The case for Treasury-as-a-Service?

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By Nels Mortensen, Partner & Principal Consultant at infiniance

Treasuries around the world are met with increasing demands from management, but often find themselves with insufficient resources – could Treasury-as-a-Service be a solution?

For the past 5-6 years – post-GFC – we have been continuously reminded about the strategic importance of treasury, that treasury will be an indispensable business partner for the CFO and CEO, and the role of treasury is imperative to survival of the company. According to a 2015 Treasury Strategies Benchmarking Survey: “92 % of finance professionals consider treasury to be a key contributor to business success, and most of them see the function´s importance increasing within the next three years.”

“92 % of finance professionals consider treasury to be a key contributor to business success, and most of them see the function´s importance increasing within the next three years.”

This inherently implies that treasury will need deliver more, to staff up, increase effectiveness, invest in technology or – more often the case than not – just run faster. Treasury must do more with the same resources, or sometimes even “do more with less”, as it seems cost-cutting is also a is prevalent factor at many companies today. Today, many treasuries still spend a lot of time on manual, tedious, operational tasks, and less time on strategic and analytical work, which is where their effort should be put into.

To get to a desired state where more time is spent on the strategic and analytical initiatives and less on the operational tasks, technology can play an important part. ERP and treasury management systems are becoming better, more accessible, quicker to implement – and cheaper – with the increased availability of cloud based solutions, with very limited or no IT imprint on the organisation.

But not all organisations have the necessary resources – financial or people – to support a corporate treasury or a treasury management system, even if it is a “cheap” one. For these organisations turning to Excel-spreadsheets have long been a quick solution to meet the increased demands from CxO’s. The pitfalls of using Excel are many and well-known, and the bottom-line is that you often find yourself spending even more time updating spreadsheets and looking for errors, thus increasing operational risks and eliminating any efficiency gains. Others again have turned to outsourcing parts of the operational tasks to a varying degree, either internally by establishing shared service centres, or externally to third party providers, such as service providers, system vendors, or in some cases to their relationship banks.

There is no reason to believe this outsourcing-trend will diminish – a recent EY study showed that more than half of CFO’s saw significant outsourcing over the next few years – the main driver being to reduce costs.

More than half of CFO’s saw significant outsourcing over the next few years – the main driver being to reduce costs

However, outsourcing is never uncontroversial, and as a simple cost saving exercise, this may not give the expected benefits. Except for very basic tasks, very low costs often imply low quality, and can lead to high staff turnover, meaning no competence is built. You may also lose control over central processes, which you are still responsible for at the end of day. Especially for treasury, even small mistakes can lead to large costs simply due to the great volumes.

If outsourcing is to be a success, frameworks must be setup to ensure fair and proper payment to ensure quality, consistency, long-term competence, and commitment.

Over the last 5-7 years we have seen the rise of the “X-as-a-Service” (XaaS) phenomenon, where a service within a certain area is offered standardised, on-demand in a flexible, subscription based manner, scalable and delivered using web-based technology to the requirements of the clients. Examples are SaaS (Software-), IaaS (Infrastructure), and PaaS (Platform), which are becoming very popular within cloud computing.

Thinking along these lines, and instead of outsourcing of treasury as such, “Treasury-as-a-Service” can enable treasury to focus on their strategic and analytical tasks, while leaving the tedious operational tasks and treasury system to a third-party operator, and keeping a close relationship to your business and maintain integrity.

“Treasury-as-a-Service” can enable treasury to focus on their strategic and analytical tasks, while leaving the tedious operational tasks and treasury system to a third-party operator, keeping a close relationship to your business and maintain integrity.

This would enable end-to-end automation, the third-party operator may supply a platform (TMS), so you don’t have to invest in one, and will deliver standardised reporting to support treasury decisions. Security will be heightened and risk of fraud reduced, especially for smaller companies, where proper segregation of duties is not possible, simply due to limited number of staff dedicated to the tasks.

However, Treasury-as-a-service is not an “out-of-the-box” fix for any organisation. The suitability of TaaS will depend on factors such as; size and maturity of the organisation, centralisation, complexity of the business, geographic presence, and finally organisational capability. There is no general “rule of thumb”, but TaaS is usually a best-fit at smaller or mid-sized corporates (revenue up to €500m), who may not have a specialised internal treasury department, or perhaps treasury is managed as a side job by the head of finance or the CFO, who may also be in charge of insurance, tax and investor relations at the same time.

In some cases, TaaS can also be useful for very large, but low-margin organisations, where the investment in a large-scale treasury organisation and system simply is not justified. In general, the more centralised the organisation is, the best chance of successful move to TaaS. An evaluation of your TaaS compatibility starts with balanced evaluation of all relevant factors, which will vary from one organisation to the next:

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In summary, TaaS may be the right solution to meet future demands from your CFO/CEO, but it will require careful consideration and scrutiny of your organisational setup and requirements, before venturing down that path.