a month, a bank needs to hire a lot of analysts to review them and determine which are true positives. ThetaRay rapidly and accurately predicts which of the 10,000 anomalies are likely to be true,” says Heinzman.

Another well-known method for transferring funds without the detection of banks is using cryptocurrencies, such as bitcoin. However, the anonymity of cryptocurrencies is a common misunderstanding. The technology they are based on – blockchain – permanently retains all information attached to any transaction. If law enforcers have adequate technical expertise, the associated data can create a forensic trail that can suddenly make a criminal’s entire financial history public information. This is how the Federal Bureau of Investigation (FBI) arrested Ross Ulbricht in 2013, a 31-year-old American who created Silk Road, a bitcoin cryptocurrency market facilitating the sale of $1bn in illegal drugs. ThetaRay can monitor funds in cryptocurrencies – including those using a distributed ledger (such as bitcoin) – to detect potential illicit activity, claims Heinzman. “The cryptocurrency markets are something we are very interested in. One thing that is happening at the moment is that, as cryptocurrency comes more and more mainstream, the practitioners want to know that the market they are participating in has controls and integrity. “That is why they are coming to us. I am certain that none of these institutions wants to have their systems used to facilitate terrorist financing or other illicit activity,” Heinzman says.

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How to unite heterogeneous system landscapes.

All-embracing transparency for major corporates – with TIP.

Cash Visibility

Despite a heterogeneous system landscape, TIP provides us with an effective tool for ensuring transparency and for flexibly analysing all of our treasury data

Michael Debus
Corporate Treasury
DATEV eG

DATEV now has one system where all treasury data are collected and flexible reports can be used to analyse this data. All financial positions in SAP CM and SAP TRM are continuously and automatically transferred to TIP. In addition, the existing revenue and expenses positions from the controlling forecast are converted into incoming and outgoing cash flows and are imported into TIP as well. A set of rules was defined for this purpose which can be configured by users at any time.

CASH FLOW FORECASTING

If there is a real need for speed, there is no time for mistakes. TIPCO proved to be a partner who supported us with a maximum of professionalism and high motivation levels.

Britta Baier, Director EMEA
Corporate Finance & Treasury
TAKATA AG

Takata needed to implement a rapid switch from an existing Excel-based forecasting tool to a new Web-based solution. The aim was to set up a comprehensive and uniform group-wide cash flow forecasting tool within just a few days. Despite this short time window there were very demanding requirements in terms of forecasting transparency and accuracy. The intention was to import all accounts receivable and payable from the SAP system in order to create a basis for manual forecasting on the part of the group subsidiaries. An extremely efficient work flow was necessary on both sides in order to keep to the tight deadline. The next step was to set up a forecasting grid which corresponded to the parameters defined in the scoping phase and which was linked via the SAP interface to the SAP data pool. This created the basis for group-wide forecasting and flexible data analysis which can identify forecasting deviations.

GUARANTEES

The switch from Excel to TIP not only delivered major time savings for us but was also particularly well organised and structured.

Martin Matuschewski
Expert Treasury
DKV Mobility Services Group

The objective for DKV was to make their reporting considerably more flexible and less time intensive. A scoping workshop defined the necessary interfaces and reports. Guarantees now can be captured and managed directly in TIP. This allows contracts to be directly linked to (and accessed via) the relevant positions. On the basis of these data, it is now possible to call up a complete financial status overview from all possible perspectives and in any degree of detail at the press of a button. It is also possible to analyse the utilisation of credit lines at any point in time and in every currency.

RISK MANAGEMENT

TIP enables us to rapidly and simply assess our FX risk – as easily as we always wanted it to be.

Oliver Schmitz
Corporate Treasury
Vorwerk & Co. KG

Based on financial positions, cash flows and derivatives, Vorwerk’s objective was to be able to calculate and analyse the impact of changes in exchange rates. This implementation project entailed the setting up of the derivatives module of TIP and an interface for market data. The existing data previously maintained in Excel were also imported into TIP. New transactions can now be captured and automatically taken into account using a simple user interface.

At the press of a button, the data from the financial status, forecast, derivatives, exchange rates, volatilities and correlation matrices are now analysed in a computation module and made available via a dashboard report. This makes it simple to simulate hedge transactions and to analyse the impact on the overall risk KPIs reliably and easily.

BANK RELATIONS

We now have a great overview of the applied products and their prices, which lead to internal process improvements, but also enable us to negotiate with our banking partners at eye level. Not least, we can correct wrong prices in an easy and efficient way.

Christine Pitzen, Senior Treasury Manager
Deutsche Post AG

As a group of companies with global operations, DPDHL incurs considerable bank charges. Due to the number of charges levied, it was simply no longer possible to check these without excessive time and cost inputs. The main objective of this project was therefore to automate the monitoring of bank charges levied by key banks. The intention was to draw on the results to create a basis not only for monitoring payment processes more carefully but also to subsequently be able to optimise these. The implementation process involved bank statements available in the formats TWIST BSB, CAMT.086 and Excel being processed and automatic tables of charges set up. It was then “only” necessary to check these. Flexible reports under- pin the analysis of the extensive data and deliver transparency at the press of a button. A by-product of the monitoring of bank charges introduced was the retirement of an existing system for managing accounts across the group, meaning further cost-savings.

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Features

The future is mobile, regardless of regulations.

IT IS NOW LESS THAN FOUR MONTHS UNTIL THE IMPLEMENTATION OF PSD2, THE RESULT OF WHICH WILL HERALD THE ARRIVAL OF INNOVATIVE AND INTEGRATED PAYMENTS SERVICES COMPANIES THAT DO NOT NEED TO RELY ON ESTABLISHED CARD-BASED INFRASTRUCTURE. BUT WHAT DOES THAT MEAN FOR TREASURY?

PSD2 heralds a new dawn for mobile payments, as the regulatory technical standards around the upcoming European open banking regulations are expected to put mobile devices at the heart of new payment techniques.

Strong customer authentication required by PSD2 is key as well as initiating, and authenticating, transfers directly from bank accounts to payees. However, PSD2 will restrict some mobile payment methods at the same time as serving up innovation across the industry.
“PSD2 will encourage a new wave of innovative and integrated payments services companies that do not need to rely on established card-based infrastructure. As well as this, we are likely to see an acceleration in the use of mobile payments at physical point of sale, not just in ecommerce scenarios,” says Lu Zurawski, practice lead for retail banking and consumer payments at ACI Worldwide.

But despite the regulatory environment nudging markets towards certain payment types, it is not easy to predict exactly how consumers will adopt the technology.

WeChat Pay beats plastic

China’s WeChat Pay highlights the difficulties that lie in predicting how customer demand evolves, for example looking at how uptake of a clunky user experience based on fiddly scanning of QR-codes can eclipse commonly accepted traditional bank cards.
In China, debit card penetration is surprisingly high – over three per person – and yet WeChat Pay and Alipay have become the predominant ways to make a payment, with roughly 600 million payment transactions per day handled by Tencent, the platform of WeChat’s parent company.
“The key lesson of Chinese-style mobile payments is to see how they evolved quickly because of integration within social media and digital commerce platforms. This allowed smaller traders and consumers to exchange value in the course of normal ‘conversations’, with payments being treated like simple attachments to a text message exchange. As the network effect took off, bigger retailers rushed to support the new ways to pay,” Zurawski tells GTNews.

While payment methods such as ApplePay and other mobile wallets are expected to skyrocket under the new legislation, this does not mean there isn’t regulatory clamp down in other areas. Direct carrier billing (DCB), where a customer can charge items to their mobile phone bill, is one such mobile payment method that faces stricter requirements.

What does the future hold for direct carrier billing?

PSD2 has tightened the rules on direct carrier billing, meaning consumers who are accustomed to buying digital content via their mobile phone and charging it to their phone bill will see their options curtailed. Under PSD2, single DCB transactions will be capped to a maximum of €50 per transaction with a maximum monthly limit of €300. However, PSD2 continues to allow Electronic Money Institutions (EMIs) to extend the scope of DCB from digital content to the purchase of physical goods. Until now, the EU’s initial version of the regulation, PSD1, restricted what goods, such as ringtones, music downloads and eBooks, could be billed to a mobile phone user’s bill after purchase. This regulation was holding back the market for carriers and retailers, so there is plenty of reason for optimism in the DBC market, despite more stringent regulations. Based on 2016 Juniper Research data, the average transaction value for billing digital content via carrier billing in Western Europe was over €4 in 2016, much higher than the €1.50 achieved in Central Eastern European countries. Developments in carrier billing solutions now mean that it can be offered as a subscription model as well as for one-off purchases on a multitude of devices and contexts. The potential value of digital content in Europe via carrier billing is predicted to rise from just over €2.6bn in 2015 to nearly €14bn in 2020 according to Juniper Research.

“We anticipate that some operators will conclude that the tighter restrictions imposed on them by PSD2 – for example new transaction value limits, above which requires registration and compliance activities that will have been exempted under PSD1 – makes this business line impractical,” comments Zurawski. “Others may use the clarity of new regulations to double-up on payments and authentication services,” he adds. Several mobile operator driven payment initiatives have collapsed over the past few years, for example the ‘Weve’ joint venture between EE, O2 and Vodafone ended in late 2014. On the other hand, operators working in the GSMA (a mobile industry umbrella group) are working hard today with the ‘Mobile Connect’ initiative, launched in 2015, which is aimed at convenient access to secure log-in and authentication services. While some DCB providers may leave the space, the competition within mobile payments will remain rampant. “We expect to see many variants of “retailer pay” – branded mobile apps and wallets launched by retailers or by digital “platform” providers, where the ability to pay comes from direct access to bank accounts,” predicts Zurawski. There is also likely to be a greater awareness of faster payments, at least in the UK, or immediate payments more generally, as retailers chase the promise of lower payment service fees enabled by PSD2, according to Zurawski. The 2017 Ovum retail banking whitepaper also found that one the top areas banks are investing in is mobile payment capabilities, as more forward-thinking banks look to capitalise on “trusted” status combined the opportunity for new mobile services to provide revenue sources.

‘Mobile first’ is obvious

Regardless of new regulatory nudges like PSD2, ‘mobile first’ is an obvious approach for current socio-economic trends. Mobile wallet adoption is on the rise globally and consumers in the US and Europe are catching up with those in fast-growing economies in Asia and Latin America where mobile wallets have already become the dominant payment platform, according to recent research from the Global Consumer Survey: Consumer Trust and Security Perceptions published by ACI Worldwide. The study found that 17% of US consumers now regularly use their smartphone to pay, up from 6% in 2014 when the survey was last conducted. In Europe, Spanish consumers are the most active users of mobile wallets, with 25 percent using them regularly, followed by Italy (24%), Sweden (23%) and the UK (14%). Juniper Research, which predicts that spending worldwide via mobile wallets will rise by nearly one third this year to US$1.35 trillion, says that the implementation of PSD2 in Europe should “spur further competition within the European wallet space, with existing players poised to introduce additional services to complement their payment offerings.”

PSD2 will encourage a new wave of innovative and integrated payments services companies that do not need to rely on established card-based infrastructure. As well as this, we are likely to see an acceleration in the use of mobile payments at physical point of sale, not just in ecommerce scenarios

Lu Zurawski

Features

Fintech disruption sees digitisation take centre stage in African banking strategy.

Africa presents the ideal environment in which to evolve a new cash and payments services architecture – by linking rapidly changing customer expectations with new technologies. This puts banks squarely at the centre of mediating the creative clash of trends and technology – as Africa’s financial institutions harness disruption for innovation and growth.

Says Kent Marais, Head: Product Management, Transactional Products and Services for Standard Bank, “From a cash management perspective, Africa’s ongoing growth – in a rapidly changing technology and client expectation environment – presents an opportunity for industry-leading disruption.” This is especially so as Africa returns to growth. Even without a convincing commodities price rebound the African Development Bank is predicting GDP growth figures of 3.4% for the continent in 2017 – and 4.3% in 2018. Lead by increasingly diversified and integrated economies, especially in East Africa, the continent is expected to remain the world’s second fastest growing region after Asia. While growth rates and opportunities vary and factors, like interest rate volatility, can often cut into what looked like great profits on paper, “Africa’s overall numbers speak to the sustainability of the continent’s growth narrative, especially as key economies increase their trade – and integration – with emerging Asia,” says Mr Marais. In this rapidly growing – and changing – frontier environment, traditional views of cash and payments are being fundamentally disrupted, driving rapid innovation in Africa, “often ahead of the rest of the world,” he adds.

Banks are the ideal partners to bring disruptive technology to market – in a way that usefully and positively transforms the lives of Africans

Kent Marais

Disruptive technology transforms Africa

Today, retailers in Africa increasingly offer payment and money transfer services. Mobile operators offer mobile payments with scaled agency networks. Aggregators bundle client groups to negotiate better rates from established players. New fintech products like distributed ledger technology, data and prediction analytics, robotics, and digital identity solutions challenge – and deliver more quickly and easily – the kind of services and insight that used to be the preserve of banks. “While, these developments hold great potential to transform the efficiency, cost and speed of Africa’s payments landscape, many – in their raw form – cannot be of immediate benefit to customers and clients,” says Mr Marais. Without a strong use and business case, adoption by existing customer bases, or proper integration into system that deliver to customers and clients, disruptive technology will not improve services, change lives or transform economies. Instead of viewing these disruptive elements as a challenge, “banks are the ideal partners to bring disruptive technology to market – in a way that usefully and positively transforms the lives of Africans,” says Mr Marais. As African banks collaborate with different disruptive technologies and start-ups they will explore and evolve new revenue and service opportunities – as they test and adapt technologies to meet increasingly complex customer needs.

Disruptive technology meets new customer and market needs

Mr Marais believes that key areas in which disruption is helping meet customer and market needs across Africa include:

  • Creating inclusive and open banking platforms

Clients in Africa often operate across multiple jurisdictions and currencies, using suppliers who do the same. The result is that clients deal with multiple banks, even on single payment transactions. Since SWIFT, for example, can to some extent provide a unified view of all the elements of a payment transaction, “banks in Africa are increasingly challenged to develop non-proprietary platforms allowing non-traditional banking players to interact with bank and client data,” says Mr Marais. The move to an open banking environment and the evolution of Application Programme Interfaces (APIs) will significantly impact the payment environment. Banks will use APIs to access third party services, allow third parties to access their services and co-create new products and services with third parties.

  • Ongoing compliance agenda

As African domestic legislation dovetails with global compliance legislation the continent’s payments environment is set to modernise, including Africa’s electronic collections capability. While local, regional and global compliance pressures are often viewed as a burden and a cost by banks, their combined pressure to increasingly track payments or provide visibility across complex transactions, “is driving cooperation with fintechs as banks seek to innovate tracking mechanisms in environments without developed banking architecture,” says Marais.

  • Time and cost pressures

While providing wider access and deeper financial inclusion requires more investment – usually at more cost – this comes at a time when customers are pushing for cheaper products and services. These competing pressures in what is an increasingly commoditised payment product space, “is likely to drive even closer convergence, partnerships and cooperation between banks, technology, fintechs and legislators,” says Mr Marais. Equally, while one often hears that cash is still king in Africa, “today, outdated and rigid paper-based processes come at a cost to clients on the continent – in time and money,” says Marais. Becoming more cost competitive and efficient requires investment in new technology. While this comes at a cost to traditional institutions like banks’ it is critical that banks and their systems become more agile if they are to be truly client-centric.

  • Increasing dissonance between corporate and retail payment experiences

With many businesses in Africa either in start-up mode or still small, individual entrepreneurs who started businesses, “expect the same kind of service from their business banking partner as they experience as individual mobile account holders,” says Mr Marais. Right now, the corporate banking experience is not as developed as that of individual account holders. This is forcing banks to develop, by providing the same kind of capability – available electronically 24/7 -to businesses and corporates that individual retail clients have grown accustomed to on their mobile managed bank accounts.

  • Cross border visibility

Once payments cross a border in Africa clients usually lose sight of when the correspondent receives the payment, which institutions are handling the payment, and how many deductions have been made. “Banks, today, need to be able to provide visibility in real time across the whole length of the transaction,” says Marais. In a growth environment where ever-more Africans are involved in cross-border and international trade, Africa’s varied exchange control and currency jurisdictions, “present rich opportunity for the evolution of instant electronic currency conversion and payments systems that meet the legislative requirements of multiple currency and exchange control environments,” explains Mr Marais. Banks have increasingly had to react to fintech disruption – so far either through partnership or outright absorption. More recently, participating in industry-wide collaborative efforts – like the SWIFT GPI initiative – is providing banks a platform to collectively explore more efficient ways of managing and refining new payment technologies and systems. “Ultimately this kind of collective collaboration will benefit the clients of all banks,” says Mr Marais. Present in 20 markets across the continent Standard Bank is playing a key role in driving the adoption of disruptive technology to meet the rapidly changing transaction needs of African clients. This is being achieved by placing digitisation at the heart of the bank’s overall strategy. “It is both exciting and rewarding to be a part of Africa’s banking industry as it moves to creatively evolve and integrate new technologies to meet African’s payment challenges – measurably and visibly, driving growth and transforming lives in Africa,” says Mr Marais.

Features

TLS preview: Taking blockchain treasury technology out of the sandbox.

AHEAD OF THIS YEAR’S TREASURY LEADERSHIP SUMMIT, FEATURED SPEAKER TIM DE KNEGT, MANAGER STRATEGIC FINANCE & TREASURY AT PORT OF ROTTERDAM, GIVES VICKY BECKETT INSIGHT OF THE SUBJECT OF THE SEMINAR HE WILL PRESENT AT THE EVENT, TITLED BLOCKCHAIN: BUILDING A CASE FOR AN IMPROVED FINANCIAL SYSTEM

2017 and 2018 have both been predicted to be year blockchain breaks through to the mainstream in fintech, but as of today businesses are still floundering when it comes to finding use cases for the innovative technology. This has not prevented pioneering treasurers from diving into the sandbox to experiment though.

Take, for example, the Port of Rotterdam, which is establishing a subsidiary to experiment with its clients to understand technical implications as well as the business benefits of blockchain. Tim de Knegt, treasurer and manager of strategic finance and treasury for the Port of Rotterdam, has reinvented his, traditionally, inward-looking role within his company. The Port established its blockchain subsidiary in early July and it is due to go live in November. It has already reported global interest from governments, tech companies and financial institutions alike. International enquiries have come from the likes of Singapore, Dubai and Los Angeles and from companies such as Google and IBM. While it has not yet implemented any software into production yet into the company, de Knegt tells bobsguide: “We believe blockchain technology is a game changer, and not just for the financial industries. It will change other industries such as logistics and energy as well. “The most interesting area for me is logistics. It is quite a fragmented industry right now. There are a few players that dominated the market and lots of smaller players. There is more efficiency that could be made in supply chains and from a risk perspective.” “Many blockchain use cases which eliminate inter-organisation or cross-organisation trust issues may impact the work of the corporate treasurer,” argues Lior Yaffe, senior developer and managing director of tech firm Jelurida and core developer of blockchain platform Ardor. “There are many applications that require third parties who do not trust each other to conduct business that provide opportunity for the introduction of a blockchain in which all transactions are digitally signed, timestamped and potentially transparent to all participants,” he explains.

Treasurers must look outwards

General treasury and financial teams are often keen to operate in relative isolation, but they could bring more value to their companies by being outward looking using the knowledge that they acquire, argues de Knegt. The main benefit of blockchain will not come from using it as a single company, but as a group of companies due to the scalability of the technology, he contends. “[Treasuries] can add a lot of value to the sales process and create better external relationships with their own clients. They should look further than their own bubble. They should optimise systems and processes in the companies and within their own supply chains. “I work with some of our largest clients to see how, from a treasury point of view, I can add value to their role. “Blockchain is not necessarily a starting point for a general treasury. I don’t experiment with it from a treasury point of view but more from a business point of view. I look at physical and virtual transactions. That is where my role differentiates from the traditional treasurer.”

Northern Trust’s escapades into blockchain are an example of how outward-looking partnerships can benefit a business. After launching what is potentially the first fully functioning blockchain for trading private equities in February 2017, the bank is now preparing for more advanced applications of its blockchain platform. The US bank’s blockchain platform initially had four nodes powered by Hyperledger’s open source Fabric codebase. Swiss management firm Unigestion was the opening client. The technology has been processing transactions since February. Over the next few months, Northern Trust plans to upgrade infrastructure so that the bank can spin-up nodes for any number of limited partners, general partners and more. “Current legal and administrative processes that support private equity are time consuming and expensive,” said Peter Cherecwich, president of corporate and institutional services at Northern Trust. “A lack of transparency and efficient market practices leads to lengthy, duplicative and fragmented investment and administration processes.” “Northern Trust anticipates substantial opportunities to bring improvements to the private equity market by using blockchain technology,” says Justin Chapman, global head of market advocacy and research at Northern Trust. “This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors.”

How big are the barriers?

Two much-discussed hurdles that are preventing widespread blockchain implementation are scalability and working proof of concepts. This is partly because blockchain applications in the corporate world are still in their infancy, “so it is hard to testify about specific use cases,” Yaffe tells bobsguide. With such a fast-paced level of innovation in the tech industry, it is surely only a matter of time before adequate solutions to scalability are proposed. Yaffe claims that his new product Ardor, a blockchain-as-a-service platform, already offers a solution to scalability and blockchain bloat (a build-up of data making the system less efficient). It also uses features such as decentralised phasing, voting, and trading making it a useful tool for corporates. But while the technology, and number of transactions, you can do with it is vital, the key component needed now is participation from all parties to discover value added services for a group of businesses. For example, in a trade transaction the Port of Rotterdam may rely on information from others to ensure supply chain compliance, but if all parties participated in a blockchain solution, the technology could automatically prove that every participant is compliant. Traditionally treasurers will look for a working proof of concept that is scalable enough to get the results they want before implementing a new system. But the traditional method does not work here as the technology is so new. Therefore, Knegt argues, treasurers are required to innovate and look at how they can bring value to their clients as well as their own businesses if they want results.

“There are lots of small systems that are improving but these do not deliver on what they promise”, says de Knegt. “You need to find the right use cases.”

Blockchain tokens must be multilingual to compete

Another key hurdle to widespread blockchain usage is that blockchain tokens are not currently suited to any device, argues de Knegt. “Eventually blockchain should be like Microsoft Office – you can use it on a Mac, a PC or an iPad. You will be able to use the token on any type of computer,” he says. However, Yaffe says from purely technical perspective, this is not a hindrance to adoption. “Blockchain applications with rich cross platform user interfaces are available now,” he insists. Yaffe sites the wallet application of Ardor, as an example. “Unlike most other blockchain technologies Ardor and NXT implement a reference user interface for every feature and transaction type they provide. This includes desktop, web and mobile support. “However, private blockchain is an infrastructure technology which mainly benefits large corporations, consortiums and government. These entities take a long time to evaluate new technologies where implementation cycles can take several years. “I expect the first real private blockchain applications to be deployed to production around Q3 of 2018 but widespread deployment may take between three to five years.” Ardor’s blockchain technology is preferable for corporations to the blockchain that bitcoin sits on, argues Yaffe. “[The blockchain behind] bitcoin is designed for a single purpose, transfer of value between accounts, all other applications on top of bitcoin use various workarounds to squeeze data into the blockchain not for its intended purpose. “On the contrary, Ardor, based on the NXT blockchain technology, is designed from the ground up for extensibility using a modular transaction types architecture which can be easily adapted for various use cases,” he says.

The Treasury Leadership Summit will take place this London on December 5-6. For more information visit www.treasuryleaderssummit.com

Features

How treasurers can use AI to simplify invoicing.

RODNEY GARDNER, HEAD OF GLOBAL RECEIVABLES IN GLOBAL TRANSACTION SERVICES AT BANK OF AMERICA MERRILL LYNCH AND MATTHEW HODGSON, CEO OF MOSAIC SMART DATA, TELL VICKY BECKETT HOW ARTIFICIAL INTELLIGENCE IS BEGINNING TO TRANSFORM TREASURY TECHNOLOGY

Matching incoming payments with invoices has long been a frustration for companies with many valuable hours being spent trying to determine who’s paying for what. However, artificial intelligence (AI) and machine learning solutions are starting to emerge that claim they can combat these treasury headaches.

“Incomplete remittance information typically leads to an arduous and costly reconciliation process”, argues Rodney Gardner, head of global receivables in global transaction services at Bank of America Merrill Lynch (BoAML). Data analytics AI technology is still in the early stages of deployment, but it is already set to transform financial markets and could act as a key differentiator in performance, Matthew Hodgson, CEO of Mosaic Smart Data tells journalist Victoria Beckett. With take-up of AI on the rise, PricewaterhouseCoopers (PwC) recently predicted that global gross domestic product (GDP) will be 14% higher in 2030 because of artificial intelligence. This is the equivalent of an additional $15.7trn, or more than the current output of China and India combined, according to PwC research.

The real advances for AI in recent years center around the automatic reading of documents, argues Bertrand Cocagne, head of product at Linedata Lending & Leasing. “I’m referring to …systems being able to recognise the structure of documents. For example, advances are being made where AI can recognise the structure of say, a balance sheet document, and automatically exploit the content,” he says. The most difficult problems in the marketplace today is re-association of the transaction – the credit is in the client’s demand deposit accounts while the remittance data resides elsewhere, argues Gardner. “Remittance data comes in all shapes and sizes: e-mail; e-mail attachments, portals, back of the envelopes, carrier pigeon,” he laughs. One AI solution that attempts to tackle this issue is BoAML’s AI payments solution, ‘Intelligent Receivables’, currently available in Canada and the US. It uses artificial intelligence and other software to help companies vastly improve the straight-through reconciliation (STR) of incoming payments to help companies post their receivables faster. Straight-through processing (STP) enables the entire trade process for capital market and payment transactions to be conducted electronically without the need for re-keying or manual intervention. The tool combines AI, machine learning and optical character recognition (OCR) to help business to do accounts receivable reconciliation and payment matching more efficiently.

Remittance data comes in all shapes and sizes: e-mail; e-mail attachments, portals, back of the envelopes, carrier pigeon

The proliferation of payment types

One of the biggest challenges when addressing the issues of transaction re-association is the proliferation of payment types, according to Gardner. “There is a press release about a new way to make a payment nearly every week. That’s incredibly exciting but it means the accounts receivables manager sitting in that shared service centre better be reading the press and accounting for how that new payment type is going to be processed. If it comes in and falls to the floor, guess what? You’ve got to hire four or more people in your shared service centre to manage the new payments. Nobody is talking about that,” he says. “I am of the opinion that low-value transactions are the best value on the planet bar none. Since low-value transactions are settled the same day, there is no reason why a corporate shouldn’t be telling their payers, ‘here’s how I want to be paid’,” continues Gardner.

Predicting the problems

Reconciling payment deductions is also a headache when matching payments with invoices, for example if a broker takes commission from a deal. Cross-border payments also present additional reconciliation issues, for example if a transaction was billed in dollars but paid in Thai baht. Gardner argues that AI and machine learning can be used to tackle both of these issues. This is where predictive analytics plays a crucial part. Matthew Hodgson, CEO of Mosaic Smart Data, says: “In many cases, banks are underutilising the data which they generate internally and spending significant amounts on buying market data from trading venues and exchanges. “However, the internal data is where some of the insights with real competitive advantages are held. Market data is available to anyone with deep enough pockets, but no other institutions have access to this internal data,” he says. Using machine learning combined with internal data to reconcile payments can solve a myriad of headaches.

For example, if one client, for some reason, continuously forgets to include part of an invoice number, the first time the business can spot the error and correct it using the client’s open accounts receivable file. The next month, if the client does the same bad behaviour the machines will spot the pattern and match the correction. Once predictive analytics is involved, the machine can not only correct the invoice number but also remember and predict when this bad client will pay, for example on the fourth of the month. This information can be fed into the treasury workstation which can then predict when the business will receive the payment which can help treasurers with their cash forecasting. BoAML will be able to produce these types of predictive solutions in the next couple of years, Gardner expects. “When I talk to treasurers, they sometimes don’t realise the amount of horsepower that they currently have against reconciling the books. They are often in the dark about their accounts receivables from a cash flow forecasting perspective. They have no analytics around predicting their receivables so we’re creating a dashboard for them to help them better manage their cash flow,” he says.

When I talk to treasurers, they sometimes don’t realise the amount of horsepower that they currently have against reconciling the books

What makes a successful payment product?

When launching new payment technology there are two guiding principles for success, according to Gardner. The first is global consistency. Secondly, it cannot require the payer to have to do anything different. “From a receivables perspective, the minute you try to change payer behaviour, I believe you’ve put everyone at a disadvantage. There are some great tools and solutions out in the marketplace but most of them require the payer to do something different, and you don’t get the uplift,” he argues. For this reason, he believes bringing AI reconciliation within European virtual account management would be a logical next step for AI corporate payment and invoicing technology. “SEPA was great on the electronic side but not on a straight through reconciliation basis. And why is that? A virtual account works very well – you probably know who paid and why they paid you but the cash application remains the tricky part,” says Gardner. He proposes marrying virtual accounts with an AI solution. The bot would go into the virtual sub-account, look at the transaction and re-associate it with the remittance data, regardless of where it came from. “It will re-associate those two data points, create a posting file, and boom! You have straight through reconciliation, even in a virtual account scenario,” says Gardner.

A question of trust

One of the key factors holding back AI and machine learning is consumer and user trust. Cocagne argues that trust can only really come from experimentation and actually seeing the results of successful implementation. “The algorithms used within current AI systems don’t allow for much transparency with regards to how the system rationalizes its decisions, which makes it difficult for the industry to trust the outcomes. The key to building this confidence is really the successful real-life application of AI. With real results and success stories more trust will come,” he says. Gardner argues this problem is generational. “The older generation sees banks as trusted transactional, information protecting, partners. But I think millennials don’t give it a second thought to adopt new payment innovations. So, it depends on your audience,” he argues. Due to the older generation’s unwavering faith in traditional banks, banks are still key players in AI technology innovation.

Regulators are raising the drawbridge

Regulators are increasingly focusing in on AI payments technology. “Some of the first companies that came into the payment space were out ahead of regulations, and they weren’t necessarily regulated as banks,” Gardner says. “Now there’s a catch up by the regulators so the barriers to entry to the payments industry, outside of banking, are now higher if you’re new to the payments market. This is causing some of the fintechs to approach the banks and propose collaboration,” says Gardner. “It makes a lot of sense if you’re a fintech looking to enter the payments space to join up with a financial or a banking partner that knows the local regulations and markets. Putting those two together creates quite a powerful force,” he adds. Open banking regulation is also spurring payments and AI technology innovation. Because of open banking regulations, Gardner says: “Corporates are starting to put their receivables factories on top of the payment factories and centralising receivables for better STR, for better visibility, better cash flow forecasting.” A payment or receivables factory being the centralisation of the payments or receivables process within an organisation.

Features

The digital revolution in corporate treasury.

THE SPECIFIC CHALLENGES OF THE CORPORATE TREASURY HAVE BEEN SHELTERED FROM THE IMPACT OF THE FINTECH REVOLUTION UNTIL NOW. AS THE RESULTS FROM A SURVEY OF FINANCE AND TREASURY TEAMS REVEAL, BUSINESSES OF ALL SIZES ARE INCREASINGLY KEEN TO UNDERSTAND HOW THEY CAN RE-UNITE ISOLATED POOLS OF DATA DISTRIBUTED THROUGHOUT THE ENTERPRISE TO DRIVE TREASURY EFFICIENCY, IMPROVE AUTOMATION AND CREATE VALUE FOR THE WIDER BUSINESS.

New research for 2017, commissioned by Ixaris Technologies into the adoption of payment technologies among corporate treasurers, identifies growing interest in use of new products and services – indicating that the long road of the digital revolution may finally have reached the door of the finance team.

Initial results from the CFO Payment Pulse showed that testing new products and services – including use of emerging payment technologies – and increasing supplier collaboration are important objectives for treasury teams. Interviews carried out in preparation for the launch of the research bear out the survey findings. For Alan Hawkins, Head of Commercial Cards at ING, automation of commercial payments using new technologies represents “the biggest opportunity” for banks. A point underlined by Alex Mifsud, CEO, of Ixaris Technologies: “The opportunities to resolve the many intractable challenges of payments across the enterprise are enormous. Banks play an important role in this and are finding ways to partner with innovators and new entrants to deliver treasury innovation.” While the scale of the commercial payments opportunity is encouraging news for incumbent financial institutions it also highlights that banks and traditional providers have work to do to demonstrate the benefits of commercial payments products, particularly in the case of virtual cards where adoption remains relatively low. Among survey respondents, fewer than 20% currently use virtual cards or virtual accounts to settle their bills. By comparison direct debit and credit transfers are used by around 80% of respondents, and 54% use commercial payment cards.

Positioning the opportunity

As Hawkins remarked, the challenge for banks is, “articulating that opportunity. Right now, this is still an immature market, with lots of innovation going on. Payment service providers need to be clear about the problems their clients have, and how their solution can help solve it. If payment systems providers want to be successful, they are going to have to identify specific sectors, and work with senior treasury executives at target clients to show how their solutions will solve problems”. Indeed, different sectors and different sized businesses have varying expectations and requirements from their payment services. The research reveals that commercial card use among large firms is likely to be double that of their smaller counterparts. Similarly, while risk mitigation is a priority for large firms for small and mid-sized businesses the role that payment services can bring in improving competitiveness is more important. As proof of the challenge ahead, almost 65% of companies surveyed still use cheques – suggesting there’s considerable change to come as firms make the switch to electronic payments.

35% of respondents said they expect to reduce their use of cheques in the next year, citing a preference of cards, wire transfers or direct debit and contrasting with more than one in three respondents expecting to increase their commercial payment card spend by between 20% and 40%. Among electronic payment methods, direct debit and wire transfers are currently most used by respondents; wire transfers are overwhelmingly popular for their perceived ease of use (75%), relatively low cost per transaction (42%), and wider supplier acceptance of wire transfer and direct debit (38%). The insights reveal that these preferences are not set in stone, however. Respondents say that they might change their payment technologies if they could see how new systems would help reduce costs, make savings, or automate processes. James Sykes, Head of Commercial Cards at Lloyds Banking Group, says these findings tally with his experience: “Encouraging the use of cards among clients is all about reducing costs and benefitting both your clients and their suppliers. To persuade clients, it’s essential to work with them to help them see the benefits card usage can bring to their business. Payments can sit in so many different places, so helping customers to see the benefits of cards and make the change from existing systems is the biggest challenge.”

Automating the payment engine

It’s around automation, however, where the survey indicates the most profound change is still to come to corporate payments. A change that might not be that far away. The research shows a clear, as-yet unanswered, need to improve payment processes including payment approvals, reconciliation, invoice approval and logging receipts – alongside integrating new solutions with existing banking and accounting systems. 65% of those polled said this was the most important factor in selecting a new payment system followed by reducing the number of manual processes required (56%), and improving the payment approvals process (53%). As Mifsud notes, while retailers have addressed many structural inefficiencies in payments, these inefficiencies have yet to be addressed by the corporate sector. According to Mifsud: “The introduction of machine-to-machine interfaces that reconcile transactions incurred with e-receipts and invoices could save businesses significant costs in terms of time and money.” Mifsud goes on to characterise the key areas of concern for corporate customers as being “cost, control and convenience” – that is, reducing cost, controlling data trails associated with transactions, and improving the user experience at every stage in the process.

While high profile new entrants in the business-to-business payments sector are few – there is some early proof of what the new model treasury might look like. Currencycloud has developed a strong track record supplying large banks and institutions with currency and cross-border payments services. The company’s co-founder Stephen Lemon says: “There is an enormous opportunity in cross-border payments and currency transactions. Customer expectations are increasing dramatically. The key is to build relationships by responding to each customer’s specific needs. Lots of big corporate customers are on a mission to see what’s happening in fintech for treasury functions. This mission is borne of necessity given the pressure to cut costs and improve efficiency, especially when it comes to cash management and the movement of funds between corporates and their suppliers.” As traditional commercial payment operations follow the path of consumer fintech innovations – the cry for automation and unification of payment services is going to get louder.

The opportunities to resolve the many intractable challenges of payments across the enterprise are enormous. Banks play an important role in this and are finding ways to partner with innovators and new entrants to deliver treasury innovation

Alex Mifsud, CEO, of Ixaris Technologies

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Reduce risk, get your subsidiaries in line, and stop stressing

You too can rock your TMS implementation

BELLIN has successfully launched over 400 corporate groups on our tm5 Treasury Management System, leading the industry in project success rates. On the basis of this implementation expertise, we’ve compiled three less thought-about factors that can significantly improve your cash positioning, forecasting and risk management.

Don’t automate, do streamline.

Cash positioning is an area where we provide a lot of consulting because there are several choices on the source of cash forecast information: direct subsidiary forecasts, indirect forecast from P&L, cash flow modeling, or bank current day reporting. Most TMSs can automate cash positioning, but there are still many decisions to be made.

The first step is to identify the sources of data. For example, treasury may receive a daily outgoing payments report from AP. But how can that be reconciled with a current day report from the bank so that your cash positioning doesn’t contain any duplication? In some cases, the different sources are easily identified, e.g. when you’re dealing with a single large payment on a given day. But if you’re making payments to several different customers, how do you reconcile them with items on the current day report?

We build a process for a client, based on their resources and the level of detail they require. This is always trade-off – the more detail, the more steps their workflow has to contain to ensure accuracy. So your process is not automated, but streamlined, which is preferable as you maintain full control. The system operates on your behalf, but you need to monitor the process to ensure that you maximize its capability to deliver error-free results.

Get your subsidiaries involved in cash forecasting early, so you can use their data.

People always ask how to assure the reliability of cash forecast reports submitted by their subsidiaries. And there are so many benefits to an accurate forecasting system (i.e. comparing against your actual values without all the copy/paste effort) that they should want to use your system and produce sound numbers. But accurate forecasting requires accurate historical data – and organizing that data across a group can turn into a real nightmare for certain organizations. One of our clients recently told us how hard it was to get his subsidiaries to do forecasting, as they were lacking solid historical numbers.

Now that he has BELLIN tm5, he enjoys global cash visibility through the BELLIN SWIFT Service, receiving every entity’s account statements on a daily basis. This information enables his subsidiaries to do an accurate forecast – for the first time. In our system you provide all entities access to do their own forecasts – at no added cost, as we don’t charge per user. Empowered by a great tool, they will get on board and end up providing reliable data to the central treasury.

When it comes to risk management, start with real data, and use specific analyses to establish where you have weaknesses.

A lot of customers ask for risk management and many questions on that specific subject are listed in the various RfPs. However, these questions are always focused on specific risk factor calculations such as VaR or credit ratings instead of focusing on the underlying risk management approach supported by a TMS. The TMS should facilitate the entire risk management process, not just specific risk factor calculations.

Let’s say you do a VaR calculation and find you have four million dollars at risk. What are you going to do? This kind of data is hard to work with because it’s based on so many assumptions, all of which can be a risk factor that needs management. Hence clients should focus on items based on real data, like liquidity risk – the risk that your company won’t be able to fulfil its financial obligations one day. Even though people don’t think of this as risk management, it’s probably the most important risk management that you’re going to perform on a daily basis. And when you’re operating a TMS that is able to provide your central treasury with so much more reliable data, you’re suddenly empowered to make a lot of important decisions about your risks.

For example, we restructured one of our client’s financial reporting structure to allow real-time reporting of their expected cash needs against their credit facility availability. This is further divided by the time it took for draw-down from different sub-facilities to become available as cash. At any point, the treasurer and the CFO could obtain a financial status report to gauge the liquidity status of the company, then determine if cash needs to be re-patriated or if additional funding needs to be obtained well before the bills are due. In this way, liquidity risk is clearly exposed and managed. The managers have a complete picture and can really understand what may be at risk.

Implementing the TMS only gets you going. Once you are moving, you face a whole new set of challenges. Don’t settle for a TMS that only gets you started. Leverage the experience of BELLIN to provide you with a truly transformative treasury experience.

Get started at:
www.bellin.com
+1 604 6772593
welcome@bellin.com

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The Future of FX Risk Management

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A world-class currency analytics platform significantly enhances TMS risk management capabilities, allowing corporates to leverage both technologies to reduce currency risk and costs, and better manage the impact of FX exposures on financial results.

Managing foreign exchange risk is an ongoing challenge for multinational companies as their organizations grow and treasury processes and regulations become increasingly complex. Named a top risk by 53 percent of treasury teams, FX risk can have large negative impacts to a company’s bottom line. In order to better address currency risk, corporates are looking to extend the reach of their treasury management systems (TMS). Although TMS provide a wide array of services, most pre-trade risk management offerings for FX are limited. To curb bottom line impacts, the additional implementation of a currency analytics solution can greatly enhance FX risk management processes through both internal exposure reduction and external hedging.

HOW A CURRENCY ANALYTICS SOLUTION COMPLEMENTS YOUR TMS

FiREapps, a leading Saas-based currency analytics company with solutions for balance sheet, cash flow and income statement, complements TMS functionality to ensure treasury has confidence in their data and processes to better mitigate currency risk.

Access to Accurate, Complete and TimelyData to Establish Confidence In Results

FiREapps is an essential pre-trade component of a comprehensive FX risk management program designed to operate in conjunction with TMS. On-demand transaction currency balance collection from your ERPs, spreadsheets and other systems, and data integrity analysis and data cleansing, ensure your exposure data is accurate, complete and available to view in a single consolidated corporate view. The industry leader in currency exposure data aggregation, FiREapps has SAP and Oracle certified extract toolkits and can interact with most ERPs to facilitate exposure analysis on a daily, weekly or monthly basis.

Enhanced FX Exposure Analytics to Determine the Most Cost Effective Way to Manage Risk

To better understand and report the underlying drivers of currency risk, FiREapps offers a full suite of analytical tools, including exposure analysis by currency pair with exposure netting at a company, entity, account and account group level and user defined reporting. With in-depth intercompany analytics, rate change impact and constant currency analyses, corporates can easily view how financial results are impacted by foreign exchange to help reduce exposure to currencies and manage earnings per share at risk. Data integrity analysis with exposure definition logic assures the currency data and subsequent trade recommendations provided to a TMS for trade reporting accurately reflect true corporate exposure and risk.

In-Depth FX Reporting to Benchmark the Success of Your FX Risk Management Program

FiREapps takes FX reporting one step further by providing detailed transaction currency reports for user defined periods, as well as extensive exposure trend reporting, value at risk (VaR) analysis and scenario testing. Agile reporting allows treasury to look at corporate exposure at a consolidated level, by entity or any other organizational dimension required. With built-in flexibility, FiREapps easily accommodates management reporting requirements and changes in company-specific reporting structures, which can be designed to align with the reporting in your TMS.

Increased Transparency into Your Data and Processes to Improve Compliance with internal Controls

Utilizing FiREapps as a component of a TMS anchored FX management program enables increased visibility into accounting data and transparency into corporate processes. FiREapps displays detailed underlying data to show how the exposure number was formulated, making it easy to tie the exposure back to the original ERP accounting data. This level of transparency provides insight into where exposures can be eliminated organically and allows treasury to understand the main contributors to its company’s corporate exposure.

An integral technology for managing FX risk

When used in conjunction with a TMS, FiREapps enables an end-to-end workflow with accurate, complete and timely data collection, comprehensive analytics and reporting, and full audit and compliance trails. The value of a TMS for risk management and hedge accounting is undeniable, but leveraging FiREapps as a supplemental FX risk management tool enables multinationals to proactively address currency exposure and manage EPS at risk.

fireapps_graph

For more information on how FiREapps can interact with and enhance your TMS’ FX risk capabilities, including full workflow automation, visit www.FiREapps.com/TMS.

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ATOM Treasury and Risk

Does your treasury management system match your vision?

If your treasury system doesn’t deliver on your vision for treasury management, it’s time to consider ATOM. Visual, web-based and fully integrated across all treasury functions, ATOM quickly adapts to your changing needs. Whether using one or several modules, you’ll benefit from ATOM’s powerful functionality and instant visibility into all treasury activities. Best of all, our superior service ensures you continue to realize the maximum value from your investment. ATOM — Uniquely visual. Comprehensive functionality.

www.fisci.com Financial Sciences Corporation info@fisci.com

ATOM Treasury and Risk

With its visual interface and powerful functionality, Financial Sciences’ ATOM treasury and risk management system (TMS/eTMS) automates essential treasury processes helping clients achieve unparalleled real-time visibility of cash and risk in one complete web-based solution.

Clients use ATOM to reduce financial complexity, ensure compliance and implement best practices throughout their treasury operations. Two of the top 10 and five of the top 60 Forbes Global 2000 trust ATOM and Financial Sciences for treasury management.

ATOM Cockpits

ATOM takes a uniquely visual approach to treasury management. ATOM “Cockpits” provide the best of navigation, KPIs, data analytics and workflow all on one screen. ATOM users can quickly view, analyze or report on any element of treasury in seconds.

Cash and Liquidity Management

ATOM automates enterprise cash management activity in any currency, including:

  • Multicurrency positioning and forecasting — real-time work-sheets for dynamic tracking of global positions and cash flows
  • Payments — support for all payment types with seamless integration with banks and SWIFT
  • Bank reconciliation — powerful, rules-based matching for auto-mated reconciliation and data enrichment
  • Cash concentrations — cash pooling, target balancing and liquidity management

Bank Relationship Management

ATOM offers a complete eBAM solution, including:

  • Bank account management
  • Tracking store/branch accounts
  • Bank services and performance
  • Bank fee analysis
  • FBAR tracking and reporting
  • Bank contacts and meetings
  • Signers and signer workflow

Why ATOM?

  • Uniquely visual
  • Powerful functionality
  • Self-service reporting
  • Great service

Debt, Credit and Investments

ATOM supports the entire deal life-cycle for all debt, credit and investment types, including:

  • Fixed and floating rate instruments
  • CP, CDs and money funds
  • Credit facilities, guarantees and LOCs
  • Gov, Corp, Agency and ABS securities
  • Brazilian, Chinese, emerging markets calculations
  • Intercompany transactions

Risk Management and Hedging

ATOM provides integrated risk management and hedging functionality for all financial risk types, including:

  • Forex spots, forwards, swaps, options and NDFs
  • Interest rate swaps and options
  • Commodity swaps, options and futures
  • Credit derivatives
  • Hedge creation and testing for automated compliance
  • Analytics for fair value, CVA, sensitivity and scenario calculations

Financial Reporting

ATOM includes a fully automated accounting subledger for all transaction types: cash, debt, investments and derivatives. ATOM provides:

  • GAAP & IAS reporting compliance
  • Complete subledger functionality
  • Integrated auditing
  • Automated integration with ERPs such as SAP, PeopleSoft, JDE and Oracle
  • Automation for FAS 815 and IFRS 9 hedge accounting compliance

Compliance

ATOM enables compliance with regulatory frameworks including Dodd-Frank, Basel III, FBAR, SOX, IFRS/GAAP, EMIR and SEPA

Deployment and Scalability

ATOM offers flexible deployment:

  • License only needed modules
  • Browser-based with no local installation for rapid onboarding
  • Scalable platform for one to 100+ users
  • ASP/SaaS, hosted or installed delivery models

Self-Service Reporting

ATOM delivers flexible reporting solutions for both operations and senior management, including:

  • ATOM Cockpits, with live graphics, KPIs, dashboards, and visual workflow
  • Integrated, self-service business intelligence reporting
  • Intuitive drag and drop tools for creating charts, graphs, maps and standard reports
  • Integrated OLAP data cube for end-user data analytics
  • Real-time integration with Excel
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Features

10 things not to miss at the Treasury Leaders Summit.

5-6 DECEMBER 2017 HILTON LONDON CANARY WHARF

It’s almost time for the Treasury Leaders Summit that will take place December 5-6 in London. Senior treasury and finance leaders from across the globe will come together to discuss the key issues impacting their industry. With a schedule packed with in-depth talks on the future of treasury and how to successfully protect your assets, we’ve done the hard work for you and picked out 10 things you can’t afford to miss at the event. We hope to see you there.

The evolving role of the treasurer

In what promises to be a great discussion, listen to speakers from Booking.com and Dominos on how the role of the treasurer has evolved from solving back-office solutions to becoming more business focused and influential in a corporation.

Treasury Innovator17

Here you will be able to watch quick pitches from the shortlisted start-ups, innovators and disruptors, that will showcase their approach to a product or service. The winner will be announced on Day Two of the summit.

How to protect your assets

Did you know that 90% of larger organisations have explained that they have suffered from a form of data security breach, with 74% of small-to-medium sized companies reporting similar issues. In this discussion, hear about how digitisation can made a difference in this area, both in combatting fraud and protecting assets.

The future of payments

Hear from Franco Motta on how the advancements in technology and customers’ increasing appetite for speed and convenience are revolutionising the way we pay and manage our finances. This session explores the digital, consumer and regulatory drivers for what the future of payments will look like.

Blockchain 101

Tim de Knegt, Manager of Strategic Finance & Treasury at Port of Rotterdam, has recently implemented a Blockchain PoC into his organisation. He will be discussing how to build your business case for early acceptance and adoption as well as best practice advice to implementing this new technology. Discover how to share high-quality data, generate transparency and complete transactions efficiently lowers costs and risk.

How to partner with your CFO

This session, which is led by Malcolm Pape, will discuss how you can build your treasury  strategy in order to support business growth and how you can be of best value to your CFO.

Hedging new strategies

Interested in knowing how to reduce the risk of currency volatility and pricing movements? Malcom Finn, global financial controller at Costa Coffee will explain how you can hedge appropriately to minimise risk and take an offset position through derivatives and options.

Banks vs Fintechs: Competition or collaborative partner?

As competition and technology develops, banks are being faced by competition by technology innovators and disruptors. This exciting session will cover the challenges and opportunities for both established financial services players and those disrupting the industry, and discuss what it takes to make a successful collaboration.

Building an internal bank

Creating an in-house bank is not just for large multinational organisations. This case-study led session will demonstrate how to adopt the internal banking model and how the growth strategy can centralise your bank account management procedures and allow better forecasting.

And of course, the treasurers networking drinks

Don’t miss the opportunity to network with more than 150 treasury leaders and industry experts from Dyson, Specsavers, Deliveroo, and many more. To find out more, visit

www.treasuryleaderssummit.com

Risk Management

Risk Management Systems Functionality Matrix

Risk Management

Bob's guide to risk management systems:

IN AUGUST AND SEPTEMBER WE RAN THE BOBSGUIDE RISK MANAGEMENT SYSTEMS SURVEY TO GET A BETTER IDEA OF WHAT YOU, THE RISK INDUSTRY PROFESSIONALS, NEED AND WANT IN A RISK MANAGEMENT SYSTEM. WE HAD JUST UNDER 200 RESPONSES TO OUR SURVEY, REPRESENTING A VARIETY OF FINANCIAL INSTITUTIONS AROUND THE WORLD.

Our annual industry survey results

Overview

WHO REPLIED?

Funnily enough, 25% worked within risk management capacities for financial services, whilst another 25% were risk management solutions vendors. The 17.5% who selected ‘Other’ ranged from executive, to IT and treasury professionals. 

IN WHICH COUNTRY IS YOUR COMPANY BASED?

32% were based in the UK, and 14% in the US. Other European countries featured strongly with Germany at 11% and France at 4% along with a scattering of other European countries. Asia was also represented with 9% based in India and 5% in Hong Kong with representatives from Australia, Singapore and Tonga. 

COMPANY REVENUE 

DOES YOUR ORGANISATION CURRENTLY USE A TECHNOLOGY THAT SPECIFICALLY OFFERS A RISK MANAGEMENT FUNCTION?

51.9% of responders said that they currently used technology that specifically offers a risk management function, whilst the next significant minority of 16.9%, who do not currently have a risk function technology, said they were interested in exploring options in the market. 9.1% said that they didn’t currently have one, but that it was a priority to acquire one. A small 3.9% said they had no interest in acquiring technology specifically designed with a risk management function.

HOW WOULD YOU RATE YOUR SATISFACTION WITH THE CURRENT CAPABILITIES OF YOUR RISK MANAGEMENT TECHNOLOGY?

The majority of you (42%) were very satisfied with your risk management systems, whilst a quarter (25%) were extremely satisfied. A third (33%) were less impressed, with 20% of total respondents somewhat satisfied, and 13% not satisfied with the current capabilities of their risk management technology. 

WHAT IS THE SINGLE KEY FACTOR BEHIND THIS SELECTION?

We left respondents to input their own answers here as to why they rated their satisfaction with their risk management technology the way they did. User-friendliness, and multi-function, wide coverage risk management systems were the factors most likely contributed to an extremely satisfactory experience (25%). Very satisfactory (42%) risk management systems provided a quality and bespoke system that was able to integrate and adapt to many business platforms whilst real-time feedback was a highly desirable trait.
As a mid-point between negative and positive reviews, a somewhat satisfactory (20%) risk management system did not exceed expectations and “addressed most requirements”. Those who were not very satisfied (13%) with their current risk management technology indicated it was “unwieldy, unreliable and unsupported”, whilst it also lacked At-Trade risk management.

ARE YOU LOOKING TO ADOPT NEW RISK MANAGEMENT TECHNOLOGY OR AUGMENT THE SYSTEM YOU CURRENTLY HAVE?

11.8% of respondents were looking to purchase their first piece of risk management technology and subsequently all indicated that it was a priority to buy or they were exploring current market options in question 1. The majority of respondents (39.5%) were looking to augment and add to existing risk management capabilities which, when coordinated with the previous question, suggests they are seeking to plug holes or have a more proactive and sophisticated risk picture specific to their sector.
26.3% indicated they were happy with their current risk management technology and 11.8% indicated they did not require any risk management technology currently on the market. 10.5% were looking at a complete overhaul to replace their current risk management capabilities. 

WHAT CONCERNS WOULD PREVENT YOU ACQUIRING NEW RISK MANAGEMENT TECHNOLOGY? (MULTIPLE ANSWERS OPTIONAL)

The biggest concerns when risk management shopping was the implementation (54.1%) with existing systems and the cost (48.6%). 33.8% indicated their concern was the increased complexity to process and 21.6% concerned about user ease of use. 14.9% were reluctant to buy considering technology’s short shelf life, whilst 17.6% believed there was currently no system on the market for them, either in terms of sophistication or innovation. 

WHO WOULD BE THE PRINCIPAL DECISION MAKER ON WHETHER TO ACQUIRE A NEW RISK MANAGEMENT SYSTEM?

As one might expect, the chief risk officer was the most likely principal decision maker on acquiring new risk management solutions with 36%. In 27% of cases, the decision fell to the chief executive or chief operations officer whilst in 18% of cases, it fell within the prevue of the financial director or chief financial officer. 

WHAT ARE THE KEY FUNCTIONALITIES OF YOUR RISK MANAGEMENT SOLUTION? (SELECT MORE THAN ONE IF APPLICABLE)

It’s clear that risk analytics (51.4%) was at the forefront of what respondents expected from their risk management technology, whilst compliance was the second most selected key functionality with 47.3% along with market risk. At the other end of the spectrum, collateral management scored lowly with 17.6% and 25.7% for asset and liability management. Credit (37.8%) liquidity (28.4%) and Operational risk (32.4%) all remain as secondary functionalities for risk management. 5.4% (of Other) indicated that trading risk was also a priority. 

WHAT ARE YOUR COMPANY’S KEY RISK MANAGEMENT RELATED CONCERNS? (SELECT MORE THAN ONE IF APPROPRIATE)

Cost of compliance was a key concern for 43.2% of respondents, whilst the feasibility of meeting regulatory change was also a significant concern at 37.8%. Interestingly, 32.4% were concerned with being able to identify emerging risks and the same percentage were concerned over data security. FX exposure scored 29.7% whilst the retention of risk management professionals was a slight concern with 16.2%. 

Risk Management

By DAVE BEACH

The evolution of the chief risk officer – a bumpy road to seniority

There’s probably a very good anecdote about a host of castle architects being given the axe by their liege lords because they couldn’t build fortifications strong enough and quickly enough to counter the fresh structural challenges of cannon technology. The modern equivalent may well be that of the chief risk officer (CRO). Just as the castle architects would have protested the nigh on impossibility of countering gunpowder just with stone defences, so too has the CRO had to adapt and evolve to meet new challenges that are becoming increasingly difficult to predict and counteract. As the mitigator of risk, the CRO must be able to identify, assess and manage those risks using a variety of processes all while complying with increasingly stringent regulation. And where IT infrastructure and the emergence of technologies including AI and big data have made their job easier, it has also created a host of problems, not least for the internal operational risk concerns, but also the increasing and evolving threat of cyberattacks.

Indeed, risk is a very small word for a very large responsibility. This article will look at how the role of the CRO has changed over the years and where 2018 fits into the evolutionary trajectory.

WHAT WILL THE CRO OF 2018 LOOK LIKE?

Changing times and shifting responsibilities

The 1990s saw the first wave of CROs creating and implementing enterprise risk management (ERM) as well as a variety of risk models. This framework sought to define different risk functions and quantify their capability, before coordinating and integrating the risk output. In short, the ERM was there to identify, assess, manage, monitor and report risks under different circumstances, and have a contingency plan on how to mitigate should those risks arise.
A successful ERM programme firstly set a solid foundation for implementation. Risk alignment was first and foremost the priority, as a standardised glossary of risk was established to understand the company’s risk appetite (of what it was prepared to risk et cetera) whilst also allowing for a ranking of risk priority. CROs were also required to keep on top of regulatory compliance in the form of Solvency I for Insurance companies, and Basel I, and later II, for banks. Lastly, the ERM was to seamlessly integrate with the business as a whole.

Post-crisis CRO: a new enemy and more regulation

In many regards, the CRO was chief implementer with a fairly low degree of seniority and wholly focused on the technical aspects of ERM and the consequences of dealing with risk fallout detected therein. Chief implementer soon evolved into chief assessor, building on the CRO’s formerly technically focused duties with wider business considerations. ERM now expanded to cover a variety of other business related risks, such as new legislation, reinsurance coverage (for insurance), and asset liability management, until the ERM and CRO were well situated in the business decision making. Indeed, the CRO role, for all its onboarding of additional risk and the breadth of that risk function, saw a rise in its status post-crisis a decade or so ago.
After the dust settled following the financial crisis and the flurry of regulations became clearer, the subsequent tech boom enabled a dramatic explosion of fintech challengers reaching an all-time high for investment in 2015-2016. Whilst the boom prompted innovation in financial services, security lagged behind, largely due to the volume, volatility and unpredictable nature of modern cyberattacks. If cyber risk hadn’t captured the serious attention of CROs before the ‘Wannacry’ ransomware attacks on legacy infrastructures like the NHS systems, then the slew of industry cyber breaches certainly did. Indeed, as many as 46% of UK companies registered an attack in 2016, with Tesco Bank and Three Mobile the most prominent, losing sensitive customer data and millions of pounds as a result. With General Data Protection Regulations (GDPR) coming in May next year, many CROs are currently reviewing ERMs and models, and consequently arguing for more IT budget spend to firm up potential breaches and keep the walls defensible.

And that increasingly led to the formation of a new job description for the modern CRO, and a position that now ranked a few rungs more senior in the company’s hierarchy; chief integrator of a diverse and dynamic range of risks, more on the front line of the business than as the passive risk manager. CROs were becoming, for all intents and purposes, a risk-oriented CEO, further embedded in the company as a business, and more vocal in the boardroom.
They needed to take ownership when aggregate risks went above risk appetite which, when successfully identified and acted upon, was as much a chance to generate competitive advantage as to simply avert risk. They also had to move from their traditional heartlands of insurance, market and credit risk towards conduct and operational risk. That leaves the CRO of 2017 vastly different from the CROs of a few years ago let alone pre-financial crisis.

What CROs would really like is a halt to regulatory change so that they can deal with what’s happened so far – continuous change makes life impossible

An inside perspective on the CRO of 2018

We spoke to Patricia Jackson, is a non-executive director and chair of the risk committee for Atom bank, BGL, Lloyds of London and SMBC Nikko, who gives an inside perspective of the change in the CRO role.

What’s new for CROs?

Cyber risk has gone right up the agenda. In many organisations, cyber was previously sitting with IT and, the last year or so has seen a major shift in terms of the risk function taking more ownership of cyber risk, whilst we’ve also seen more engagement with cyber by the boards. There’s also much more focus on outsourcing and outsourcing risk by the CROs. In many companies, outsourcing was previously sitting with procurement and it has become a really key subject.

If you’re outsourcing functions to a supplier and you retain the risk, the question becomes ensuring the supplier is performing to a high enough standard and, as a topic, it’s evolving. In America, many firms are getting third party reviews done on cyber risk and they make those reviews available to those to whom they’re supplying services. That’s more of a changing area in the UK and it’s not quite in the same place where suppliers have third party assessments. So, in terms of business continuity and cyber, companies are wrestling with finding a way to ensure that outsourcing doesn’t leave them vulnerable.

Another huge topic is GDPR. GDPR is a real stretch for many firms and comes May next year. It’s complicated to deal with and it’ll bring heavy penalties if you get it wrong. For example, you have to be able to remove data at customer request and it’s far more complex than companies reckoned. For some years now, the CROs have been wrestling with risk appetite and how you assess forward risks against risk appetite. To start with, the focus was on the core financial risks and progress was made. But how you deal with non-financial risks including cyber and business continuity is still evolving.

What regulations are CROs focused on?

For some firms, money laundering has been top of the agenda because the fines have been so high, so we are seeing enforcement there for some traditional organisations but also the tightening up of regulation of some more alternative sectors. Banks and insurers have been under regulatory pressure now for quite a few years and we’re seeing the tentacles spreading out to the more lightly regulated areas. I think it’s a general pattern, some CROs are spending as much as half of their time dealing with the regulatory agenda.
For capital, regulations are still changing for banks because the Basel committee is still issuing changes following on from Basel III. Trading book requirements are changing for example. Firms are also trying to wrestle with areas like risk culture where the regulators are focusing more. Outside the traditional banking and insurance sectors there is also focus on pricing and competition as well as operational risk.
Across all financial services, cyber is right up there as well as outsourcing. For companies dealing with a wider range of customers and jurisdictions, money laundering and financial crime are also right up there. Companies seem to be less bothered by credit and market risk I think because they believe they are under control. They’re very big risks but it’s central to what they do so they’re more comfortable managing it. The tricky bit is managing something as ever changing as cyber, whether that be the recent ransomware attacks or phishing expeditions.

What would CROs like in order to do their job better?

What CROs would really like is a halt to regulatory change so that they can deal with what’s happened so far – continuous change makes life impossible. Along with that, they’d like more IT budget to make their areas more efficient.

So greater technological use is the next step of CRO evolution?

That’s got to be part of the solution. People think of digital as the interface between firm and customer but the firm has also got to use it internally. AI can enable automation of intelligent processes and frees up time for the human to actually think about the risks. For instance, you don’t want to have to spend all your time calculating the numbers, but instead thinking about and assessing the risks.
As an example, one organisation which has many, many regulators had a specific team tasked with dealing with queries that came in about different rulebooks. They’ve run a pilot to roboticise the process and they’ve managed to reduce the time it takes to find the right rule enormously. So, something like that which you expect would require quite a bit of judgement can be managed quite well by AI.

Would Atom’s risks, as a digital and challenger bank, differ to legacy banks?

In terms of IT risks, Atom, as a mobile phone based bank, is very dependent on the app, but major traditional banks are also absolutely dependent on their IT and Atom avoids some of the key risks associated with browsers and internet banking, so in that sense I don’t think the challenges are unique and all banks are dependent on their IT and all banks have to look at the risks around cyber.
For a start-up bank there needs to be very careful control of how new systems are put up and services are launched. That requires a very careful process which we did for Atom at every stage to make sure that the system, process and risk controls were in place before we moved onto the next phase. For instance, we didn’t put products up all in one fell swoop, but we brought them online as we were ready to do so and subjected them to a very careful risk management process. I expect the regulator welcomes this approach and will be looking for other new entrants to undertake the same level of oversight and control.

It seems, like everything else in business, that the buzzwords of AI, big data and machine learning continue to generate noise as the saviours of human roles struggling to keep afloat with the challenges that the same tech revolution has created.