This would be a major advance for most UK banks, who currently have a core bank accounting platform based on a single pass batch update in the middle of the night. (See The Evolution of Core Banking Systems).
The benefits of real time accounting are that you get instant feedback:
- Instant feedback on funds availability for debits (not exception reports the following morning).
- Instant feedback on existence of accounts (e.g. closed accounts, accounts with warning on them).
These benefits can turn into major operational cost reduction (e.g. less production and distribution of overnight operational paper reports) as well as improved customer service. An IT benefit would be that the IT systems would simplify. At present the systems do a shadow posting during the day and the real accounting at night, effectively doing the same thing twice.
There are any number of banking software package vendors who sell real time accounting software, so the issue is not that the technology does not exist. The problem of moving to such a technology is evolving the complex web of banking systems to be able to work with a real time engine.
The diagram below shows large numbers of files of financial entries coming in each night to the core banking systems.
Many of these files of entries have already been processed and authorised against a shadow account during the day. To convert this picture to a real time world, two things have to happen.
- The systems generating the files of entries have to be converted to generate individual transactions.
- The individual transactions have to generate the full accounting entries (typically intra day they just update a customer shadow balance). This means that all the double entry bookkeeping entries have to be generated as well (e.g. GL entries, inter branch settlement accounting entries etc).
This is a major piece of software re-engineering as there are hundreds of different batch file feeds into a large Clearing Bank’s core systems. Furthermore whilst some of the feeds are copies of transactions (e.g. the ATM files) others are profoundly batch in nature, such as the inter bank BACS files and the inter bank cheque clearing files.
The movement to near real time payments for internet banking and standing orders will force banks to re-engineer software to convert files of entries coming out of internet banking and Standing Order systems to become transactions. However the banks have a design decision about whether to re-engineer the processes to generate the full accounting entries and apply them intra day, thus avoiding re-processing them as part of the overnight batch.