Answer first
A settlement waterfall explains how gross settlement becomes expected net before comparing it with the bank receipt, so only the remaining evidence-backed residual is investigated as potential leakage.
A gross-to-bank difference is not automatically leakage.
Refunds, chargebacks, fees, FX costs, tax, reserves, and adjustments must be explained before expected net is calculated.
Difference, unexplained residual, confirmed leakage, and recovered value are distinct financial states.
What is a settlement waterfall?
A settlement waterfall is a reproducible gross-to-net calculation. It starts with gross settlement value, applies legitimate signed components, produces expected net settlement, and then compares that value with the actual bank receipt.
The result of that comparison is an unexplained residual—not automatically a financial loss. Investigation and evidence determine whether the residual is a fee overcharge, FX leakage, short settlement, unexpected fee, timing issue, source-data problem, or a valid adjustment not yet classified.
Unexplained residual = absolute difference between expected net settlement and the matched actual bank receipt, after legitimate components have been applied exactly once.
Which components explain gross-to-net settlement?
The exact component set depends on the provider contract, corridor, settlement cycle, and source evidence. Each component keeps its sign, currency, source record, rule version, and measurement basis so the calculation can be replayed.
| Component | Typical effect | Minimum evidence |
|---|---|---|
| Refund or chargeback | Reduces eligible settlement | Transaction or PSP adjustment record |
| PSP fee | Reduces expected net | Pricing rule and settlement fee line |
| FX cost | Explains conversion result | Rate, spread, timestamp, and currencies |
| Bank fee or tax | Reduces final receipt when contractually valid | Bank or provider fee evidence |
| Reserve | Temporarily withheld value | Reserve rule and release terms |
| Adjustment | Signed correction | Typed reason and attributable source |
Difference is not residual, and residual is not leakage
A difference only says two values are not equal. An unexplained residual says known legitimate components do not yet explain the remaining gap. Confirmed leakage requires sufficient evidence that the residual represents an actual overcharge, short settlement, or other recoverable loss.
Recovered value is later still: it requires an external recovery record or explicit customer confirmation. Approving a recommendation does not prove that money was recovered.
| State | Meaning | May be reported as recovered? |
|---|---|---|
| Difference | Two compared values differ | No |
| Unexplained residual | Legitimate components do not explain the remaining gap | No |
| Confirmed leakage | Evidence supports an actual financial loss or claim | No |
| Recovered value | Recovery is externally evidenced or customer-confirmed | Yes |
A simple settlement waterfall example
Suppose gross settlement is USD 100,000. Verified refunds are USD 900, PSP fees are USD 500, reserve withholding is USD 400, and tax is USD 100. Expected net is therefore USD 98,100. If the bank received USD 98,000, the unexplained residual is USD 100—not the original USD 2,000 gross-to-bank gap.
Traqvera investigates the USD 100 residual, preserves the composition and evidence, and only upgrades a supported amount to confirmed leakage. Unknown data remains unknown rather than being presented as loss.
How this improves a Settlement Leakage Audit
A credible audit reports processed gross value, legitimate deductions, expected net, actual bank receipt, unexplained residual, confirmed leakage, and pending investigation separately by currency. It does not silently net currencies or let residuals cancel across unrelated settlement groups.
This structure shortens time to first finding because a template can classify common components quickly, while retaining the calculation, source records, and evidence needed for finance review and recovery action.
Traqvera uses deterministic arithmetic for the waterfall. AI can retrieve evidence and help classify a residual, but it does not own the financial amount or recovery conclusion.