Clearing and settlement

Clearing decides who owes whom. Settlement moves the money. They are a day or so apart, and neither of them puts anything in your bank account. That is funding, which comes later still.

Clearing

Once the batch closes, the acquirer sends clearing records to the network. The network works out which interchange category each transaction falls into, calculates the fees, and posts the amounts to the issuer and the acquirer.

This is the moment a transaction's price is finally set, and it is set using decisions made much earlier: whether the card was present, whether authentication ran, how long capture took, whether the industry-specific fields were filled in properly.

Downgrades happen here. A transaction that qualified for a good category at authorization can land in a worse one at clearing because it was captured late or arrived with data missing. Nobody tells you at the time. It shows up as a line on a statement weeks later, which is why interchange optimisation is a reporting exercise rather than something you can fix in real time.

Settlement

The network works out each member's net position and moves funds between issuer and acquirer settlement accounts, normally on the next banking day.

Two properties matter. Settlement is net, not gross: sales, refunds and chargebacks all offset each other, so no settlement figure will ever match a single transaction. And it runs on banking days, so a Friday evening batch and a Monday morning batch can settle together.

Three fees people call one fee

Fee	Paid to	Set by	Varies with
Interchange	Issuer	Network schedule	Card type, channel, data quality
Assessments	Network	Network	Volume and transaction count
Processor markup	Acquirer, PSP, or facilitator	Your contract	What you negotiated

Only the third is negotiable with your provider. When someone offers to "reduce your interchange," what is actually on the table is either qualifying for better categories through better data, or cutting the markup.

Pricing models differ mostly in how much of this you get to see. Interchange-plus itemises all three. Blended or flat-rate charges one percentage whatever the card, which is simpler and hides which of your transactions are expensive. Tiered pricing sorts transactions into buckets the provider defines, so the tier definitions matter far more than the headline rate.

Reconciliation

Settlement figures do not tie to order figures without work. A settlement amount is net of refunds and chargebacks, possibly net of fees, aggregated across a batch, and dated by batch close rather than by purchase.

Reconciliation order

Match at the largest grain first.

1. Match the bank deposit to the funding record.
2. Match the funding record to the batch.
3. Match the batch to individual transactions.

Do not try to find an order total inside a bank deposit.

Terms introduced

• Clearing — the exchange of records that assigns fees and positions.
• Downgrade — a transaction falling into a worse interchange category than it qualified for.
• Net settlement — sales, refunds and chargebacks offset into one figure.
• Assessments — the network's own fees, separate from interchange.
• Interchange-plus — pricing that itemises interchange, assessments and markup.

Clearing and settlement

0 of 5 answered

1. Why will a settlement figure rarely match any single order total? Select all that apply.

   Settlement is net of refunds and chargebacks.It aggregates a whole batch.It may be net of fees, depending on the funding arrangement.It is dated by batch close rather than by purchase.
2. At which step is the final cost of a transaction determined?

   Clearing.Authorization.Capture.Funding.
3. What does flat-rate pricing hide that interchange-plus exposes?

   Which transactions are genuinely expensive to accept.The total amount paid in fees.Whether settlement occurred.The number of transactions in a batch.
4. Which fee is the card network's own revenue?

   Assessments.Interchange.The processor markup.The dispute fee.
5. Which component of processing cost is actually negotiable with your provider?

   The processor's markup.Interchange.Network assessments.All three equally.