TMS Explainer: The IT architecture of a Treasury Management System (TMS)

Peter Quarre RT
Dec 31, 2024
5 min read

Updated: Feb 27

Treasury Management System Architecture (TMS)

Treasury Management Systems (TMS) have become indispensable for modern organizations, offering centralized control over cash, payments, and financial risk. Behind the user-friendly dashboards lies a sophisticated architecture designed to ensure secure, efficient, and scalable financial operations.

This article provides a technical overview of Treasury Management System TMS architecture, including deployment models, key components, data flow, and the benefits of modern architectural advancements.

Cloud-Based vs. On-Premise Deployment

When choosing a TMS, the deployment model plays a crucial role in determining performance, scalability, and maintenance requirements. While on-premise TMS solutions were the standard in the past, cloud-based TMS platforms have become the preferred choice today.

Cloud-Based TMS

This is the TMS that is available over the internet.

These are hosted on third-party infrastructure: Providers like AWS, Azure, or private clouds. Private clouds are, for example, the vendor hosted environments.
Features:
- Automatic updates and scalability. When the software is run on cloud environment, the vendor usually updates the software every now and then with new features.
- Lower upfront costs. Hardware and maintenance are managed by the vendor for all clients. The costs can be shared.
- Enhanced accessibility. Cloud-based systems are available through web-based interfaces. This greatly enhances remote working for implementation or the workforce.
Drawbacks: As the system is running in a cloud, the user is dependent on the internet connectivity. Also the vendor can set limits to control the performance of the system. The more server capacity the TMS uses, the more expensive it is for the vendor.

On-Premise TMS

This is the TMS that is available on the company's local network.

Installed on the organization’s servers: This offers more control on the TMS software. When available, updates must be deployed by the IT department.
Features:
- Customization to specific organizational needs. As the software is working dedicated for one client, specific customization can be done to the software.
- Enhanced security. As the software is running on company’s servers, stringent data control policies can be applied for security. For example banks have very strict security rules.
Drawbacks: The implementation of an On-Premise TMS is higher on resource needs than cloud-based TMS, as the process cannot be industrialized and is specific for one client.
Ongoing maintenance responsibility: The IT department is responsible for the system.

The trend is shifting heavily toward cloud-based TMS, given its scalability, agility, and reduced IT overhead.

Key Components of a TMS Architecture

A Treasury Management System comprises several layers that work together to handle treasury operations effectively. These include:

1. Database Layer

Purpose: The backbone of a TMS, storing all critical data such as transactions, account details, balances, cashflows and market rates.
Technology: Relational databases (e.g., Microsoft SQL Server, Oracle, PostgreSQL) are commonly used for structured financial data.
Features:
- Indexed tables: These are used for fast query retrieval. Like how a book’s index lets you quickly find a specific topic.
- Real-time updates: The database is updated all the time with new information entered by the user or imported by interfaces.

2. Application Layer

Purpose: The core logic of the TMS resides here, managing functionalities like cash management, interest calculation on contracts, risk analytics and payment processing.
Key Features:
- Workflow automation. For repetitive tasks that need to run with a certain frequency, the schedulers can organize this within the TMS. Think of downloading bank statements every hour or communication with the banks.
- Calculation engines. Valuation is an important aspect of a TMS. For example, it calculates the interest to be paid for a loan or deposit, considering the interest rates and day-count convention and so on.
Technology: The application functionality is created with programming languages like Java, C# or Python.

3. Integration Layer

Purpose: The TMS needs treasury information, for example statements from banks, payment files from ERP systems, payment files to banks and confirmations from trading platforms.
Components:
- File-based interfaces: Utilizing formats like XML (ISO20022), CSV, or SWIFT messages (MT940). These are readable files.
- APIs: Allow real-time, bi-directional data exchange between platforms. For example the bank and the TMS platform.
- Middleware tools: For data transformation and validation before transmission. When ad datafile is not in the correct format, middleware can transform it to the correct format.
Benefits: This reduces manual intervention to process files, improves accuracy, and ensures data consistency.

4. User Interface (UI)

Purpose: The front-end layer that treasury professionals interact with. This is usually the computer screen on which the user selects the functionality of the TMS.
Features:
- Dashboards for quick insights.
- Customizable reports, database queries and graphs.
- Status reports on processing of scheduler jobs.
- Mobile-responsive designs for flexibility.

How Data Flows Within a TMS

A TMS operates on a continuous cycle of data intake, processing, and output during the day and night. Here’s a simplified flow:

Data Intake:

The information from bank statements, ERP systems, and market data providers (e.g., exchange rates) are loaded into the system, but also forecast information from ERP systems.
Those data files are uploaded manually or through automated interfaces, or APIs are for the communication.

Data Processing:

The application layer consolidates and processes data.
Examples:
- Bank statement information is validated to ensure it is sequential (statement 1-2-3-...) and aligns with previous day’s balances.
- Payment workflows to validate (correct IBAN) and approve transactions by users.
- Liquidity forecasts calculate available cash across accounts for the coming days or weeks.

Data Storage:

Processed data is stored in structured (SQL) tables within the database layer for efficient retrieval. While data can be overwritten, it can also be retained to maintain a historical record for future reference. This historical data is particularly valuable for analysing trends, such as tracking the development of cash forecasts and calculating forecasting accuracy over time. This historic data can also be used for Artificial Intelligence and Machine Learning.

Data Output:

Reports are generated and delivered to stakeholders via dashboards or automated email schedules.
External systems like ERPs or banks receive processed data (for example GL entries) for further actions.

Conclusion

The architecture of a Treasury Management System is designed to handle complex financial processes with precision and efficiency. From the robust database at its core to the intuitive user interface, every layer contributes to an organization’s ability to manage cash, payments, and risks effectively. TMS platforms are now more agile, scalable, and secure than ever, making them a cornerstone of modern treasury operations.

Why this matters?

If you’re considering implementing or optimizing a TMS, understanding its technical architecture is crucial to leveraging its full potential. Contact us for expert insights and tailored solutions.

Find more on: https://www.tmsoptimizer.com