The steps in the payment process that mean that the merchant
actually gets paid are called clearing and settlement.
In clearing,
each merchant sends a summary of all their day's transactions to their acquirer.
This will typically just contain the primary account number
of the card used to make the transaction,
the authorization reference, and the amount. None of the other data
that we use for authorization, such as the full track data, will be
included in the clearing message.
And this is important because authorization messages
contain more data than clearing messages.
Each acquirer then splits every merchant's transactions out into each
card scheme, and I've just shown one scheme here on the screen to
make it easy to follow. The scheme works out which transactions for
which issuing bank, and it does this based on the first six or eight
digits of the BIN,
which you will remember is the bank identification number. And it sends
all the transactions for each issuing bank together.
The issuing bank then works out how much money it owes to the card scheme
for every transaction included in the day's clearing data, and the
issuing bank sends the money to the card scheme.
When the issuing bank sends the money, this is called settlement.
The scheme then sends this onto the acquiring banks who separate it
out and then send the money back to the merchants.
Some merchants get their funds the next day; whereas, others might
wait a few days or even a month before receiving their money. When a
merchant receives their money is based on the agreement between the
merchant and the acquiring bank.
And this mostly depends on the sort of goods or services the
merchant sells and how long the merchant's been in business. Now,
for clearing in a three‑party scheme,
remember there's no acquirer, and there's no issuing bank.
So the merchants send a summary of all their day's
transactions directly to the scheme.
Then the scheme settles the money to the merchants directly.
Now, remember what we said about irregularities in the payment system?
Well, this is really noticeable in authorization,
clearing, and settlement. Firstly,
not all transactions are authorized. Depending on the amount of the
transaction and sometimes how the transaction is made,
there may not be an authorization request.
Sometimes the merchant will just choose to trust that they will get
paid once they've captured the cardholder's data.
Often, the merchant won't send a clearing file. The acquirer or the
scheme or a service provider will work this out for them.
And even if the merchant does make a clearing file,
sometimes you'll hear merchants refer to their clearing files as
settlement files, which is very confusing.
The message formats and the contents of the messages between the acquirers,
merchants, and schemes differs between different acquirers in
different countries and in different payment schemes.
And in some countries,
you'll find there's actually no clearing. Settlement is just
worked out from the authorization request.
But whatever happens, there will, at a minimum,
be one message that leaves the merchant and will contain
sufficient data for the issuer to debit the cardholder and
then send the money to the merchant.