Comprehensive guide to payment reconciliation for high-risk industries

Payment reconciliation ensures financial transactions are accurate and consistent across records. High-risk industries, such as gaming, marketplaces, FinTech, and more, handle large volumes of transactions across multiple currencies and payment methods.

Managing these diverse transactions requires heightened scrutiny and strict compliance, and payment reconciliation is part of the process. This article will explore the key payment reconciliation challenges high-risk industries face and the best practices to address them.

Key challenges in high-risk payment reconciliation:

High-risk payment reconciliation presents unique challenges that can disrupt financial operations and introduce compliance risks. Here are just a few of those:

1. Multi-currency transactions

International sales might be a factor contributing to being classified as high-risk. Cross-border payments also come with an added complexity of having to handle multiple currencies, and the need to reconcile these payments across these currencies.

Accurate foreign exchange (FX) conversions are essential to maintaining precise financial records. Fluctuating exchange rates can cause significant issues if not properly managed, leading to potential losses, compliance risks, and disputes with payment providers.

2. Multitude of payment methods

To serve a broad customer base, high-risk businesses must accept various payment methods, including credit cards, e-wallets, wire transfers, and cryptocurrencies. Each method comes with different processing times, regulatory requirements, and risk factors, making transaction tracking and reconciliation more complex. Reliable payment reconciliation software can simplify accurate and efficient processing across all systems.

3. Regulatory compliance

Handling payments from multiple regions requires adherence to both international and domestic financial regulations. Anti-money laundering (AML) laws, Know Your Customer (KYC) requirements, and industry-specific compliance standards add layers of complexity to payment reconciliation. Non-compliance can lead to hefty fines and reputational damage.

4. Manual reconciliation methods

Businesses in high-risk industries that process vast numbers of transactions daily and use spreadsheets for reconciliation, face inefficiencies, spend more time and resources, and run the risk of human error. Furthermore, they lack capacity to ensure daily or weekly reconciliation leading to delayed discovery of mismatches and longer issue resolution.

Mistakes in reconciliation can result in delayed financial reporting, inaccurate records, compliance violations, and potential financial losses. Read more about manual vs. automated reconciliation methods.

5. Data integrity and consistency

Typically, businesses in high-risk industries, such as iGaming, have more than one Payment Solution Provider (PSP) to hedge the risk of having their account frozen or closed and always have a fallback method for payment processing.

Ensuring accurate and consistent data across PSPs is a significant challenge as each of them have their own reporting standards that make data preparation for comparison more complex. If reconciliation is done manually, this carries significant time and human resources.

Best practices for payment reconciliation

High-risk industries require stringent reconciliation processes to mitigate fraud, errors, and regulatory non-compliance. Implementing the following best practices ensures accuracy, consistency, and security in financial operations.

1. Automation of reconciliation processes

Automating payment reconciliation can significantly improve accuracy, efficiency, and financial transparency, and there are various options you can go for:

• Specialized reconciliation software – best for organizations with high and complex transaction volumes.
• ERP-integrated reconciliation - for businesses already using ERP solutions for managing their finances and operations.
• Custom scripts and RPA (robotic script automation) - best for tech-savvy businesses with specific requirements.
• Spreadsheet-based automation – best for small businesses and startups needing quick automation.

Each of these options have their pros and cons, depending on your budget, scale and payment complexity. Spreadsheets might be great for starting out, but they quickly become too bulky and hard to navigate. Committing to a full-fledged ERP system can take months to implement and come with a hefty price tag.

If you’re looking for real-time reconciliation made possible by integrations with PSP, take a look at Reiterate - payment reconciliation platform designed for high-risk industries.

2. Enforce segregation of duties (SoD)

To mitigate fraud and errors, ensure that data entry, reconciliation, and approval responsibilities are assigned to different employees, preventing any single individual from having end-to-end control over financial transactions. For high-value transactions, implement a dual approval process to add an extra layer of oversight.

Additionally, conduct regular audits of user roles and permissions within financial systems to ensure compliance with internal policies and regulatory requirements, reducing the risk of unauthorized access or conflicts of interest.

3. Perform daily or real-time reconciliation

High-risk industries require frequent reconciliation to catch any fraudulent or suspicious activities early. A real-time reconciliation system with automated alerts to flag discrepancies is key to fraud-related risk management.

4. Regular audits and monitoring

Regular audits and monitoring help to identify and resolve payment inconsistencies early. They are important to ensure that financial records remain accurate and compliant with regulations.

Continuous monitoring creates a solid foundation for reliable reconciliation, preventing a small error from becoming a major problem later.

5. Maintain detailed audit trails

Record all reconciliation-related activities with timestamps and user actions. Keeping immutable logs will not only help you with regulatory audits but also enhance internal transparency, detect anomalies early, and provide a reliable source of truth for investigating discrepancies or disputes.

6. Set up error-handling workflows

When reconciling payments, you will inevitably encounter mismatched transaction amounts and status errors. Ensure your team and systems you use are ready to handle any exceptions, and assign responsible teams to resolve flagged issues.

7. Optimize chargeback and dispute management

High-risk payments are infamous for chargebacks and transaction disputes – be it fraud or a confused customer not recognizing a transaction on their bank statement. Payment errors have detrimental impact on customer trust and retention. Invest in refund management and dispute resolution workflows, enhance your fraud prevention strategies and leverage real-time transaction monitoring to quickly identify and address potential issues.

How to choose the right reconciliation tool for your business?

With abundance of finance and payment automation tools out there, it can be confusing to decide on the right platform for your business. Here are some key factors to consider when comparing various tools and methods:

Automation capabilities

Assess how much of the reconciliation process the tool can automate, reducing manual effort and errors. A good reconciliation tool should minimize the manual work that your team has to do and strive for near real time transaction monitoring. Look for AI-powered platforms that are able to adapt to your proceses.

Integration with existing systems

The largest amount of time in payment reconciliation goes into retrieving and standardizing the data. Look for platforms that are able to automatically fetch data from your PSP back office and internal records for matching, and automatically post results in your accounting platform.

Scalability

If your business is going through a phase of rapid growth, a solution that works now might no longer cut it in 6 months time. Ensure your chosen platform has the ability to scale and adapt to growing transaction volumes and complexity.

Customization and flexibility

Unless you build your own platform, no software will be a hundred percent fit for your business processes. Map out your unique needs and ensure that the software allows you to create custom workflows, matching rules and desired financial reporting formats.

Multi-currency and multi-entity support

If you operate globally, make sure to inquire about payment reconciliation across multiple currencies, such as automatic exchange rate conversions and general multi-currency support, including cryptocurrencies. Similarly, if you’re in need for multi-entity reconciliation, ensure consolidation across subsidiaries is possible.

User experience and ease of use

Often overlooked in the financial software space, good user experience and clean interface can make it or break it when it comes to your teams adopting the new tool. A responsive support team, onboarding programs and training resources can help you maximize the tools effectiveness and return on investment.

Ready to automate your payment reconciliation?

Reiterate automates payment operations and financial close for companies with high transaction volumes and multiple payment solution providers. From AI-powered PSP transaction data collection, standardization, and reconciliation to advanced fee analytics dashboards and month-end balances.