Settlement
Settlement is the process by which funds are transferred from a payer's bank to a payee's bank after a payment transaction is authorized and captured. In payment processing, settlement converts an authorized transaction into actual money movement — the point where the merchant's bank account balance increases. Settlement timing, netting behavior, and fee deduction methods vary by processor and region, making settlement reconciliation one of the most operationally complex reconciliation types for fintechs processing across multiple PSPs.
Key Details
- Settlement cycles vary by processor: T+1 (Stripe standard), T+2 (traditional card networks), T+0 (instant settlement offerings), or weekly batches
- Gross settlement deposits the full transaction amount and deducts fees separately; net settlement deducts fees before depositing — reconciliation logic differs for each
- Batch settlement groups multiple transactions into a single bank deposit, requiring one-to-many matching during reconciliation
- Rolling reserves hold a percentage of settlements for high-risk merchants, creating timing differences between expected and actual deposits
- Cross-border settlement involves intermediary banks, currency conversion, and correspondent banking fees that must be reconciled separately
- Settlement failure — where expected funds do not arrive — requires immediate investigation as it may indicate processor issues or fraud
- Reconciliation matches individual authorized transactions to settlement batches, accounting for fees, refunds, chargebacks, and adjustments