Treasury & Asset Liability Management software -what is in demand?

At the time of writing, Europe is increasingly opening up after around 1,5 years of dealing with the pandemic. The vaccination campaigns seem fairly effective, at least for the time being. We are seeing increasing levels of return to normalcy in doing business.  But as many say, there is no going back to the way we did business before Covid-19.

As a niche software vendor delivering Treasury and Asset Liability Management (ALM) software for banks, we, just like thousands of other vendors, have rapidly adapted over the past 1,5 years to changing client demands and requirements.  What are those changed demands and requirements? Which of them are likely to persist even if the pandemic’s effect on doing Treasury and ALM software business continue to abate?

The Teams and Zoom era is likely to persist

One of the more obvious requirements concerning solution sales and solution software delivery is that no matter how complex the solution, everything happens remotely. Gone are the days when it was standard operating procedure to travel to clients to have a nice face to face workshop to solve a particularly challenging issue. Now, everything is thrashed out in Teams or Zoom sessions, and this requires remote working skills, focus and discipline at a much higher level than before. Even if we could go back to flying and travelling like we did before the pandemic, it is highly likely that at least the delivery or implementation of software solutions will continue to be done remotely.

Ease of Use ever more important

The decreased amount of facetime with clients has also stepped up the pressure to design software where ease of use and intuitiveness is at top notch levels. There is now less time and energy for Risk Management professionals to figure out how the system works. It needs to be more self-explanatory than before. There is simply very little appetite for software users to attend even more Zoom or Teams sessions, or figuring out through reading manuals how to get things done in the system.

Accelerating Cloud adoption coupled with increased demand for Managed Services

Even before we knew anything about the pandemic, there was a clear trend for banks to move their applications on to the Cloud. Given the sensitivity of the client data banks manage and a certain conservativeness, that trend was not aggressively upward sloping. But what can be seen now is that increasing numbers of banks are migrating most of their systems to be hosted in the Cloud. There is clearly a step change in Cloud adoption. We commonly now hear banks stating, all 3rd party systems will be migrated to the Cloud and unless the system is Cloud compatible, it is seen as a legacy system.   

The accelerated Cloud adoption for Treasury and ALM software is to some extent coupled with increased demand for Managed Services. While there is still a lot of hesitancy in both offering and purchasing full SaaS solutions within Asset Liability Management, it is clear that many banks have even fewer staff to operate and monitor 3rd party systems. This applies to IT-related matters such as technical health monitoring and software upgrades, but it also applies to content matters that banks are increasingly comfortable to outsource to third parties.

Better solutions required to tackle Profitability challenges

Many banks are facing profitability challenges and find it challenging to achieve a Return on Equity which exceeds the cost of capital. This is for sure caused by many factors, including low interest rates. It is beyond the scope of this blog text to delve further into why banks aren’t as profitable as before. In any case, the flip side of the profitability challenge is that there is a lot of demand for balance sheet optimisation and forecasting solutions. In particular, we see a lot of demand for tools in this area that can be used interactively by senior management and the bank’s board, as well as committees such as the ALCO.   For sure, profitability forecasting within regulatory and internal constraints has always been in demand. However, given the profitability challenges and the current rate environment there is very high demand to offer these types of forward looking tools.

Climate Risks are materialising

During the current year, we have seen severe climate events in many parts of the world. Climate Risks as part of the wider Environmental, Social, and Governance (ESG) framework, seems to be on the lips of many banking executives. While the climate events are terrible for those directly or indirectly affected by them, we see a big business opportunity as an ALM system provider to help banks model their climate risks. The regulatory landscape around climate risks is still taking shape. However, it is clear that most, if not all banks, will need to figure out how to stress their lending books and other assets for climate-related events. Read our latest blog post related to Climate Risk Management in banks or watch our on-demand webinar: ESG – Climate Risk management in banks.

Achieving more with fewer systems

A trend that is probably nothing new, but that has strengthened during the past few years is that banks are looking to “do more with less”. This also applies to their Treasury, Risk and ALM systems. Whether this is seen from a value for money perspective or from increased cost pressures point of view is probably irrelevant. The fact is that banks want to avoid creating risk silos, i.e., there is a need to implement and run holistic risk systems that are fed by source data providing complete data lineage.  In practice this means that the source data must be transparent, non-aggregated and be integrated in a Risk system that offers analysis from a consolidated balance sheet, with drill down and slice & dice capabilities all the way to individual agreement and cashflow level.  

In summary, it is fair to say that requirements and demands towards Treasury and ALM system vendors have changed significantly over the past few years. While changing requirements and demands towards vendors always creates challenges and head scratching, we are happy to see that the foundation we have built for our system and business is well suited for the new requirements. We are looking forward to capturing our share of the newly created opportunities.