Behind the Balances- Reconciliation Part 1
Reconcile
Are you willing to reconcile?
Have you reconciled?
Sounds like a fight coming to its end, right?
But it is not so, we are talking about something that concerns more about not people reconciling but numbers living in harmony so that it reflects stability and profitability.
Here the hero is Reconciliation, a meticulous act of matching numbers, spotting what’s off, and making things right. But here’s another twist, it is
One that doesn’t happen at the desk,
One that most of us never see,
Yet rely on every single day.
Because it happens behind the scenes of our everyday transactions like card swipes, UPI transfers, ATM withdrawals etc. And there’s a far more complex kind of reconciliation at play.
What’s Being Reconciled?
Reconciliation ensures these records align and match. Here’s a breakdown of what gets reconciled behind the scenes:
1. Credit & Debit Card Transactions
- POS swipes, online payments, and card network interactions (Visa, Mastercard, RuPay etc)
- Reconciled between the issuing bank, acquiring bank, merchant system, and card network
2. Cash Withdrawals
- ATM withdrawals through the National Financial Switch (NFS)
- Ensures withdrawal logs and balance updates align with the bank’s Core Banking System (CBS)
3. Digital Wallets & Linked Services
- Transactions through wallet apps and linked services (e.g., FASTag for toll payments)
- Involves the wallet provider, bank, and respective service authority (like toll operators in case of FASTag)
4. Real-Time Payments
- Immediate payments via UPI, IMPS transfers, and NEFT batch settlements
- Reconciled between the CBS, payment switches, NPCI/URCS etc.
5. Merchant Transactions via Payment Gateways
- Online payments through gateways (Razorpay, PayU, etc.)
- Involves gateway provider, card network, merchant, bank account, and settlement bank
These transaction triggers multiple records across different systems.
Where Do Transaction Records Live?
Every transaction leaves a trail across different systems. Here’s where those records typically live:
1. Core Banking System (CBS)
The bank’s internal system that maintains account balance and official transaction history, the single source of truth.
2. Authorization & Settlement files
Handle whether a transaction should go through and how funds are settled between parties.
Examples:
- NPCI/URCS for UPI, IMPS etc
3. Card Schemes
For credit/debit card transactions. These networks facilitate processing, routing, and log generation. Examples: Visa, Mastercard, RuPay
4. Internal Switches & Middleware
These are systems banks use to route and process transactions between their CBS and external interfaces. They log their own copy of each transaction for traceability.
5. Third-Party Platforms (Wallets, Gateways, Merchants)
Systems like Paytm, PhonePe, Razorpay, or merchant POS maintain parallel logs. These also need to reconcile with banks for accurate tracking and settlements.
Types of Reconciliation
Types of reconciliation in banking operations vary in complexity, ranging from simple internal checks to comprehensive cross-system verifications.
In a 2-way reconciliation, the bank compares two files. Say, one from its CBS showing ₹50,00,000 debited, and another from the card network showing ₹50, 00,000 processed. If both match in terms of amount, transaction ID, and timestamp, it’s cleared.
In a 3-way reconciliation, the bank compares three files. Say, the bank compares the debit from CBS, the routing confirmation from the switch, and the processing details from the card network. Even if two match, a mismatch in the third means manual tracing is required to find where things went wrong. (this is refereed as Variance in banking operations)
n-Way reconciliation, as the name suggests the bank compares multiple files from different parties. Happens in more complex setups, here, the bank compares data across CBS, internal switch, card network, payment gateway, merchant backend, settlement files, and even customer-facing logs. Every source must confirm the same transaction.
The more systems involved, greater the effort and the higher the risk of mismatch.
Reconciliation isn’t just about comparing two columns of numbers. It’s about ensuring that every transaction, no matter how small or fast is correctly recorded, tracked, and settled across multiple systems. Be it a UPI transfer, card swipe, cash withdrawal from ATM etc there’s a complex web of systems talking to each other and reconciliation ensures they all say the same thing.
But does it stop there? No, it doesn’t, we still need to explore why reconciliation is done and how it is achieved in this complex industry.
Keep a watchful eye out for Part-2!
P.S: What topic do you think we should explore next? Let us know in the comments.
