How Does The Settlement Process Work In A Payment Gateway?

20 / 06 / 2023

The settlement process in a payment gateway is a crucial element of online transactions. It involves a series of steps that occur after a customer makes a purchase, ensuring the funds are aptly transferred from the customer's account to the merchant's account. This process involves various intermediaries, including the payment gateway, acquiring bank, issuing bank, and card networks.


Understanding the intricacies of the settlement process can help businesses streamline their operations and provide a seamless customer experience. Let us delve into the mechanics of the settlement process and understand how payment gateways like Worldline help in facilitating smooth financial transactions.

The End-To-End Process Of A Payment Gateway

The settlement process is an essential aspect of payment processing, ensuring that merchants receive funds for their online transactions. Understanding the payment processing timeline helps businesses effectively manage their cash flow and maintain accurate financial records.

Step 1: Authorisation- When a customer initiates a transaction, the payment gateway sends a request to the issuing bank for authorisation. This step is crucial as it helps determine if the customer has sufficient funds or the credit limit to make the transaction. The bank verifies the customer's account balance and either approves or declines the transaction based on the available funds. Apart from account balance, the bank may also consider factors such as fraud detection, card expiry, and transaction limits before providing authorisation.

Step 2: Clearing- After authorisation, the transaction details are forwarded to the acquiring bank through the card network (e.g., Visa or Mastercard). The acquiring bank acts as the intermediary between the merchant account and the card network. At this stage, the acquiring bank processes the transaction and verifies the transaction details, and calculates the net settlement amount after accounting for interchange fees, assessment fees, and other payment gateway fees.

Step 3: Fund Transfer- Once the clearing process is complete, the acquiring bank transfers the funds to the merchant's account after deducting the transaction fees, such as the merchant discount rate (MDR). The time taken for the funds to be deposited into the merchant's account varies depending on the payment gateway and the bank's settlement cycle. Typically, this process takes 2-3 business days; however, certain payment gateways may offer faster settlement options to cater to merchants' specific needs.

Step 4: Reconciliation- Reconciliation allows merchants to ensure that the funds deposited into their accounts match the total sales made. This involves comparing the transaction records from the payment gateway with the merchant's internal records and the bank statements to identify any discrepancies or errors. Payment gateways like Worldline provide reconciliation tools and comprehensive reporting features to help merchants efficiently manage their financial records, track their transactions, and resolve any discrepancies in a timely manner.

Features of a Reliable Payment Gateway

  • Fast Payment Settlements: A reliable payment gateway is designed to facilitate quick settlements, helping merchants receive their funds in a timely manner and improve their cash flow.
  • Security and Compliance: Adhering to the highest security standards, such as the Payment Card Industry Data Security Standard (PCI DSS) compliance, a dependable payment gateway ensures the protection of sensitive customer data and reduces the risk of fraud.
  • Customisable Settlement Cycles: Offering customisable settlement cycles, a reliable payment gateway allows merchants to choose a frequency that best suits their business needs. This feature of payment gateways enables businesses to better manage their cash flow and financial planning.
  • Comprehensive Reporting: A trustworthy payment gateway provides merchants with detailed reports and analytics, enabling them to monitor their transactions, settlements, and overall business performance. These insights can be invaluable for making data-driven decisions, optimising payment processes, and identifying potential areas of improvement or growth.


Understanding the settlement process in a payment gateway is vital for businesses operating in the digital landscape. By partnering with a reliable and secure payment gateway like Worldline, businesses can ensure smooth, efficient, and secure financial transactions, paving the way for growth and success. Click here to learn more about Worldline's payment gateway solutions and how they can benefit your business.

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Worldline India Editorial Team