Key takeaways
- Settlement reconciliation confirms that the money a processor or acquirer said it would pay actually arrived in the bank, in full and on the expected date.
- Processors usually pay net: card sales minus fees, refunds, chargebacks and reserves. The reconciliation must rebuild that net figure from the processor's report.
- Most differences come from timing, fees, reserves held back by the processor and currency conversion.
- For regulated payment firms, a settlement that arrives in the wrong account or is never matched is the most common source of a customer-money shortfall.
What settlement reconciliation is
When a business accepts card or wallet payments, the money does not arrive one payment at a time. The processor or acquirer, the company that handles card payments on the business's behalf, collects the day's payments, deducts its fees and any refunds or disputes, and pays the business a single net amount, called a settlement, one or more days later.
Settlement reconciliation is the check that the settlement the processor reported matches the money that reached the bank. It sits between two other checks: the PSP reconciliation, which confirms the processor handled every transaction the business recorded, and the bank reconciliation, which confirms the business's cash record agrees with the bank. Our guide to payment reconciliation explains how the three fit together.
Why it is harder than it looks
A single bank receipt can represent thousands of transactions across several days. The processor's report explains the receipt, but in its own format, its own currency conventions and its own timing. A business with three processors, four currencies and two banks can be matching dozens of settlement files a day, each with different column names and cut-off times.
Processors also hold money back. A rolling reserve is a percentage of each day's sales the processor keeps for a set period, often 90 or 180 days, to cover future chargebacks. Reserves are released later, in amounts that do not match any single day's sales. A reconciliation that ignores reserves will show a permanent difference that is not an error.
Worked example
A payments platform receives a single settlement of $482,615.40 from its card acquirer on Wednesday. The acquirer's settlement report for Monday's activity explains it as follows. The platform rebuilds each line from its own records, confirms the gross sales and refunds agree with its ledger, confirms the fee rate agrees with the contract, and records the reserve as a receivable due for release in 90 days.
If the bank had received $480,000.00, the $2,615.40 difference would be investigated against the acquirer's next report. The usual causes are a fee adjustment, a late chargeback or a reserve change that the platform had not recorded.
| Line | Amount (USD) |
|---|---|
| Gross card sales (Monday) | 512,300.00 |
| Less processing fees | (9,733.70) |
| Less refunds | (6,180.00) |
| Less chargebacks | (2,150.00) |
| Less rolling reserve held (2.5% of gross) | (12,807.50) |
| Plus reserve released from 90 days earlier | 1,186.60 |
| Expected settlement | 482,615.40 |
| Received per bank statement (Wednesday) | 482,615.40 |
Why it matters for customer money
For a regulated payment firm, settlements often contain customer money. In the UK, card settlements that land in an operating account must be moved to a safeguarding account by the end of the business day after receipt, and the internal deposit reconciliation under CASS 15 exists to catch settlements that were never moved. In the US, settlement receivables affect a money transmitter's permissible investments. An unmatched settlement is therefore not only an accounting problem. It can be a regulatory shortfall.
Controls that make settlement reconciliation reliable
Load every processor report automatically, in its original format, rather than copying figures by hand. Match on the settlement reference first and the amount second. Keep reserves as a separate balance with an expected release date. Set a tolerance only for rounding, not for unexplained amounts. Age every open difference and escalate anything older than a set number of days.
Safeheld loads processor, acquirer and bank files in their native formats, rebuilds each settlement from its components, and carries every difference through investigation to resolution. See Safeheld reconciliation and payment reconciliation software.
Frequently asked questions
What is settlement reconciliation?
The check that the net settlement a processor or acquirer reported matches the amount actually received in the bank.
Why does a settlement differ from gross sales?
Processors deduct fees, refunds, chargebacks and reserves before paying, and pay one or more days after the sales.
What is a rolling reserve?
A percentage of daily sales a processor holds back for a set period to cover future chargebacks, released later in separate amounts.
How often should settlements be reconciled?
Daily, on the day each settlement arrives.
References
- FCA Handbook, CASS 15.8 Records, accounts and reconciliations
- Massachusetts General Laws c.169B §9: permissible investments
- Bank of Canada, Retail payment supervision
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.