In banking, accurately tracking money movement is essential to building a product that scales. It helps you stay compliant, better understand your customer behavior, and stay in sync with your sponsor bank. However, accomplishing this comes with its own unique set of challenges.

Transactions do not occur in a void. There are actually multiple systems that record a transaction, each one with its own unique intricacies. As soon as one of those transactions does not match up between systems, the data becomes less reliable. 

Without a way to perform checks and balances between the systems, problems can go unnoticed, allowing bad actors to misuse your banking product to launder money or to conduct fraudulent transactions. Additionally, disputes between you and your sponsor bank partner may arise surrounding account balances, creating issues operationally or landing your sponsor bank in regulatory trouble.

This is why the process of reconciliation is so important and is an integral part of our platform. In short, reconciliation is the process of matching transaction data between multiple systems to ensure they are in agreement with each other. When all of the different sources of transaction data are telling you the same thing, everything runs smoothly. 

As the technical lead for the team that develops Synctera’s reconciliation product, I spend a lot of my day thinking about how we can better serve everyone involved in the Synctera ecosystem. We need to make sure that: 

• Our bank partners feel confident that they can track all transactions down to the penny 
• Our customers have reliable data so they can understand customer usage trends
• Compliance and operations personnel have the data and tooling they need to effectively perform checks and balances
• Both our customers and bank partners see the same data

When reconciliation is done right, you’re able to reliably know where the money is, how it's moving, and who it belongs to. This makes mitigating fraud and understanding customer behavior more effective, while also keeping you in good standing with the auditors and regulators.

Let’s talk about what goes into developing a reconciliation product like the one we’ve built at Synctera. 

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Reconciliation in action

To paint a picture of what reconciliation is, let's walk through an example we’re all likely familiar with. Imagine you have a bunch of hungry friends over at your house. You order pizza and put it on your card, telling everyone how much they owe you. 

One of your friends gives you cash, one sends the money over Zelle, one uses Venmo, and the last one forgets to pay you altogether. Not a big deal, you’ll be able to figure it out.

But what if you had a hundred friends over and ordered pizza, pasta, and 20 other dishes from multiple restaurants? Things start to get a bit more difficult. 

This is where reconciliation comes into action. Reconciliation is the process of keeping an accurate record of who paid you what amount and then matching those records to your total expense. When done right, you’ll always have a clear idea of who still needs to pay you to have the money in match the money out.  

Now let’s translate this concept to how reconciliation works in banking by walking through an example of what happens when an account holder at a Synctera-powered bank account conducts an ACH transaction. 

When the ACH transaction is first initiated by the account holder this transaction is recorded on Synctera’s ledger. ACH transactions are sent out according to a strict schedule, so at the scheduled time, our ledger communicates with the sponsor bank’s core system to conduct the ACH transaction. This is done by sending a file to the Fed (which controls the ACH infrastructure) containing the details of the transaction. 

When the Fed receives and accepts the transaction, they move the money according to the transaction details and record that money movement on their own ledger. Then to confirm the transaction, the Fed sends a file back to the sponsor bank with the confirmation (or in some cases, rejection) details of the ACH transaction.   

Since multiple systems now have a record of the same ACH transaction, this is where reconciliation begins. Our reconciliation technology looks at transactions in both Synctera’s ledger and the transaction files we receive from the Fed to match the specific transactions together. 

If everything matches up, great! We can all breathe a sigh of relief and feel confident that this transaction was accurately recorded everywhere it needs to be. If the systems aren’t in balance with each other, we’ll need to identify which transaction(s) are causing the differences and then have a way to quickly investigate and bring those items to resolution. 

This is reconciliation in action. 

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What goes into building a reconciliation product?

To make the above process run smoothly, there are two key functions of a reconciliation product, both of them being critical to having an efficient process:

1. Ingest data from multiple systems and record that data on the ledger
2. Reconcile that data between multiple systems

Let’s dive into these two specific pieces to discuss how this works in the Synctera platform. 

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Ingesting data

Transactions in banking come from dozens of sources. From debit cards to wires to ATM withdrawals to checks, the list goes on. The term we use to describe a system that operates a certain type of transaction is “payment rail”.

Each payment rail communicates transaction information in its own way. There are different file formats or APIs, data transfer mechanisms, and more. Additionally, most payment rails have several file types, each having wildly different structures.

The key to the data ingestion process is to ensure that we can handle all of the different ways we receive transactions, quickly make sense of them, and accurately record the details on our ledger. Without the ability to ingest clean and accurate data, none of the fun reconciliation stuff that comes after would matter. 

There are two pathways for ingesting data into the Synctera ledger:

1. Real time data - Many transactions, such as card transactions, are conducted and recorded as soon as they occur. We typically ingest real time transactions using Synctera APIs that our customers use, or webhooks from our integration partners, such as a payment processor. As soon as a customer swipes their card at the convenience store, all of the data related to this transaction is sent to, and ingested by, our platform in real time.
2. Bulk file uploads - Some transactions don’t happen instantly, such as the ACH example we highlighted above. In this case we receive a file that contains multiple transactions of the same type that occurred throughout the day. There can be hundreds or thousands of transactions in a single file. These files are sent to us via SFTP (Secure File Transfer Protocol), which is how a lot of information is safely sent between financial institutions. Every transaction type has a unique file format, so our platform needs to be able to ingest all of these different file types. 

An effective reconciliation product can seamlessly ingest data from a variety of sources, interpret an array of file types, and record these transactions on a ledger in a standardized way that allows the rest of our platform to perform actions based on this data. 

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Reconciling transaction data

Now that the transaction data is in our system, the fun can really begin. As a team, we’re focused on building functionality that helps our customers and bank partners gain better insights into their product, while also helping operations and risk & compliance personnel better use data to perform their day-to-day tasks.

There are two main pieces of functionality that are key to reconciliation success. Let’s dive into these. 

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Auto-reconciliation

In some cases, financial institutions rely on humans to reconcile transactions. As transaction volumes grow, so too does the number of people responsible for the reconciliation process. Simply put, a manual process does not scale.

Our team has been hard at work developing and optimizing our auto-reconciliation capabilities, so that ever greater numbers of transactions conducted through our system can be reconciled without human involvement. There will always be certain transactions that will require human review, but the more we can reconcile automatically the more easily our customers and bank partners can scale transaction volume.

In the auto-reconciliation process our technology automatically matches transactions between ledgers to ensure the data on our platform matches the data in the bank’s core and the data recorded in the payment rail.

Let’s walk through an example of what auto-reconciliation looks like:

Suppose we receive a file containing a single $100 ACH transaction. This transaction is recorded on both our ledger and the Fed’s ledger. Now the task is to identify these transaction records and then to confidently say “this transaction on our ledger matches this transaction on the Fed’s ledger”. 

The key to this process is to find specific elements in the data that allow us to automatically identify them as the same transaction. Luckily, with ACH transactions this is relatively straightforward, as every ACH transaction comes in with a unique reference ID. Some other transaction types can be trickier. 

Our auto-reconciliation technology finds these unique data elements between the two systems and matches them together. Once this match is made, we are able to reconcile the transaction between the two ledgers. Mission accomplished. 

Auto-reconciliation is a point of pride for my team. In my role I am constantly trying to find solutions that allow us to auto-reconcile more transactions, decreasing the number of transactions that need to be matched by real people. Whenever we see transactions come in that aren’t auto-reconciled, we put our heads together to try to come up with creative ways to have these transactions be matched by technology - not people. 

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Aggregation

In banking there are often transactions that come in that actually represent a bunch of smaller transactions grouped together. For example, several large transactions occur every day when Synctera receives a settlement report from the card networks (Mastercard, Visa, etc.) for all the customer card activity on our platform over a 24 hour period. The settlement report tallies up all the transactions for each card BIN (Bank Identification Number) but doesn’t break down to the level of customer accounts - that’s our job.

Our platform finds common characteristics across a multitude of transactions and then groups them together as a single larger transaction. This grouping is the process of aggregation. The grouped transaction, called the aggregate, can then be matched and reconciled with the settlement report received from the card networks. Importantly, the aggregate retains information about its underlying transactions, which gives us a complete and accurate picture of money movement.

Aggregation helps those who operate banking products understand the why behind some of the larger transactions recorded on the ledger. Understanding the breakdown of these transactions can help you better track money movement and give you a clearer picture of the breakdown of revenue and costs.

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The importance of reconciliation

Since reconciliation is a pillar of a safe and trusted financial ecosystem, it isn’t something that only banks need to be thinking about. Accurate and dependable transaction and account information are central to understanding how money moves. 

This data powers insights into growth projections, risk detection and mitigation, activities warranting investigation, and more. Everyone benefits from a system that proves that what you expected to happen, happened.

Without these checks and balances, issues will arise between sponsor banks and their partners offering banking products to their customers, or customers may ask questions that no one knows how to answer. These cracks in the ecosystem can be detrimental to everyone, from the consumers to the sponsor banks to the companies offering the banking products.

While reconciliation may not be the most bright and flashy part of banking, we understand its importance in allowing our partners and customers to scale their products efficiently and compliantly.