Capco Institute Blog

As banks continue to face enormous pressure to improve or maintain revenue margins, they are examining every possible opportunity to lower costs. Most organizations have already reduced costs through low-hanging initiatives aimed at maximizing their workforce and improving technology and are now focusing on transforming core functions throughout the enterprise. One area that could benefit from such transformation is reconciliation.

Although reconciliation occurs in numerous business units throughout a bank, the function is typically not centralized and most organizations have not strategically invested in technology to automate or streamline the process. As a back-office function, reconciliation lends itself to outsourcing or a shared services model to improve efficiency and lower costs across the organization.

Taking a broken, fragmented, highly manual and non-scalable back-office function and transforming it into a highly automated and scalable function offers numerous advantages. Banks that move their reconciliation process to an end-to-end shared services model may see up to a 35 percent reduction in the total cost of their reconciliation service delivery. In addition, a highly automated transaction-processing platform can help banks fix persistent reconciliation issues that can negatively affect their operational risk profile. A shared services system can handle massive amounts of data, run all reconciliation functions based on the same business rules and, when a problem is discovered, direct the issue to the person who is most qualified to resolve it. And the more volume that is put into the system, the more benefits will be realized.

Organizations can approach improving their reconciliation processes in two ways: strategically invest in highly automated shared services themselves or contract with a service provider that is skilled in providing automated utility-type reconciliation services. Service providers can offer economies of scale as well as best-of-breed practices.

In addition, service providers are capable of performing comprehensive reconciliations health checks that can analyze all aspects of an organization’s reconciliation process against industry best practices. The health check includes a reconciliations inventory matrix, a current-state assessment, and a high-level road map to a target reconciliations operating model.

Service providers can also establish a reconciliation Center of Excellence that adheres to a core set of objectives, including an efficient on-boarding process, ongoing optimization and scalability.

Although some banks still struggle with the concept of moving away from a vertically aligned organization, creating horizontal shared services around reconciliation can lower costs, optimize processes and improve efficiency. With so little discretionary funding available, banks that can transform a back-office service like reconciliation can reap enormous advantages.

What steps are you taking to transform your reconciliation processes? Join the discussion.