Revolutionizing payment operations with real-time reconciliation

The rise of instant payments, coupled with growing transaction volumes, has made manual and batch-based reconciliation processes insufficient. Delays or inaccuracies in reconciling transactions between different data sources can lead to millions in financial discrepancies.

A recent proof-point that underscores the critical need for accurate and transparent transaction-level reconciliation is the Synapse Financial Technologies collapse. Banks that supported fintech companies offering payment services used Synapse software to track payments by fintech companies and allocate payments appropriately. However, Synapse’s failure to do this properly resulted in a shortfall of up to $95 million between bank-held funds and amounts owed to fintech end users.

Synapse filed for bankruptcy in April of 2024, leaving behind a massive reconciliation dilemma because bank partners could not determine which money held with Synapse belonged to each institution. This unfortunate scenario has brought to light the critical need for real-time transaction-level reconciliation to ensure holding bank and end-user data is captured for each transaction.

The reconciliation process explained

The reconciliation of high volumes of transactions from different data sources can be complex and typically involves these steps:

Data Aggregation

Transaction data must first be collected from multiple sources such as authorization systems, card networks, and third-party services like payment gateways. For real-time reconciliation to occur, the reconciliation system must be able to access transaction data in real-time or near real-time.

Matching and Validation

As transaction data arrives from different data sources, the reconciliation system continuously links and matches the data based on a combination of specific identifiers such as transaction ID, amount, and timestamp. Modern reconciliation solutions also include configurable business rules to meet company-specific requirements for transaction and balance equivalency checks, including tolerance levels.

Discrepancy Resolution

As a match and kill process runs, any mismatches or discrepancies between the datasets are flagged for investigation. These might include issues like duplicate transactions, missing transactions, incorrect amounts, and timing mismatches. Real-time reconciliation solutions should provide instant access to the current reconciliation status, net positions, suspense items, and specific reasons for discrepancies so users can quickly and easily identify, research, and resolve discrepancies.

The importance of real-time reconciliation

Reconciliation activities can account for 30%-40% of a company’s back-office labor costs. And although financial leaders agree that automated reconciliation is crucial for payment operations, many companies continue to rely on manual or batch-oriented methods.

The consequences of insufficient reconciliation practices can be detrimental to an organization. For example, without real-time visibility, mismatches between recorded and actual transactions can go undetected, leading to discrepancies. High transaction volumes can also overwhelm manual or batch reconciliation systems, delaying error detection and resolution. There are also regulatory risks because inaccurate records can lead to compliance violations and increased scrutiny from regulators.

Automation of real-time transaction-level reconciliation is becoming increasingly important for businesses across the payments industry. As data complexity and transaction volumes grow, having accurate and timely payments data is crucial for operational efficiency, decision-making, and regulatory compliance.

Operational Efficiency

“The payments industry could save millions annually by automating reconciliation efforts,” said Eric Grover, Principal of Intrepid Ventures. “Businesses that are adopting real-time reconciliation tools are spending less time on manual reconciliation tasks and more time on strategic analysis.”  Some studies have shown that by adopting automated reconciliation, companies can achieve productivity improvements of 60-80%.

Better Decision Making

It has been proven that organizations using real-time reconciliation tools can reduce the time spent on closing books by up to 60%. This is especially valuable for companies with high transaction volumes or those that operate in markets where fast decision-making is crucial. Real-time reconciliation enables businesses to identify errors and discrepancies as soon as they occur, allowing for prompt issue resolution and minimizing financial losses.

Improved Regulatory Compliance

Another strategic advantage of real-time reconciliation is that it helps ensure compliance with regulatory requirements. Compliance is particularly critical in sectors like banking, fintech, and e-commerce, where mismatched transaction data can lead to penalties, fines, or reputational damage. Companies who employ real-time reconciliation are more likely to meet regulatory deadlines for financial reporting and audits.

Positive Customer Experience

Real-time reconciliation can improve customer satisfaction by ensuring accurate billing, refunds, and payment processing. “Customers are more likely to trust a company that processes transactions accurately and in real-time,” said Kimberly Tibbetts of Endava. “This is particularly important for businesses relying on multiple payment channels and processing systems, as it minimizes the chance of errors like duplicate charges, missed payments, or delayed transactions.”

Scaling Capabilities

Since real-time reconciliation systems automatically process data from multiple sources as soon as the data arrives, companies can scale their operations without worrying about the reconciliation process. “Given the growth in payment mechanisms and overall volume of payments it’s imperative that businesses adopt automation to ensure timely and accurate reconciliation. This allows operations to scale seamlessly, while enabling other resources to focus on more value-added tasks for their business,” said Tony Cook, EVP of Payment Operations and Real-time Payments at FirstBank.

The path forward

The payments industry is evolving rapidly, and the need for real-time reconciliation has never been greater. Companies are investing in systems that provide accurate and real-time visibility of reconciled payments data, enable them to quickly identify and resolve discrepancies, and ensure they can continue supporting automated reconciliation no matter how fast transaction volumes grow.

The question is not whether companies can afford to migrate to an automated real-time reconciliation system. The real question is whether they can afford not to.

 Michael Meeks is CTO of BHMI.