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Capital markets firms have been reconciling data for as long as any of us can remember. However, unlike the situation in some other industries, true enterprise-wide reconciliation practices housed in one repository have eluded the industry for years. Why? In one word: complexity. However, that does not, and should not, eliminate the common goal we all have for operational efficiency, risk management and highly effective compliance. Position reconciliations in the investment space are so versatile and complex that creating a centralized platform for reconciling everything from FX (foreign exchange) positions, stocks, bonds and derivatives, intercompany balances, front office, back office and custodian activity and positions, has never been easily achieved in a cost effective environment. Until now. For years the investment space has tried to reconcile balances on elusive security identifiers that differ from industry to industry, from broker to broker, from custodian to custodian. Add a cross-border ticker and you get even more versatile security identification. Firms in the investment space have tried hard to find a unifier for years. However, maintaining comprehensive securities master files and buying expensive data and updates from external vendors has, at times, proven futile and added even greater complexity. So companies have had a choice: use expensive, error prone human resources, or invest in old-generation, client-server batch based systems that are unable to effect even the simplest of corrections in anything close to real time. ReconArt’s Position Reconciliation combines the ease of use and performance of a ledger reconciliation with the break and case management capabilities of a cash reconciliation all tailored towards the needs of the investment industry’s matching needs. With its ability to update balances intra-day and drill down into trade details ReconArt offers unprecedented control on both balance and detail level. Furthermore, it can process millions of positions every minute and keep the front, client facing, end clean as a whistle. The secret lies in leveraging the latest proven technology coupled with ReconArt’s design to deliver absolute simplicity of the approach: being able to compare and match instruments on any criteria and any logic; being able to calculate and match reports from different sources in an instant; retaining a full audit trail and break resolution management; and allowing for near real time updates of existing position reconciliations. ...
Microsoft Excel remains the most widely used reconciliation platform today, but at what cost? It’s perfect for small businesses or quick fixes: cheap, easy, and flexible. But what happens when your needs grow in terms of frequency, volumes and scope? More and more resources are required, and more processes need to be built outside of, or around, all those worksheets to meet needs as broad as audit, tickler lists, or compliance. And that’s when the debate always starts: should you develop a reconciliation solution in-house, or should you buy an off-the-shelf product. Often the former appears cheaper, and sometimes even gives the appearance of being quicker or easier; however reality has proven time and time again that looks can be deceiving. So here are six great questions to ask yourself…. Q1 What is your firm's core competency? Are you in the business of building and supporting specialist software solutions, or do you want to focus your energies on growing your revenues? Q2 Have all the development costs been identified if you build in-house? Almost all studies focused on the ‘build vs. buy’ software debate have concluded that costs nearly always overrun initial projections as we always miss things first time around. Do you really want to go back and ask for more budget? Q3 How quickly will you have your solution fully live? Just as studies demonstrate consistent cost overruns, they also clearly show projects running late. The two are tied together. A fully developed solution such as ReconArt™ can be implemented in as few as a couple of weeks. As you’re asking for more budget to build internally do you really want to explain why the project is running late? Q4 Have you budgeted for on-going development? Internal needs evolve over time, legislative and regulatory changes are forced on us, banks and other third parties change systems and formats. What will it cost you on an on-going basis to address all of these needs, many of them unforeseen? Q5 What about on-going support costs? Even without any functional enhancements, have you estimated all of your internal IT and other support costs. What happens when your internal resources move on or leave? What will the true cost of supporting an in-house solution really be? Q6 How easily can you bring on different types of reconcilements? So now you’ve developed your in-house bank rec solution, then in 6 months you need a solution to meet period end reconciliation of the balance sheet, or merchant processing, or you need to reconcile fixed assets or inventory. What is it going to cost you, and how long will you have to wait, to get these developed? I just did a very rough calculation (which I am sure is a gross underestimate) and figured out we have invested 20+ person years in development effort alone in the last 3 years, and that ignores everything else that goes into building a functional solution. With fully loaded labor costs anywhere from $40-100K annually, development times even for simple solutions often in months, and uncertainty over how to address future needs is there really any reason to build as opposed to buy, especially if buying gives immediate ROI?...
I recently penned a blog about how we have helped a number of clients recently with their accounts receivable cash allocation using the ReconArt™ Total Reconciliation Lifecycle™ solution. Soon after it posted, I woke up one morning realizing that the same was true for merchant processing. Suddenly, in the last three or four months, we have had a large constituency of existing and prospective clients looking to use exactly the same product to help with the reconciliation of their credit card and other merchant accounts – some on-line, others relating to telephone payments, yet more processed in a physical retail store. There’s a common theme. There are always multiple platforms and processing systems – both internal and external – involved in the processing of payments: an internal ERP or core order entry system, a merchant gateway, files being passed form the merchant to the bank, and, of course, from the bank back to the general ledger. That constitutes lots of possible failure points. So where does a reconciliation platform come in? Basically, it provides the glue to ensure, not necessarily that the payments are actually being processed, but that they are being done so correctly. By bringing all the data into one single database, and by matching transactions at each point in the processing cycle, in an instant our clients gain an insight into any exceptions anywhere in the payment lifecycle at the click of a button. They then have the tools to deal immediately with any problems, and the ammunition to go back to third parties to get them to improve their act &/or lower their fees. Basically, our clients value the efficiencies that this drives – lowering costs, reducing errors, eliminating customer frustration when things otherwise might go wrong at some point. They love the flexibility of being able to aggregate and compare bank deposits to, for instance, credit card activity. They benefit from being able to identify, classify, book and analyze merchant fees and processing charges, and look at this alongside service level agreements to ensure best value for money. And that’s why the ReconArt™ platform ends up, at each client, delivering more and more as, over time and with a growing realization of its flexibility, they expand uses into yet another area of reconciliation and exception management processing....
Reconciliation technology has many uses and provides a wide array of tangible (savings) and less tangible benefits (until a problem becomes reality) in terms of mitigating financial transaction-based operational risk. For instance, all organizations, in every market sector, have to reconcile the bank account, but there is so much more value a reconciliation platform can deliver. For this reason we have had, in the last few months, a significant number of clients asking for help with their cash allocations. Now you would think that the accounts receivable modules of most ERP or financial accounting products would handle this just fine. With my background in ERP solutions before joining the reconciliation solution bandwagon 10 years ago I can confirm that, for the simple matching of incoming payments to invoices, these systems meet basic needs. Let’s be honest, it’s really the same for basic bank rec too; most general ledger systems provide some rudimentary matching and reporting. So why have we had so many clients recently look to ReconArt to being more to the table? In simple terms they need more: better efficiency, faster cash allocation, improved customer service, reduced processing costs, less errors. They don’t want clerical staff hunting for invoices and manually matching receipts to invoices; they want a much better allocation matching rate where automated functions are even present. And that leads us to why they elect to deploy an automated reconciliation solution, either solely to meet this need while they ponder other uses for the same piece of software, or as a logical extension to the efficiencies they have already gained from the ReconArt™ platform in other areas. So how? Firstly, our clients with high receivables volumes have been able to match invoices with intra-day bank feeds in a completely automated way. Flexible rules that simply do not exist within traditional AR packages automatically search for matches, while employing lookup functionality to enrich data to gain the greatest level of automation. Using these rules, the system is able to “learn” clients’ payment behavior based upon multiple criteria: oldest first, highest first, partial payments, etc. Better still, as cash is applied, automated feeds and synchronized exports to AR alert agents to the exact position of a client’s account. Do you recall the last time you received a letter or call asking you to pay a bill that you had already settled? How frustrating was that? Did it help or hinder the supplier’s relationship with you. Think how much better it would have been had they known in advance not to reach out to you. And that’s just one of many reasons why people are deploying ReconArt™ to enhance their receivables processing....
Why it makes sense to deploy new technology now Now has never been a better time to review how technology can assist in the multitude of reconciliation practices that necessarily exist across multiple business lines and functions. Many of us have recently closed the 2011 books, and gone through first internal, then external audit. This annual event often reinforces something we inherently know, but all too often fail to act upon as it never seems a priority – streamlining reconciliation processes and practices. Remember that proverb that our parents would teach us all those years ago “A stitch in time saves nine”? Reconciliation is one of those annoying things that we all have to do with varying degrees of frequency depending upon the level of risk. It can range from daily bank reconciliation to periodic balance sheet account review. Let’s consider the former – bank reconciliation – first. We all inherently know how much easier this task becomes if tackled daily, rather than weekly or monthly. But it still often requires manual effort: downloading the bank statement, getting an extract from the general ledger, maintaining a spreadsheet, following up on exceptions. Wouldn’t it make life easier if all of these could be housed in one place with a greater degree of automation and control? And wouldn’t the same be true for all those other accounts such as payroll, AP, AR and a whole host of other sub-ledgers? Of course, for many of us, there are also those period end reviews of significant balance sheet accounts to ensure that there are no anomalies exist and, that where some are found, they are dealt with promptly. Similarly, having all balance sheet attestation and account certification activities– whether required by legislation such as Sarbanes-Oxley for public companies, or whether practiced for good financial governance– in one place only serves to make life easier down the road. Just sit back and think of the myriad of reconciliation activities taking place every month within your business: data matching and comparison, following up on exceptions, management reviews and reporting. Then try to figure out what this is costing annually, and remember to factor in audit and IT costs. It can add up to a tidy sum, quite a number a full time equivalent staff who could be better employed on other revenue generating or higher value tasks. So what? Well, if you could sweep up all these activities into one place - one solution – you would start to see a multitude of benefits. Firstly, you would reduce operational costs – not a bad thing as the economy starts to pull out of recession and freed funds can be diverted to growth. Secondly, you would be able to highlight earlier and more easily risk situations– both financial and reputational – basically catching things that go wrong or catching them earlier. Thirdly, you get to keep the auditors happy, as you can easily prove compliance with both good financial governance practice and legislative and regulatory requirements. So, is now the time to act to make next year’s close more cost effective and easier? Probably. What better time than to take a look at how an automated reconciliation solution can deliver a triple win....
It has been a little over a year now since ReconArt brought to market its exciting new Total Reconciliation Lifecycle™ solution. From the very first day that design and development started three years earlier in 2008, a primary goal was to offer a solution that could either be installed on our clients’ own servers, or that could simply be switched on and available with no more than a browser. This dictated that we needed a solution that was 100% web designed, developed and deployed, something thought to be of great benefit to both client constituencies for ease of rollout and upgrade. With this type of software traditionally being installed in-house, particularly in relation to high volume transaction-based reconciliation, we anticipated at most a 50:50 split between a Software-as-a-Service and in-house reconciliation software solution deployment. Furthermore, we forecast that the majority of clients in the financial services space would opt to retain their data and full control of the environment in-house, much more so than in other markets that ReconArt also serves. We were wrong! Happily so. For many of our customers there will always be very good reasons to keep the software installed in-house, managed by their IT resources. Here the benefits of having one completely integrated and browser deployed solution are obvious: rapid and easy initial deployment and subsequent version upgrades. However, as we had anticipated and engineered for, it seems that the attraction of not having to manage any of that at all has been viewed as a great benefit to our other clients who we have up and running in a matter of hours or days. No hardware, no software, no drain on often already stretched IT resources – basically no hassle. So where did 2011 end up? From our 50:50 estimate we saw roughly two thirds of new clients opting for a cloud deployment versus a third for an in-house installation. And if we drill deeper into the statistics, within the broader financial services sector including banking, insurance and investments, the proportion of SaaS deployments which we had expected to be in the minority actually ended up close to 60%. Based upon my 10 prior years’ experience of working exclusively with reconciliation software solutions these numbers beg the question: was 2011 the pivotal year when things really started to shift significantly for what has traditionally been a more conservative client base with regard to housing financial data externally?...
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