Systematize Payment Settlement For Free

A settlement in payment gateway refers to the process by which the payment made by a customer for a product/service, is credited to the merchant account.

Merchants send batches of authorized transactions to their payment processor. The payment processor passes transaction details to the card associations that communicate the appropriate debits with the issuing banks in their network. The issuing bank charges the cardholder's account for the amount of the transactions.

Settlement can be defined as the process of transferring of funds through a central agency, from payer to payee, through participation of their respective banks or custodians of funds.

As between the two financial institutions and their respective customers, they will typically settle by debiting and crediting their respective customers' accounts they maintain. But the financial institutions involved in the transaction will also need to settle among themselves.

Payment settlement involves collecting the funds for the amount recorded for an order. For example, when using credit cards, the settlement process specifically involves contacting the payment system and collecting the required amount of funds against the credit card.

The clearing house ensures that funds are available. The transaction details are recorded. The funds are held securely until the transaction is complete. Discrepancies are investigated, with the clearing house stepping in as an intermediary.

The first part is the clearing process in which payment information is conveyed from the payor to the payee, probably through intermediary banks. The second part is settlement in which the actual transfer of value associated with the payment order is made, generally not with cash but with a claim on a bank.