Why is reconciliation so hard?

The digital transformation of financial institutions has been extensive in recent years. But fully automating reconciliation is proving a tough nut to crack.

Most firms have core automation platforms, usually each focussing on a particular asset class, that automate the majority of the trade lifecycle and other key business processes.

These point solutions create “automation gaps” which firms often fill with workers performing manual tasks, such as data entry or reconciling on a spreadsheet.

Over time this creates a spaghetti IT ecosystem of platforms and manual processes, the “last mile” of which has so far proven impossible to automate.

But why is this still the case? To understand this, we need to explore the key difficulties of dealing with financial data.

The five core challenges of financial data

These are problematic because most firms use at least one legacy reconciliation solution, if not several. These are systems that are on-premise, highly technical, upgraded every 6 or 12 months and require heavy IT support to maintain and operate.

They are legacy tools because technology has moved on since they were the leaders in the space; they now create more problems than they solve. We know of firms running versions of this technology that haven’t been updated for a decade!

Every business is different, from their technology stack to their processes to their data. But what all financial firms have in common is that their automation efforts are stymied by the five core challenges of variety, change, scale, lifecycle and control. Let’s take a look at each of these in more detail.

1. Variety

Financial firms have to deal with an enormous amount of formats when it comes to data. Some of these are highly standardised, like SWIFT messages, but many aren’t. Counterparties can all have different ways of sharing and presenting data, from rich-text files to Excel spreadsheets.

And we haven’t even touched upon the fact that 80% of enterprise data is unstructured; e.g. it lives in PDFs, emails, faxes, images and so on.

2. Change

We think it’s best to assume you’ll be dealing with change on a daily basis.

There are many different things that can change, from business-level changes such as new systems, new counterparties, new funds or products, to market changes such as corporate actions, volatility and – of course – regulatory updates.

3. Scale

The typical processes and technology in Finance and Operations aren’t flexible enough to scale fast. Think about the change to T+1 in North America in 2024: firms couldn’t simply double the number of workers to deal with trade settlement in half the time.

For some firms that would’ve meant hiring thousands more people!

4. Lifecycle

Data changes and evolves as it travels through your organisation. But a lot of these changes happen across multiple systems or in “shadow IT” such as spreadsheets. There can be multiple copies of the same data in circulation in your firm, as each team takes and transforms it for their own purposes.

It’s therefore difficult, if not impossible, to tell exactly where your data has been and what’s happened to it.

5. Control

The traditional change management process in firms is designed to enforce control. Hardcoded on-premise systems require trained developers to build or alter processes. Operations has to brief requirements into IT, taking valuable technology resources away from high priority tasks.

Ops teams often instead resort to quick manual workarounds, creating risk and undermining governance – exactly what change management policies try to avoid!

Conquering long standing financial reconciliation challenges

Technology advances are enabling firms to not only overcome these challenges, but to rethink their reconciliation function entirely.

Doing so unlocks the path to a better operating model, where cost, risk and effort are reduced, agility and transparency are increased, and Operations and IT teams spend their days on meaningful, value-adding tasks.

Find out how to advance your organisation along this path with our Reconciliation Maturity Model.