A Simple Description Of The Credit Card Clearing and Settlement Process

Cashless transactions have become the norm in today’s modern trading environment. Whether transacting in brick and mortar stores, or online, credit cards have eliminated the hassle associated with holding and carrying cash.

Understanding the credit card clearing and settlement process will help you better understand the intricacies of this modern payment system including the fees involved, regardless of whether you are a merchant or consumer.

Submission And Authentication

Before we jump into our description of the clearing and settlement process it’s important for us to quickly mention where credit card process starts. The first step in credit card processing is submission. This is where the consumer submits their card, or card information, to a merchant for payment of their purchases.

The merchant then passes on the information collected to a payment processor, charged with the responsibility of processing credit card transactions on behalf of the acquiring bank. Note that the acquiring bank is the merchant’s bank. The payment processor will then pass on the information to a credit card network that then passes the information to specific issuing banks for authentication.

Once the issuing bank has received and authenticated the information submitted, they send back an “accept” or “declined” response.

Clearing And Settlement


At the end of the day all the approved transactions are sent through to the issuing bank through the same network for clearing and settlement. These two stages usually happen simultaneously and are reflected in the cardholder’s monthly bill as well as the merchant’s statement.


This step generally refers to the stage in which the transaction processor and the card issuing bank exchange transaction information. The payment processor usually submits the list of approved transactions to the credit card network being used. Different credit card networks will handle the clearing stage differently; in general however, they edit each transaction, adding in the appropriate fees. Afterwards, each approved transaction is sent to the specific issuing bank.

At this point it is worth noting that no funds are transferred during the clearing stage; only data relating to the transactions being processed.


In this stage, the issuing bank transfers funds to the acquiring bank less the amount to be paid to credit card networks and processors. During this stage, the merchant is reimbursed for their card sales.

It is worth noting that the settlement is made on an aggregate net basis. This means that the issuing bank will aggregate all the debits and credits resulting from the credit card transactions submitted by an acquiring bank and then send a net amount.

Usually, the issuing bank makes debits on their cardholders accounts as they make purchases; however, credits may arise in some instances, the most common being when making product returns. Read about CBD Payment Processing Companies That You Should Contact

On the other hand, acquiring banks usually make credits on merchant accounts during the settlement stage. However, debits may be made in case of transactions that involve chargebacks and discounts among others.

From the outside, the credit card payment process may seem simple as it only takes a few seconds to complete a transaction; however, as you can see from the above, it’s nothing but. Read some credit card payment processing steps .