Keeping Up With Reconciliation in a World of Real-Time Transactions

Automation offers options for financial institutions' back offices

Financial institutions are managing payments at a steadily increasing pace and across an ever-expanding field of touchpoints – debit, credit, ACH, check, cash, calls, online and mobile. And every penny that comes in or goes out must be tracked and reconciled.

That trend isn't changing as digital and real-time payments adoption continues to see high growth among consumers and businesses. And the digital payments environment likely will keep expanding as more people demand it and the U.S. payments system introduces real time to support it.  

The 2020 Expectations & Experiences: Consumer Payments survey from Fiserv found 53 percent of banking consumers used mobile banking in the past 30 days, up from 47 percent the previous year. Using the same parameters, 26 percent used a digital wallet, up from 15 percent, and 69 percent paid at least one bill using direct debit (ACH), up from 52 percent. 

All of that, combined, puts tremendous pressure on any institution's back office because all transactions must be reconciled. And with the continued rise of person-to-person (P2P) payments, reconciliations are even harder to manage.  According to Early Warning Services, LLC, the network operator of Zelle®, five billion+ transactions and nearly $1.5 trillion have moved across the network from 2017 to 2022.

With that kind of volume, it's easy to miss, mistype or deliberately manipulate data in the reconciliation process, especially when many accounts are still reconciled with spreadsheets and highlighters. Often, separate departments reconcile their own accounts, making it difficult for the finance and accounting teams to verify the data and close the books each month. The higher the volume, the more those problems intensify.

The growth in payment methods, amounts and speed also creates the potential for increased fraud, particularly around real-time payments. A decade ago, transactions typically moved in batches, and payments took hours, if not days, to process, clear and settle. Now, when all the processing and network steps are considered, each must be completed within a second at most, including validation, accounting and fraud detection.

What's the Answer?

Often, a technology solution is the answer to a technology-prompted problem. By automating reconciliation and certification, financial institutions can match transactions and pinpoint exceptions on a single platform. That can reduce reconciliation time by as much as 85 percent, errors by as much as 50 percent and write-offs by as much as 75 percent, according to users of automated reconciliation solutions.

Furthermore, an automated solution can quickly reconcile a large volume of transactions, 70 million per day or more, with a high match rate in the mid-90s.

Here's how it works:

• Data is imported in any format from internal sources, such as a general ledger or accounts payable system, or externally from a bank, card processor, message network (i.e., SWIFT) or other data source
• Transactions are matched at a detail level based on criteria specified by the financial institution
• Criteria can be established based on any type of monetary or nonmonetary item, such as Federal Reserve Reconciliation debits to credits, check processing, position recons, trade settlement recons, foreign exchange transactions, deposits, credit cards, ACH domestic and international wires
• Exceptions are identified and the source of the discrepancy is pinpointed for investigation
• Workflows route the tasks to the appropriate employees, and the process is tracked to ensure visibility into reconciliation at each step of the process
• Automated checks ensure compliance with corporate and regulatory controls
• Executives who certify the financial close can see the data down to the transaction level and understand what they are certifying

An automated solution offers the added controls that can enable faster detection of exceptions and help identify fraudulent transactions. An effective automated solution can match at a transaction level, introduce automated workflow processes that minimize data manipulation, and provide a full audit trail for both internal and external analysis.

Financial institutions are evolving as people change how they bank. But that goes beyond customer-facing tools. Back-office financial processes also have to adapt. And as the volume of transactions grows, automated reconciliation can give financial institutions the flexibility and efficiency they need in their back offices to meet consumer expectations for speed, convenience and security.

^{Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.}