Why the reconciliation of interchange between banks is crucial

 

Reconciliation is a crucial process for banks when it comes to managing their payment billings and interchange with other banks. It is a process by which banks match, validate and reconcile payment transactions with the corresponding financial records of the networks (Visa and MasterCard) to ensure that all transactions are accurate and complete.

Interchange fees are charged for transactions between two different banks, for example a consumer using a card issued by one bank (“issuing bank”) at a merchant of a different bank (“acquiring bank”). Correct and timely reconciliation is important to guarantee the correct and fair billing of such interchange fees.

Issuing and acquiring banks need to produce a valid tax invoice for each other for interchange earned and likewise verify the accuracy of invoices received from the other banks for interchange payable. This is crucial and is a legal requirement for banks to record the correct amount of vat on interchange receivable and payable. Unfortunately it is a complex process to record and verify these invoices by the accounting departments of banks and errors in these invoices can result in substantial amounts of monies being lost in vat credits by the banks. It is therefore crucial for banks to engage with payment and billing specialists like PayIP to help the banks introduce best practices in this regard and ensure that the correct amount of monies is being claimed.

Reconciliation is also an important aspect of managing risk and maintaining trust between financial institutions. By ensuring that all transactions are accurate and complete, banks can reduce their exposure to financial losses and maintain trust with other banks and customers.

In conclusion, reconciliation is an essential process for banks when it comes to managing their payment billings and interchange with other banks. It allows banks to detect and correct errors, maintain accurate financial records, ensure completion and accuracy of VAT and taxes, comply with regulatory and compliance requirements, and reducing the risk and maintaining trust with other financial institutions.

 

Contact us at info@payip.co.za for more information