Everything You Need to Know About Payment Gateway Settlement
In the realm of payment processing, one of the most commonly used phrases shop sellers are aware of is “payment gateway settlement“. In this article, we will be shedding light on various aspects and functions of payment gateway settlement.
What is Payment Settlement?
Payment processing typically occurs in two significant steps: Authorization and Settlement. Payment Authorization involves the verification of items like the cardholder’s details and balances remaining to be paid online. Whereas, settlement is the procedure in which the transaction is debited from the cardholder’s account and then credited to the merchant’s bank account.
Simply stated, the meaning of payment gateway settlement is where the bank transfers funds instantly without any delay. It is the procedure by which the funds are transferred from the bank of the customer to the bank of the merchant.
The settlement of a payment gateway is an alternative way to say that once the customer makes their payment, money will be credited to the merchant’s account straight at the moment. Settlements that are instant for merchants are essential in order to make sure that companies are promptly paid.
What exactly is the function of a Payment Gateway Settlement?
If the cardholder makes the transaction, the card will be processed, and based on the balance in the card holder’s bank account, the transaction is either accepted or rejected. If the transaction is not approved, it means that the cardholder doesn’t have sufficient funds to make the transaction.
After the transaction is completed, the issuing bank sends the money to the processor. The processor then transfers the funds to the bank that facilitated the transaction, and the amount is debited from your merchant’s bank account.
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Processes that are involved in the payment gateway settlement process
The client initiates the payment by entering the account information or using the card to purchase items. After the successful authentication of the customer’s and the bank’s information, the amount is deducted from the customer’s bank account. The debit balance is transferred to the bank that is acquiring its Visa card networks. The acquirer debits this amount from the merchant’s account. The term “settlement” is also used to mean the amount that is transferred through an acquisition company to a retailer to allow online payment.
In general, it can be T+2 or T+3 days. T is the date that the customer makes the initial transaction. However, this time frame can be different depending on the payment settlement method and the settlement cycle.
Types of Settlement Mechanisms
There are two settlement methods. The mechanisms are based on who is handling files for the settlement.
1. Terminal capture
The merchant is entirely accountable for this kind of settlement. It is usually done by sending a settlement email together with a settlement file containing information regarding the transactions that need to be paid.
The seller must keep the information. During the day, the details will be used to construct an array of transactions that must be completed. The files are typically in a queue and classified as settled after just a few hours after midnight.
Although terminal capture settlement allows the merchant greater control over the settlement process, this kind of settlement needs the storage as well as management of confidential information and is an expensive maintenance procedure.
2. Host capture
In this kind of settlement, everything needed to settle the transaction, including authorization, etc., is processed through the gateway. Host capture saves batches of settlement files onto the processor.
All transactions during the day are chosen in random intervals of time. Host capture permits the merchant to authorize the transactions without keeping the information between approval and payment. Host capture is much easier to use. The date of settlement can be different. Settlement can occur daily and at a specific date and time.
Selecting the Gateway Settlement Approach
When deciding on the best settlement method, any business should think about the best solution that is merchant-initiated or time-initiated, as well as terminal capture. It is also essential to think about the structure of your business and its requirements. Because both systems have particular features, it’s an organizational structure that could aid in choosing the settlement technique that’s best for the specific business. A merchant must select an option for settlement that allows all functions to be accommodated in accordance with the requirements of the business.
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