A payment settlement is when a business receives money owed for a good or service. The payment transaction is initiated by a customer purchasing a product.
Payment settlement happens when the customer’s bank clears the transaction and deposits the funds into the businesses’ bank account.
A payment settlement is the final step in a series of events that take place during a payment transaction.
There are several different parties involved in the transaction, that includes the customer, the business, the customer’s issuing bank, and the businesses’ merchant account.
The first step involves the customer swiping their credit or debit card to pay for the good or service. This could happen in person, or online. It could be conducted with the physical card present, or with the use of a smartphone app such as Apple Wallet.
In the second step, the details of the transaction are processed by the business's merchant account, and a notification is sent to the customer’s issuing bank. If the customer is using a credit card their issuing bank may be something like Visa or Discover.
The issuing bank determines if the transaction is valid and if the customer has enough funds in their account to fulfill the transaction.
After the transaction amount has been cleared by the customer’s issuing bank, the money is then sent to the business owner’s merchant account. The merchant account acts as a bank account for digital transactions.
At this point, the payment is considered settled. The merchant bank will issue the funds to the business promptly.
This process would not be possible without the customer’s issuing bank, and the business's merchant account. The two institutions communicate behind the scenes to process the transaction information and complete the payment.« Back to Glossary Index
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