The Mounting Pressures on Traditional Financial Reconciliation

Financial reconciliation – the process of matching internal financial records against external documentation to verify accuracy – has always been a cornerstone of good governance and regulatory compliance.  

In India, where the RBI, NPCI and tax authorities impose stringent requirements for accuracy and auditability, reconciliation is not just a best practice – it’s a legal and reputational necessity.  

Yet, the ground reality is that legacy, manual reconciliation approaches are under severe strain. The accelerated digitization of payments, coupled with rising transaction complexity, has exposed systemic weaknesses in these processes. Below are the five major pressure points facing Indian banks, payment providers, and fintechs today.  

Human error and inaccuracy  

Manual reconciliation relies heavily on data entry, spreadsheet formulas and human judgment to identify matches or discrepancies. This is manageable when transaction volumes are modest – but in today’s India, even mid-sized banks may process millions of transactions daily.  

• UPI volumes: In 2024, UPI processed over 228 billion transactions per month, each requiring settlement reconciliation across issuing banks, acquiring banks, and NPCI 

• Risk factors: Typos, incorrect account coding and partial or inconsistent references in transaction narratives are common. For example, UPI payer IDs may not always include clear merchant identifiers, making matching harder 

• Impact: Errors not only delay the reconciliation cycle but also affect downstream processes like GST filings, FX settlements and fraud investigations 

The Association of Certified Fraud Examiners (ACFE) has found that organizations lose an average of 5% of revenue to fraud annually – and delayed or inaccurate reconciliation directly contributes to this vulnerability.  

Lack of real-time visibility  

Traditional reconciliation happens in batches – often at the end of the day, week, or month. This means finance teams operate with stale data, which in turn impacts liquidity management, risk monitoring, and operational decisions. 

• Intraday liquidity gaps: For a bank handling high-value RTGS or IMPS transactions, a mismatch in settlement reporting can lead to misjudging available balances, triggering compliance breaches under RBI liquidity coverage rules 

• Delayed fraud detection: Without real-time matching, fraudulent UPI pull requests or suspicious chargebacks may only be caught days later, increasing loss exposure 

• Competitive disadvantage: In the era of 24×7×365 payments, inability to reconcile instantly affects customer experience – e.g., delayed refunds to e-commerce customers 

Complex data and siloed systems  

As Indian financial institutions grow, they inevitably manage more systems – core banking, card processing, payment switches, third-party gateways, ERP systems and tax modules. Each of these systems may store transaction data in different formats with varying identifiers.  

• Disparate data sources: Reconciling NEFT batches from RBI’s payment gateway, UPI files from NPCI and card settlements from Visa/Mastercard/Rupay into one ledger is resource-intensive 

• Merchant settlement complexity: Payment aggregators often receive consolidated merchant payouts from multiple acquiring banks, making granular reconciliation cumbersome 

• GST and compliance overlap: The need to reconcile payment data with GST returns adds another reconciliation layer for Indian businesses 

Manual processes are ill-suited for integrating such diverse, high-volume data – especially when reference fields are inconsistent or incomplete.  

International and multi-currency transactions  

India is a major recipient of global remittances – over $125 billion in 2023, according to the World Bank. Banks and payment providers must reconcile these cross-border inflows with domestic accounts while adhering to Foreign Exchange Management Act (FEMA) and RBI reporting norms.  

• Exchange rate volatility: Reconciliation must account for rate fluctuations between transaction initiation and settlement 

• Regulatory diversity: Payments may be subject to multiple jurisdictions’ anti-money laundering (AML) laws, increasing documentation complexity 

• SWIFT vs local formats: International transaction data often arrives in SWIFT MT formats, while domestic systems follow ISO 8583 or NPCI specifications, requiring format conversion before reconciliation 

Operational inefficiency  

Manual reconciliation consumes thousands of man-hours each month in Indian banks and fintechs. Skilled finance staff often spend disproportionate time cross-referencing spreadsheets instead of focusing on value-added activities such as fraud analysis, credit risk assessment, or strategic planning.  

• Branch burden: Public sector banks, with their extensive branch networks, often still rely on local staff to reconcile branch-level transactions against central systems 

• Exception backlogs: When mismatches occur, manual investigation can take weeks, especially in cases involving multiple intermediaries 

• Employee morale: Repetitive, error-prone work leads to frustration, high turnover, and a skills gap in financial operations teams 

Why this matters now  

The pressures outlined above are amplified by India’s rapid payments growth and tightening regulatory expectations. The RBI’s emphasis on operational resilience, NPCI’s zero-tolerance stance on settlement failures and customers’ growing demand for instant refunds and transparent account statements mean reconciliation is now a board-level issue.  

In short, the reconciliation function in Indian banking and payments has evolved from a back-office accounting task to a strategic risk-control and trust-building function. 

We have published a whitepaper called From Control to Chaos: Navigating the Future of Financial Reconciliation in India that examines the mounting pressures on traditional reconciliation.  

This whitepaper will help you deep dive into the capabilities of modern solutions, their measurable benefits for the Indian banking and payments sectors and the regulatory trends shaping the next decade of financial operations in India. 

Click here to download the whitepaper.