Welcome to the Blog on the topic given above… we normally feel that reconciliation of a transaction is a back-end work and it involves matching two numbers… even better some say they will do 3 way reconciliation or 4 way reconciliation etc… what happens if its 6 way… like the junction at southend circle in south Bangalore 😊 Reconciliation is 360 degrees it cannot be one way two way etc…. every minute aspect of a transaction must be kept in mind to close the journey of the transaction and individually identify the status of that transaction at any given point in time. This is what is reconciliation in any cases and especially in the acquiring payment side. Let’s start with what’s acquiring payment: What do you mean by Acquiring Payment… Let’s say you buy a product either in store or online and you use your card (either debit or credit) to purchase the product, from that point the acquiring payment meaning settles in. The transaction passes through 4 phases during this stage, Authentication &amp; Authorization of your card transaction, clearing and settlement, Merchant payout, Reconciliation and Accounting. Authentication happens only during online purchase, where the end customer enters card number and get an OTP to be punched into the system this process is authentication post which Authorization of card transaction is the first step that your transaction to buy the product is authorized and you get the product as you wished, yay… but wait what does it mean? This means that your card bank account has approved the transaction which in turn would result in money going out of your account for the amount that you sought authorization for. That’s as easy as is. The above process involves a technology getting approval from your card bank and letting merchant know that he can part away with the product. This technology we can name as Financial Transaction Switch. Let’s now move to the 2nd phase of what is clearing and settlement: When the transaction is registered in the switch as a record of what happened during the day with n Number of transactions that has happened during the entire day with other merchants too, will consolidate all entries that are authorized by the switch and send it to the intermediary. Hey, wait now you are bringing in a new term called intermediary what is it? 😊, okay the intermediaries are VISA, Mastercard, Amex, NPCI etc… if you are holding a card issued by your banker you can say you hold an X bank’s card but at the face of the card you will see the emblem of the intermediaries as banks issue card that is proprietary rights of the intermediaries. Hence though we have individual banks card it is called as visa card or master card… With the clarity above let’s understand what switch does, It takes the entire transactions that it has registered the previous day and sends it by segregating according to the intermediaries to them. Intermediary with their records sends the data further to those banks which has issued the cards, meaning those bank cards which was used to buy product from merchant outlet. Wait why is this happening? This is because the merchant must get the payment for the goods that he has sold right? How will he get the money as he has accepted only card payment. The above process will facilitate in this. By clearing system, the switch will communicate to intermediary to make them know that the switch must get XXXX amount on these transactions from each intermediary. Now intermediary will in turn ask the card banks to pay that amount to them and settle it to the switch. This is called as settlement. I hope now clearing and settlement is through… yesssss to an extent (I can hear the voice say… 😊). Now introducing another dynamic, now who is the switch owner? This could be any person authorized and approved by intermediaries to function as switch service providers, ok that’s fine then how do intermediaries believe these service providers and give the money… yes the new dynamics comes here, the money is settled to an acquiring bank. The acquiring bank is a bank which is certified by intermediaries to collect money from card issuing banks on behalf of the merchants. This certification is never given to any individual companies. Now the switch will align with an acquiring bank to get the payment from intermediaries. Third part is very easy.. once the money comes in the merchant payment is made… as simple as this? Yes, it is, each merchant transaction must be settled to the merchant without fail the acquiring bank cannot hold merchant money with themselves without any valid reasons. Hence, the money is paid back to the merchants for the product they sold. Last and interesting part is the Reconciliation and Accounitng… Now one may ask as to what is so difficult in this card is swiped, transaction happens, it is approved by the card issuer and intermediary, money is given by my card issuing bank to acquirer and acquirer has paid the merchant so what’s so complicated in this process… The entire crux depends on the reconciliation that the system must find out whether all transactions that has hit the switch has been addressed or not. Do you know… 1.&nbsp;&nbsp;&nbsp;&nbsp; There is a cost for each transaction that is charged by card issuing bank on each transaction this means you buy a product for INR 100 and the settlement from your bank to the acquirer could be INR 98… INR 2 is the fee that issuing bank takes for this transaction.2.&nbsp;&nbsp;&nbsp;&nbsp; Now merchant expects INR 100 so what does the switch service provider or acquirer do, they tell merchant that for conducting a cash less and seamless transaction it charges INR 2 for this transaction and they settle merchant INR 983.&nbsp;&nbsp;&nbsp;&nbsp; So this results in income and expenditure inclusion in a transaction Now imagine what happens if goods are returned, if goods are defective and merchant wants to refund the customer, what happens if there is a fraudulent transaction for which card issuer is not willing to pay but merchant has already given away the goods… These are multiple dynamics to understand each transaction that hits the switch clearing sent and settlement received and merchant is paid out, refund is made, dispute is addressed and all resulting in multi level transaction which will result in a huge reconciliation work. Imagine as per RBI data the cards that were used for transactions are 16 million transactions a day for both POS and online put together even if a person is addressing 10% of this volume he deals with 50 million transactions in a month. This will result in huge exercises to track each transaction line item wise to reconcile and see what happens. Also remember each transaction does go by count but value could be humoungous, if you loose one transaction in the bargain approx INR 4400… this is the hit that one has to keep a watch through reconciliation. Imagine from Authentication to Last leg of Reconciliation if one gives an automated system with seamless service and no manual interference and no loss of even one rupee to all the stake holders… it would be great right? …. That’s what we do at Mylapay….. Hope this gives a bit of clarity on the Reconciliation and Accounting terminology as per acquiring payments.

Reconciliation and Accounting of Acquiring Payments

Chargebacks, a term familiar to merchants in the electronic payment realm, represent a unique facet of the transaction process. Often viewed as a necessary but challenging aspect, chargebacks occur when a cardholder disputes a transaction, leading to a reversal of funds. In this section, we'll delve into the intricacies of chargebacks, providing insights into their causes, preventive measures, and the essential art of effective chargeback management. Understanding the Dynamics: Why Do Chargebacks Occur? Chargebacks can stem from various reasons, including fraud, processing errors, or dissatisfaction with the product or service. Understanding the root causes is the first step in developing effective strategies to minimize chargebacks and address issues at their source. Preventive Measures: Building a Defence Against Chargebacks Proactive measures are key to reducing the incidence of chargebacks. Merchants can implement robust fraud detection systems, ensure transparent and accurate product descriptions, and provide excellent customer service. Clear communication, transparent policies, and secure transaction processes contribute to a positive customer experience, minimizing the likelihood of disputes. Navigating the Chargeback Process: A Step-by-Step Guide When a chargeback occurs, merchants must navigate a structured dispute resolution process. This involves responding promptly to chargeback notifications, providing compelling evidence to refute the claim, and adhering to the guidelines set by the payment processors. A thorough understanding of the chargeback process empowers merchants to present their case effectively. Chargeback Categories: Classifying Disputes for Strategic Resolution Chargebacks fall into distinct categories, such as fraud-related chargebacks, authorization issues, or disputes over the quality of goods or services. Merchants benefit from categorizing chargebacks, as it allows them to tailor their response strategies. Whether implementing stronger fraud prevention measures or enhancing product/service descriptions, a strategic approach addresses the specific issues leading to disputes. Communication and Customer Relations: Turning Challenges into Opportunities Chargebacks can strain merchant-customer relationships, but effective communication can mitigate this impact. Proactive communication channels, responsive customer service, and transparent policies contribute to customer satisfaction. Turning a chargeback situation into an opportunity to showcase excellent customer service can sometimes even result in dispute resolution in the merchant's favour. Analysing Chargeback Data: Insights for Future Prevention Every chargeback offers an opportunity for learning and improvement. Merchants should analyse chargeback data, identifying patterns and trends. This data-driven approach allows businesses to refine their practices, address recurring issues, and continuously enhance their processes to prevent future chargebacks.

Chargebacks Unveiled: A Merchant's Guide to Navigating Dispute

In the dynamic realm of electronic transactions, the term "risk" carries multifaceted implications. Risk in the context of payment processing refers to the potential threats and vulnerabilities that can compromise the confidentiality, integrity, and availability of sensitive information. Effectively managing these risks is not just a compliance requirement but a strategic imperative for businesses aiming to thrive in the digital age. Identifying Potential Threats: The Varied Faces of Risk Risk management begins with a thorough identification of potential threats. These threats can range from cyberattacks and data breaches to internal vulnerabilities and system failures. A comprehensive risk assessment is crucial for businesses to understand the landscape they operate in and tailor their risk management strategies accordingly. Embracing Industry Standards: The Role of Compliance Industry standards, such as the Payment Card Industry Data Security Standard (PCI DSS) and ISO/IEC 27001, serve as guiding beacons in the risk management journey. Adhering to these standards not only ensures compliance but also provides a structured framework for implementing robust security controls. Businesses that embrace these standards establish a solid foundation for effective risk management. Developing a Robust Risk Management Framework: Proactive Strategies Risk management is not a reactive process but a proactive one. Businesses need to develop a robust risk management framework that includes preventive measures, detection mechanisms, and response strategies. This involves implementing encryption technologies, access controls, training programs and regular security assessments to identify and address vulnerabilities before they can be exploited. Cultivating a Culture of Security: Employee Awareness and Training Often overlooked but critically important, a culture of security is cultivated through employee awareness and training. Human error is a significant contributor to security breaches, and educating staff about potential risks and best practices creates a frontline defense. Employees should be empowered to recognize and report potential threats, reinforcing the organization's overall risk management strategy. Continuous Monitoring and Adaptation: The Essence of Resilience The digital landscape is ever-evolving, and so are the risks associated with it. Continuous monitoring of security controls and a commitment to adapting to emerging threats are fundamental to building resilience. Regular security audits, threat intelligence updates, and staying informed about industry trends contribute to an agile risk management approach. Incident Response: Navigating Challenges When They Arise Despite meticulous preventive measures, incidents may still occur. A well-defined incident response plan is essential for minimizing the impact of a security breach. This involves clear communication protocols, swift identification and containment of the incident, and a thorough post-incident analysis to strengthen defences against similar future threats.

Navigating the Risk Landscape: Strategies for Effective Risk Management

In the complex web of electronic transactions, the term "interchange" stands as a pivotal and often misunderstood element. At its core, interchange refers to the fee exchanged between banks involved in a transaction, encompassing both the issuing bank (the one that issues the credit or debit card) and the acquiring bank (the one that processes the transaction for the merchant). Understanding Interchange Rates: The Currency of Transaction Processing Interchange rates are not arbitrary; they are meticulously calculated based on various factors. These include the type of card used, the nature of the transaction (e.g., online or in-person), and the risk associated with the transaction. Diving into the nuances of interchange rates allows businesses to comprehend the financial dynamics of each transaction and optimize costs accordingly. The Interplay of Card Networks: Visa, Mastercard, and Beyond Card networks, such as Visa and Mastercard, play a central role in establishing interchange rates. These rates are set by the card networks but are ultimately paid to the issuing banks. Understanding the relationship between card networks and interchange helps businesses navigate the landscape, as different networks may have distinct fee structures and requirements. Optimizing Financial Efficiency: Strategies for Businesses For businesses, navigating interchange goes beyond comprehension; it involves strategic optimization. By employing tactics such as encouraging the use of lower-cost cards, negotiating with acquiring banks, and staying abreast of industry changes, businesses can actively manage interchange costs. This optimization contributes to enhanced financial efficiency, a crucial factor in sustaining profitability. Building Relationships with Financial Institutions: A Mutual Exchange Interchange is not a one-way street; it represents a mutual exchange between financial institutions. As businesses become adept at managing interchange, they can foster positive relationships with both issuing and acquiring banks. This, in turn, may lead to better terms, increased trust, and a smoother payment processing experience. The Future of Interchange: Evolving Dynamics in the Digital Age As digital payments continue to reshape the financial landscape, the future of interchange is dynamic. Understanding emerging trends, such as the impact of contactless payments and digital wallets on interchange, empowers businesses to adapt proactively. Staying ahead of these changes positions businesses to harness the evolving dynamics of interchange in the digital age.

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Payment Resources

Reconciliation and Accounting of Acquiring Payments

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Chargebacks Unveiled: A Merchant's Guide to Navigating Dispute

Payment Resources

Navigating the Risk Landscape: Strategies for Effective Risk Management

Insights of Payments

Decoding Interchange: The Pivotal Cog in Payment Processing