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Rethinking Reconciliations with Distributed Ledger Technology

June 15, 2021

Recent years have seen a proliferation of in-house or ISV-developed reconciliation solutions – all of them aimed at eliminating manual processes, minimizing exceptions and reducing cost. But while these solutions are increasingly sophisticated, they invariably rely on centralized technology and third parties to help match data and highlight exceptions. Now there’s a better way: adopting blockchain or distributed ledger technology (DLT) for reconciliation – an approach that offers major benefits, not least removing the need for a central intermediary.

To provide further insights into the opportunities that DLT presents as a means to transform today’s reconciliation processes, R3 recently hosted a webinar with ecosystem participant, NTT Data.

The webinar

For this webinar, Thomas Spencer, R3’s Strategic Alliances and Partner Ecosystem Lead for EMEA, was joined by Maria Cione, Blockchain and Innovation Lead at NTT Data. During the session, Spencer and Cione examined the Spunta Banca DLT project, one of the world’s most powerful uses cases for blockchain-powered reconciliation. Built on Corda Enterprise, the Spunta Banca DLT project is live with 98 Italian banks, and moving towards a target of over 200 live banks. They also discussed how organizations considering DLT for reconciliations can reduce margin-of-error costs and further improve automation through the enhanced data-sharing capabilities offered by decentralization.

To start the session, and drawing on Cione’s experience with managing a large reconciliations implementation on DLT, Spencer asked whether implementing this type of solution means mapping out existing processes that an organization is looking to automate, or is it about working with customers to try and define entirely new processes. Cione explained, “For sure the processes already exist, the first thing the client wants to do is enhance, improve or change things to become more efficient. However, as you are working with them, you are taking into consideration a lot of variables and then you are able to innovate and introduce new processes”. Enhancement, standardization, optimization and governance to improve reconciliations processes were common themes throughout the webinar.

It’s not just about inter-bank reconciliation

Spencer and Cione moved on to discuss reconciliation requirements beyond inter-bank reconciliation – the most commonly cited use case. They highlighted the growing interest from large companies in intra-company reconciliations and also the different industries that have reconciliation needs. The following industries were looked at in detail: energy and utilities (buying and selling of energy, post-trade reconciliations), telco (reconciliation between contracts for roaming data), banking (loans, cards, payments), insurance (claims and policy reconciliation) and retail (reconciliation of invoices); but many others were also recognized as potential users of reconciliation software and tools.

The importance of governance

When asked by Spencer to describe some of the biggest hurdles the team behind Spunta faced when trying to implement a multi-organization blockchain solution, Cione explained: “For sure, you need to convince all the stakeholders to standardize and normalize the process, because that is the whole point. You have a lot of stakeholders – and everybody thinks they have the right version of the truth. And when the ecosystem is very large, even if everybody wants to reach the same result, they all have an opinion and want to do it in different ways. This is a challenge, because you need to get everyone together on the same page and they have to be convinced.”

Thomas then asked at what levels the standardization is needed. “It’s standardization [at every] level, but starting from the high level,” said Maria. “If you are reconciling things in a process, it’s probably related to the business or in the back-end. Stakeholders may be running that process in different ways, and it has to be standardized, meaning everybody must have the same concept of the process. Also, everybody is running that process with a different organization, so that now has to change too because you will be using a peer-to-peer system. And then you have other levels of standardization, such as – with Spunta – legal standardization, and standardizing a new report for every bank.”

The true benefits of DLT

With Spunta Banca DLT, all of these hurdles were successfully overcome, and the project has gone from strength to strength – in fact there are projects underway to see how it can be extended beyond Italy. Maria drew on that experience to highlight four key benefits of moving to DLT for reconciliation:

• An intermediary-free ecosystem, with peer-to-peer connections enabling direct interaction.
• Trustless, with transactions approved by the entire network, removing all human involvement in the verification process.
• Cost reduction and optimization, with process standardization reducing effort and costs.
• Secure transactions, with authenticity verified by the entire network.

With the Spunta Banca DLT project as an exemplar of what’s achievable, it’s clear that DLT’s time has come as an enabler of fast, efficient and secure peer-to-peer reconciliations. To benefit from more of Cione’s learnings and gain wider insights into the role that DLT can play in numerous reconciliation use cases across various industries, click here to view the webinar in full. You can also find out more about the Spunta Banca DLT project in this case study.

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