By Ezekiel Olukunle Aboderin
It’s the digital age’s ultimate contradiction: a payment takes milliseconds, but getting your money back can take seven to ten business days. This delay isn’t just a nuisance; it’s a structural vulnerability in the FinTech ecosystem, eroding consumer trust with every day that a reversal of money that was never truly settled is stuck in the system.
In my fourteen years navigating the financial plumbing across leading Payment Operations for global platforms, I’ve seen this agonizing process up close. The root cause isn’t malicious; it’s an outdated reconciliation framework that treats real-time transactions with a batch-processing mentality.
The Critical Distinction: Refund vs. Reversal
To fix the problem, we must speak the industry’s language.
A Refund is a merchant liability. The initial transaction was complete, settled, and the funds are in the merchant’s account. The merchant willingly returns the money, for a product return or service cancellation. This is a deliberate, business-initiated action.
A Reversal, on the other hand, is an unmatched settlement failure. The payment was debited from the customer’s account but failed to successfully credit the beneficiary due to a technical timeout, network latency, or a failure in the card authorization (e.g., an incorrect CVV). The money is stuck in transit,a ghost payment demanding financial assurance.
The drivers for reversals are technical failures, API integration hiccups, or issues in the Clearing and Conversion process that reveal the cracks in a firm’s operational core. And the biggest crack is how we approach reconciliation.
Our focus is squarely on reversals because their processing is deeply tied to the financial system’s core plumbing, specifically, the reconciliation framework.
The Reconciliation Blind Spot: Why Delay is the Default
The delay isn’t just about speed; it’s about data assurance. A reversal is slow because the firm must confirm that the funds were never successfully passed to the next party in the payment chain before initiating the return to the customer. This confirmation process, the reconciliation, is where FinTech often fails to scale.
When a payment fails (a reversal driver), it creates an unmatched transaction. Your account shows a debit, but the recipient’s system doesn’t show a corresponding credit, or the payment network flags a failure.
This is where the slowdown begins:
1. Batch Processing: Many legacy systems,and even newer ones relying on these older systems don’t reconcile in real-time. Instead, they process transactions in large batches, often overnight. A failure that happens at 10 AM may not be fully identified and flagged as an unmatched debit until the next morning.
2. Multilateral Handoffs: A single payment can pass through multiple entities: your bank, the card network (Visa/Mastercard), the payment processor, and the receiving bank. Each entity has its own ledger and reconciliation process. A reversal requires each entity in the chain to confirm the failure and reverse the corresponding entry in its own ledger—a complex, multi-day coordination effort.
3. Non-Standard Data Ingestion: Transactions flow in from multiple international rails and payment processors (Visa, Mastercard, Amex, Cryptos). If each data stream uses different naming conventions, unique identifiers, and error codes, automated matching is impossible.
4. The Absence of an Intuitive Reconciliation Bedrock: For many FinTechs, the initial focus is speed-to-market and user-facing features, with reconciliation often tacked on later as a manual or semi-automated process. This is a critical mistake.
In my career, I’ve seen the exponential complexity of this issue. It demands treating reconciliation not as a clerical task of ledger lookups, but as a proactive, engineering-led function.
The Missing Bedrock: Solution Design:
My intuitive bedrock for a better system is Solution Design for Reconciliation as a bespoke case.
Instead of treating reconciliation as a back-office chore, it must be integrated into the product’s architecture from day one. In a rapidly scaling FinTech, simply relying on manual ledger-checking or generic, off-the-shelf software is a formula for disaster.
Lack of early solution design, product/rail specific directly affects the ability to build best-in-class, automated reconciliation systems:
● Manual Dependency: Without a clear design, FinTechs rely on human operators to manually cross-reference spreadsheets and data exports, identifying mismatched transactions. This is inherently slow, error-prone, and doesn’t scale.
● Preventing Automation: Automated reconciliation requires structured, standardized data tags and identifiers across all internal systems. If the initial payment flow doesn’t mandate these data standards, automation becomes impossible, requiring constant, expensive human intervention to ‘clean’ and match data. This is what keeps your money stuck.
The Future is Now: AI and the Promise of Instant Return
To truly standardize the reversal process, especially in traditionally hard-to-reach regions where payment infrastructure is nascent, we must turn to advanced AI.
● LLMs for Standard Translation: Large Language Models (LLMs) and Natural Language Processing (NLP) can be used to read and instantly normalize the varied, often narrative-style reports, and failure messages that come from diverse, unstructured payment partners in emerging markets.
● Anomaly Detection: AI identifies unusual patterns, a debit without a subsequent credit confirmation in real-time, instantly notifying the system to execute the reversal, bypassing the multi-day, multi-party manual coordination effort.
● Autonomous Reconciliation: The future is an autonomous system, where the payment network itself is trusted and self-correcting. We must transition from manually comparing ledgers to systems that utilize real-time Digital Twin technology, ensuring the ledger state is always consistent across all parties.
The era of ‘instant’ payment can only be truly realized when we move past the current, painful lag for failed transactions. By prioritizing solution design for reconciliation and leveraging AI, the digital finance world can finally close the digital wallet black hole, ensuring that when a payment fails, your money is back in your hands before you even hang up the phone.
