Reconciliation Utilities: A Taste Of The Future, or an Aftertaste from the Past

When I think about the concept of a reconciliation utility, my mind turns to pouring Guinness. Not just because, like reconciliations, it’s much harder to do properly than most people think, but also because trying to provide a large quantity of pints to a broad number of eager recipients, in many ways, highlights the challenges …

by | September 21, 2016 | FIS

When I think about the concept of a reconciliation utility, my mind turns to pouring Guinness. Not just because, like reconciliations, it’s much harder to do properly than most people think, but also because trying to provide a large quantity of pints to a broad number of eager recipients, in many ways, highlights the challenges of a modern reconciliation utility.

This beverage-based challenge has been overcome in stadiums worldwide with the creation of the Multi-Dispensing Unit which can line up 16 glasses and pour perfectly into all of them simultaneously. This can only work because everybody drinks Guinness in the same way, from the same glasses, in the same size. In a sense this provides some insight into the nature of reconciliation utilities. They can only really exist where the creation, evaluation, delivery, and consumption of the reconciliation is identical across all recipients. This means common, and standardised, reconciliation processes such as Nostro and FX / MM confirmations are natural candidates for industry-wide utilities. Where this is the case, the benefits of a utility model can be material. Some examples include:

  • Efficiency gains from the use of highly sophisticated machine-learning and analytical techniques and algorithms.  Such developments would not be economically viable without the scale and repeatability offered by a utility
  • Best practice frameworks derived from continual process reengineering and refinement that provide targeted and proven audit and compliance satisfaction
  • “Robo-advisors” delivering cost reduction and reducing manual error via guidance through complex exception management processes
  • Creation of industry standards for specific operational processes to address commonly felt problems such as inconsistent references

But now spare a thought for the lowly system-to-system reconciliation. A research paper from Aite, titled, “Reconciliation Centres of Excellence: an assessment of quality,” observes that 60% of banks see intersystem reconciliation as the most common user of reconciliation technology. But, across different banks these reconciliations will share minimal if any consistent elements save for the most basic tasks associated with the reconciliation process itself. Could banks then benefit from a utility model? In its truest form, the answer should be no. But, having invested in the development of algorithms for analytics, self-learning engines, and other utility-driven, large-scale efficiency-building capabilities, can these not be aimed at distinct processes that share no common attributes and deliver similar effects as those achieved within a utility? Of course they can. And in this way we find that the reconciliation utility of the future is not actually a utility at all, it is an Industry Centre of Reconciliation Excellence – benefiting from utility models for uniform reconciliations, and deploying highly sophisticated analytics across non-standard reconciliations to deliver long term efficiencies across all reconciliation types.

Despite inconsistencies from a pure operational process perspective, the Industry Centre of Excellence can target its utility-fuelled innovation at the consistencies found instead at the fundamental / technical layers. The outcome of such “repurposing” will return similar, though less profound, results. In particular, the areas of data analytics and continual process improvement benefit from these approaches that, in effect, lean towards the Artificial Intelligence world for inspiration.

It seems that the convergence of technological innovation, widespread utility adoption, increased openness and collaboration within the banking community, and the continual search for reduction in operating costs is inevitably leading us all down the path towards a universal Industry Centre of Reconciliation Excellence. And why not, when it can provide the ability to deliver both standard and highly customised reconciliation processes at a level of efficiency and control that could not have been possible five or ten years ago. I don’t know about you, but I’d raise a pint to that.

By Richard Chapman, Head of Reconciliations Strategy, FIS.

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