Regardless of the specific needs of a company, most corporate treasuries demand flexible and customizable products to inform their decisions. This paradigm is forcing treasury management vendors into a race for relevancy. This is one of the takeaways from a recent report consultant Aite Group.
In the current environment, TMS vendors are forced to come up with products that change the entire landscape of TMS software, according to “TMS for Corporations: A Market Update,” from Aite. So as Treasury becomes more of a strategic partner, emphasis has shifted from executing transactions to planning for businesses’ financial viability.
“Today, the value of treasury transactions is not in their execution but in the information that accompanies each transaction—the intelligence generated through this information serves as the foundation of business decisions,” said report author Enrico Camerinelli. This is what is driving change behind software innovation in the TMS market, he said.
Additionally, many treasurers are reporting to people who expect very quick responses to certain questions and strategic guidance from them on how to improve the company’s financial performance.
Shrinking market
While all this might indicate expansion and diversification in the TMS market, the actual market for TMSs is shrinking, mainly due to M&A activity among vendors. Aite Group estimates that overall revenue for the corporate TMS vendor market share reached approximately $1.2 billion in 2012 against an estimate of US $1.3 billion at year-end 2011. On one hand, according to Mr. Camerinelli, “as long as vendors offer gigantic suites that only automate the execution of traditional treasury operations (e.g., cash and liquidity management, reporting, and payments), the corporate TMS market is not ‘ripe for consolidation,’—instead, it is doomed to consolidate.”
On the other hand, the corporate TMS market is characterized by fierce price competition on well-established functionalities for basic bank accounting, cash and liquidity management, reporting and risk management. This competition is further intensified by providing free accounting, tax, payments, banking, and other services. The likely outcome is diminished revenue.
So, what will happen in the end? A bigger push to software as a service or SaaS and all of it in the cloud, which is cheaper for everyone involved and adds the flexibility treasurers are demanding more and more. “In short,” says Mr. Camerinelli, “the future TMS will be a cloud-based platform that extends the reach of the corporate ERP, allowing corporate treasurers to access industry-leading capabilities.”
But before they think of going all cloud, they have to come up with better functions faster. According to Aite, TMS vendors are working to add reporting, analytics and operational capabilities, but they are not adding them fast enough to increase demand for their products. Almost half of all TMS implementations are either replacing a competitor’s system or upgrading a current system. Additionally, ERP treasury modules are included in the overall TMS market value, so replacing them with TMSs actually has a net zero effect on the market.