Recon Renaissance

This week I’ve been talking with a couple of our partners that offer reconciliations solutions. Typically reconciliation products are defined and marketed as GRC (Governance, Risk and Compliance) solutions. Of course this makes sense due to the traditional emphasis on accounting reconciliations and position management, and is an area attracting a large amount of bank investment: with good reason (ask the hundreds of people who fled SWIFT Sibos the day that Lehman’s went under).

 

Changing the Face of Recon

Let’s face it though, recon has never been the most glamorous part of banking, but perhaps this function is about to have a renaissance. With the globalization of commerce and associated banking transactions, real time position management becomes increasingly important – between institutions but also within an institution. The faster a bank can identify an exception, the quicker it can be isolated and corrected. In response, the recon function is moving more centrally in the enterprise and is growing in scope beyond accounting entries. There is real business value in ensuring internal systems are sending and receiving the correct number of transactions, applying matching rules and tolerances, before dynamically alerting operations staff of an exception. Clearly the recon function is moving from next-day/end of day balancing to becoming more of a real-time nerve center.

 

Convergence with Payments Strategy

As the industry discusses payment hubs and frameworks, a major benefit is the ability to more centrally manage processing, identify exceptions, and repair transactions. Of course, the routing, validation and translation rules for payments go way beyond what recon does, but the need to manage the flow of transactions, identify problems and fix them in a timely manner is pretty similar.

 

So is there a convergence in strategy between payment hubs and recon systems? Because recon is a ‘risk’ system, and payments are 'transactional,' are these similar initiatives on parallel courses, or do banks recognize that a real-time recon system can enhance the quality of payment processing? Let me know what you think.

Comments

• Anonymous
  July 13, 2010
  I agree completely – why have a siloed recon infrastructure when you are processing your payments (and even doing OFAC checking) in a hub environment?  That said, payments hubs are still relatively new, and the strategic convergence of payments hubs and recon is newer still.  Also, banks are much further along in taking an enterprise approach to crime-prevention activities like AML and fraud where the risk has greater visibility in terms of losses (and fines).   However, large banks are realizing that the benefits of a payments hub and SOA also extend to recon, and are slowly moving towards a centralized recon function for all payment types as we move closer to a real-time payments environment.  Based on this, I believe you will see the Recon Renaissance truly take shape once banks can consistently handle more than one payment type in a hub environment because that is when the efficiencies of SOA will be most evident.