Settlement is the process of transferring funds from the cardholder’s bank (the issuing bank) to the merchant’s bank (the acquiring bank). This is the final step in a card transaction, following authorization and posting.

The settlement process begins when the merchant batches out and submits all transactions to the acquirer at the end of the day. The acquirer then forwards these transactions to the card networks (e.g., Visa, MasterCard, etc.) who in turn route them to the issuing banks for posting.

The issuing banks then debit the cardholders’ accounts for the transaction amounts and credit the acquirer’s settlement account.

Finally, the acquirer credits the merchant’s bank account for the net settlement amount, which is the total value of transactions minus any chargebacks, fees, and other adjustments.

The settlement process is typically completed within one to three business days, although the exact timing may vary based on the acquirer and the merchant’s agreement. It is a critical step in the payment processing cycle as it ensures that merchants receive the funds for the transactions they have processed.