Cash Management

Watching and Waiting

The Internet was going to transform corporate treasury operations. So what happened?
Andrew OsterlandJanuary 1, 2002

If the Internet is the future of corporate treasury management, few treasurers or other finance executives seem in a rush to get there.

A recent survey by the Association for Financial Professionals (AFP) of nearly 1,000 of its members revealed a definite ambivalence toward the Internet and treasury-oriented Web-based software. More than 80 percent of the survey participants said they expect the Web to have a major effect on functions like payment processing, collections, and investments in the next several years. Nearly as many expect it to reshape corporate borrowing and foreign-exchange (forex) practices. Yet only 29 percent of respondents said that E-commerce and the Internet had had a major impact on treasury functions in the past 12 months.

This creates a half-full-versus-half-empty debate: Do most treasurers believe that the Internet has not made a major impact recently because the trend has yet to take off, or because it is already well established? AFP president Jim Kaitz takes the latter view. “It’s not as big a novelty anymore — it’s simply how companies are conducting their business,” he says. “People now take the Internet for granted.”

Many seem to take it with a grain of salt. A decidedly ho-hum attitude toward Web-based treasury management tools has emerged in many quarters, largely as a backlash against highly touted benefits that have yet to materialize. The Web was going to revolutionize the treasury function — transform it from a conservative, reactive department into a streamlined, proactive partner to senior management and the company as a whole. But like everyone else, corporate treasurers have been disabused of the notion that everything is necessarily better on the Web. “The hype has definitely exceeded the delivery of benefits,” says Andy Mayer, a managing director with ArcPartners, a management consulting firm in New York.

Along with lowered expectations, the downturn in the economy has also dampened the interest in new Web-based initiatives. “All the craziness about everything going to the Web has ground to a halt,” says Hewlett-Packard treasurer Larry Tomlinson. “Companies are no longer asking which investments they should make, but which ones they can do without.” In Tomlinson’s case, the lousy economy isn’t the only reason he’s holding back on new Internet projects. If shareholders do in fact sign off on HP’s proposed acquisition of Compaq Computer, Tomlinson will inherit the task of integrating Compaq’s treasury systems and processes with his own. “We’ve got a very full plate,” he says.

But Tomlinson, like most treasurers, believes that the management of treasury operations will evolve from desktop and workstation applications to Web-based platforms, and that eventually HP will handle more of its treasury functions over the Web. Despite the hype, he says, the advantages of the Internet are clear. Data can be entered and extracted far more easily and consistently on Web-based systems than with stand-alone workstations. Seamless connectivity provides better information faster and more cheaply to larger numbers of people, both inside and outside corporations. “A workstation can’t handle 1,500 users,” says Gonzalo Naranjo, CEO of Calgary-based liquidity management software maker Alterna Technologies Group Inc. “It can’t handle a transaction initiated in Singapore, approved in New York, and settled in Amsterdam.”

Consider one of the simpler functions handled by treasury departments: the reporting of bank balances. At a company the size of EDS Corp., which has 300 operating units worldwide, that simple task can become a nightmare whenever the software is modified. The company currently uses proprietary PC-based systems from Citibank, J.P. Morgan, and Bank of America to handle the task. “Any system upgrades by us or by our banks are agonizing to deal with,” says David O’Brien, assistant treasurer of the Plano, Texas-based global IT services firm. The agony should end by the middle of the year, when a Web-based system is rolled out to all 300 units.

Virtually all treasury functions that involve interaction with multiple business units — cash management, payments and collections, lockbox — benefit from being run over the Web. A business unit’s request for foreign exchange, for example, is typically made via phone, fax, E-mail, or some combination thereof, but by using a Web-based template that standardizes the request procedure and automates approvals, EDS is spared all the manual processing. That frees staff from dealing with, potentially, hundreds of daily requests, and allows them to focus on more strategic areas, such as cash forecasting and risk management. The same efficiencies can be generated for many other treasury activities, which ultimately, O’Brien says, “extends the reach of central treasury.”

The Web provides a way to centralize treasury functions — a near-universal objective of corporate treasurers — while at the same time facilitating the sharing of information. But those benefits have not started a groundswell, in part because the return on investment provided by such tools is not only difficult to measure but also less dramatic than Internet investments in other parts of the business can be. “Treasury departments are small parts of an organization, and there’s not as big of a bang to be had as one might get in the supply chain or in procurement over the Web,” says Tomlinson.

Another stumbling block is the viability of newer technology providers. The dot-com meltdown took with it several treasury management software providers, leaving their clients high and dry. A number of application service providers (ASPs), which host software applications for companies, have also gone under, forcing clients to look for other solutions. Gary Darst, vice president of finance at Santa Clara, California-based semiconductor company Filtronic Solid State, led the charge toward Web-based treasury at his former company, Litton Electron Devices. He implemented an accounts receivable system from eTime Capital in the spring of 2000; nine months later, eTime was gone. “They went bust, but I’m still bullish on Web-based tools going forward,” says Darst. He believes fundamental advantages still exist, even if upstart vendors haven’t figured out how to come to market and stay there.

The impact of the Internet on external treasury activities like bank borrowing, stock and bond issuance, and derivatives trading has been far less than expected. For all the talk of the Internet enabling companies to access investors without Wall Street intermediaries, few companies have actually conducted online debt or equity auctions. The foreign exchange market would seem to be ideal for the Internet because it enables competing multiple quotes. But most corporate E-trading is occurring on individual bank Web sites rather than on third-party platforms like Currenex. Two bank consortia­-owned sites launched in the middle of last year, FXall and Atriax, have been major disappointments so far.

One reason is that banks and investment dealers are in no hurry to lose the fees they earn from forex trading. Until they commit liquidity to multiprovider sites, potential E-buyers of foreign exchange will be wary. Second, while companies might like to shave a few basis points off plain-vanilla orders, when their needs are more elaborate they still want personal service. “When [forex] orders are big and complicated, companies want dealers working the order on the phones,” says David Furlonger, a research director with Gartner.

Progress may accelerate as financial institutions become more wired. Seamless transaction ability — commonly called straight-through processing (STP) — is the Holy Grail of Web-based financial applications. It means full automation of transaction processing from order to invoice to collection and posting to the general ledger. It would free up staff from the mundane tasks of keying in and transferring data between different information systems. So far, however, STP has a limited presence. While dial-up or Web-based connections between banks and corporate networks have given some companies a taste of STP, its ultimate promise requires that all parties adopt the Web-based systems that make it possible. And widespread adoption seems years off at this point. “It’s about evolution — not revolution,” says EDS’s O’Brien.