Utility Models: SmartStream Discusses Reconciliations

What are the challenges facing reconciliations teams today?
If we look at the landscape of the back office across reconciliations, we find that there are many lines of business, which have traditionally purchased their own reconciliations solutions and applications, and some of them have purchased more than one. Indeed, some vendors provide solutions that can only handle one type of instrument.

The challenge today is in supporting that, and continuing the high cost of ownership that multiple solutions incur. Today, banks are trying to rationalize that, preferably into a single solution. This is evolving into a change in the way that back-office operations are managed, shifting from an internal operation to a reconciliations service.

Many banks are looking at the utility model, where they establish a reconciliations team that is able to handle multiple instruments and multiple reconciliations, supported by exceptions management, which then provides a service back to those lines of business.

What are the key elements in building an efficient reconciliations operation?
If we continue the theme of a utility model, as in a single reconciliations platform for the back office, the challenge becomes understanding the service level agreement (SLA) and the key performance indicators (KPIs) for that service you’re delivering to your lines of business.

But it’s also about taking advantage of the fact that you’re reconciling, in a single point, the complete lifecycle of the trade, from inception, through confirmation, position management, and so forth. By defining the SLAs and the KPIs, you’re improving the efficiency of the entire operation, and the reconciliations team is enabling the entire business to turn its attention from day-to-day reconciliations, which are repetitive, to providing better customer service.

Many banks are looking at the utility model, where they establish a reconciliations team that is able to handle multiple instruments and multiple reconciliations, supported by exceptions management, which then provides a service back to those lines of business. —Dr. Darryl Twiggs, SmartStream

How is technology changing the traditional role of reconciliations?
Simply by understanding that they’re delivering a service, there’s an immediate association with account management. They’re providing better information delivery and a better time to market for new reconciliations. They’re able to take on more reconciliations and are actually going out through those lines of business to provide more services.

Reconciliations, it must be understood, is not just simply matching data—it’s providing an understanding of why there are exceptions, and being able to identify them, therefore improving the process by eliminating the causes and the bottlenecks through understanding where the data flows across the solution.

So you’re actually moving toward a real-time process, bringing in straight-through processing and providing greater services back to the end customer.

How can newer technologies and delivery mechanisms, such as cloud and software-as-a-service (SaaS), help to modernize reconciliations processes?
Web technologies have enabled SaaS. When you look at that model, you have immediate cost savings for support, because you can locate your engines in a low-cost environment, and you can have end-users anywhere in the world. Cloud also enables you to scale. You can have virtualized support on the back-end of a solution, and it gives you greater resilience, such as a faster recovery time in the event of a disaster.

The other key benefit of newer technologies is that you can update your interface, add new functionality, and have a faster time to market. You’re also responding to newer technologies that your customers might expect. Let’s take the example of exception management: Why not include social media with your exception management, where your end-user is able to talk to their counterparty or line of business, and discuss the issue? It’s about improving communications, improving service, and expanding that service. That can only be delivered by new technology.