Settlement
The final stage in payment processing where funds are transferred from the cardholder's issuing bank through the card network and acquiring bank to the merchant's bank account, completing the transaction initiated during authorization.
Settlement is distinct from authorization, which happens in real-time when a transaction is approved or declined. While authorization verifies that funds are available and reserves them (taking seconds), settlement involves the actual movement of funds between banks and typically occurs in batches.
The settlement process follows these steps: First, the merchant closes their batch of authorized transactions (usually automatically at end of business day). Next, transaction data is transmitted to card networks for clearing. The card networks then facilitate fund transfer from issuing banks to acquiring banks. Finally, the acquiring bank deposits funds into the merchant's business bank account.
Standard settlement timing varies by processor and merchant agreement. Most merchants receive funds 2-3 business days after batch close (T+2 or T+3), though next-day settlement (T+1) may be available for an additional fee. Settlement can occur as either gross settlement, where funds transferred match total sales with processing fees billed separately, or net settlement, where processing fees are deducted before funds are transferred to the merchant account.
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3D Secure
An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.
ACH Payment
Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.
Acquirer
A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.
Address Verification Service (AVS)
A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.
Aggregator
A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.