RecTechx offers Reconciliation Technology niche consulting expertise, Technology and Resourcing to bring process efficiency, reduce risks & costs and increase process scalability and platform growth.

With extensive domain and industry experience, have observed number of internal and external pressures have thrown a spotlight on the sustainability and scalability of financial institutions’ reconciliation processes and technology—those processes that enable the data reconciliation with a view to removing errors or highlighting discrepancies. Many firms currently rely on user-developed applications that were built as a short-term fix but have been embedded into the reconciliation process, such as Excel spreadsheets or Access databases.

These perpetual quick fixes pose problems in terms of risk management, cost containment, future scalability, and growth.

Recent market developments have highlighted the need for reconciliations to become more automated and for firms to move away from these user-developed & Business Managed applications:

• A push to decrease operational risk and key-person risk and to reduce the opportunity for fraud is spurring an industry-wide focus on improving systems and controls.
• Widespread cost-containment measures being implemented across the industry are increasing the pressure to reduce headcount.
• The modest financial environment has meant margins are tight; hence, firms need to be quicker to respond to opportunities in the market and speed up the process of onboarding new clients and instruments to reconciliation platforms.
• Regulations and regulators are directly scrutinizing financial institutions’ use of user-developed applications for reconciliation processes.

It’s vital to understand some of the challenges related to the onboarding of new reconciliations that are driving these firms to examine or consider consultancy firms to bring expertise to assess current function, key challenges and gaps and propose solutions to address these inefficiencies and improve the scalability by examining an overview of firms’ processes related to their current reconciliation onboarding life cycle, highlighting current time frames and manpower requirements related to these processes.

• No One-Size Fits All Approach
• It is hard to fit all reconciliations into a small range of standard models, especially given the widening range of areas in which reconciliation technology is being applied.
• The development of new models takes time and effort, and it requires resources that may not immediately be available—progress depends on in-house technology teams or external vendor support.
• Firms may be compelled to rely on manual processes for those reconciliations that cannot be forced into a currently available standard model, hence increasing effort, cost, and risk.
• Throwaway reconciliations entail a lot of manual effort and risk because they cannot be automated.

• People Dependency: Higher the Cost and Risk
• Manual processes tie up FTE resources, thus increasing bottom-line operating costs and operational risk.
• Industry-wide headcount reduction is putting pressure on firms—there are far fewer bodies to throw at the problem in the current market.
• Manual processes do not scale to meet business needs—Excel spreadsheets and Access databases can only go so far.
• Running multiple systems (even multiple instances of the same system) pushes up the costs of keeping the lights on.
• A reliance on user-developed applications introduces key-person risk and opens up financial institutions to the risk of fraud.

• Time to Market Change: Slow Process
• The complexity of the data, volume of the data
• The number of systems that the data must be extracted from
• The number of end users involved and their related business requirements
• The number of available staff to carry out any technology changes, including whether these resources are located onshore or offshore

• Multiple Internal Processes to follow

The ETL process is the first of many required in the life cycle of onboarding a new reconciliation onto most traditional solutions and platforms.

Before data can be loaded onto a reconciliation platform, most in-house builds and solutions offered by  incumbent vendors require an ETL process to normalize the data (the data needs to be formatted in a certain manner in order for it to be consumed and parsed by the reconciliation system). This is less of a problem for more standardized data sets such as those related to cash and nostro account reconciliations, but more complex and nonstandard data sets require much more effort. The steps involved usually include:

• The definition of business requirements
• The writing of a technical requirements document based on business requirements
• The design and configuration of the new reconciliation
• The development and building of the reconciliation—sometimes involving both onshore and offshore staff
• The testing process, which involves system integration testing (SIT) and user acceptance testing (UAT) with business users
• ETL technology is required in order for data to be normalized before it can be loaded onto many of the incumbent reconciliation solutions—this requires extra IT support and resources that are in short supply.
• The more complex the data and the wider the range of systems from which it must be extracted, the lengthier the onboarding process and the more steps required within that process.
• The steps involving the business-user community take the longest due to the requirement to document all processes and requirements and then convert them into technical requirements.
• The process is in general very lengthy for intersystem reconciliations—it can take anywhere between a month and six months for an individual reconciliation to be onboarded.
• The reconciliation “business logic” is split across ETL tools and the reconciliation platform. As data gets to be more complex, more of the reconciliation logic is actually performed by an ETL tool.