Payments Training Hub
Settlement: process PAYMENT OPERATIONS STARTED LIVE 01 Settlement - which the money behind a payment actually ACTIVE 02 Three-way reconciliation - Every morning, the reconciliation team QUEUED 03 Interchange fee - depends on the card type QUEUED 04 Payout file - fees deducted, and the net amount to be QUEUED 05 Raise an exception case - Third, the team raises an exception case QUEUED 06 Three agree - When all three agree QUEUED Settlement is the process by which the money behind a payment actually moves between financial institutions. Step 1 of 6 Settlement: process STARTED Settlement which the money behind a payment actually ACTIVE Three-way reconciliation Every morning, the reconciliation team QUEUED Interchange fee depends on the card type QUEUED Payout file fees deducted, and the net amount to be QUEUED Raise an exception case Third, the team raises an exception case QUEUED Three agree When all three agree QUEUED Settlement is the process by which the money behind a payment actually moves between financial institutions.
Three-way reconciliation records PAYMENT OPERATIONS IN PROGRESS LIVE 01 Settlement - which the money behind a payment actually DONE 02 Three-way reconciliation - Every morning, the reconciliation team ACTIVE 03 Interchange fee - depends on the card type QUEUED 04 Payout file - fees deducted, and the net amount to be QUEUED 05 Raise an exception case - Third, the team raises an exception case QUEUED 06 Three agree - When all three agree QUEUED Every morning, the reconciliation team compares three sets of records, the transactions recorded in the payment system, the settlement files received from the card schemes Step 2 of 6 Three-way reconciliation records IN PROGRESS Settlement which the money behind a payment actually DONE Three-way reconciliation Every morning, the reconciliation team ACTIVE Interchange fee depends on the card type QUEUED Payout file fees deducted, and the net amount to be QUEUED Raise an exception case Third, the team raises an exception case QUEUED Three agree When all three agree QUEUED Every morning, the reconciliation team compares three sets of records, the transactions recorded in the payment system, the settlement files received from the card schemes
Interchange fee PAYMENT OPERATIONS IN PROGRESS LIVE 01 Settlement - which the money behind a payment actually DONE 02 Three-way reconciliation - Every morning, the reconciliation team DONE 03 Interchange fee - depends on the card type ACTIVE 04 Payout file - fees deducted, and the net amount to be QUEUED 05 Raise an exception case - Third, the team raises an exception case QUEUED 06 Three agree - When all three agree QUEUED The interchange fee depends on the card type Step 3 of 6 Interchange fee IN PROGRESS Settlement which the money behind a payment actually DONE Three-way reconciliation Every morning, the reconciliation team DONE Interchange fee depends on the card type ACTIVE Payout file fees deducted, and the net amount to be QUEUED Raise an exception case Third, the team raises an exception case QUEUED Three agree When all three agree QUEUED The interchange fee depends on the card type
Payout file lists every transaction PAYMENT OPERATIONS IN PROGRESS LIVE 01 Settlement - which the money behind a payment actually DONE 02 Three-way reconciliation - Every morning, the reconciliation team DONE 03 Interchange fee - depends on the card type DONE 04 Payout file - fees deducted, and the net amount to be ACTIVE 05 Raise an exception case - Third, the team raises an exception case QUEUED 06 Three agree - When all three agree QUEUED The payout file lists every transaction, the fees deducted, and the net amount to be paid, and it is sent to the merchant's bank account through a bulk payment. Step 4 of 6 Payout file lists every transaction IN PROGRESS Settlement which the money behind a payment actually DONE Three-way reconciliation Every morning, the reconciliation team DONE Interchange fee depends on the card type DONE Payout file fees deducted, and the net amount to be ACTIVE Raise an exception case Third, the team raises an exception case QUEUED Three agree When all three agree QUEUED The payout file lists every transaction, the fees deducted, and the net amount to be paid, and it is sent to the merchant's bank account through a bulk payment.
Raise an exception case PAYMENT OPERATIONS IN PROGRESS LIVE 01 Settlement - which the money behind a payment actually DONE 02 Three-way reconciliation - Every morning, the reconciliation team DONE 03 Interchange fee - depends on the card type DONE 04 Payout file - fees deducted, and the net amount to be DONE 05 Raise an exception case - Third, the team raises an exception case ACTIVE 06 Three agree - When all three agree QUEUED Third, the team raises an exception case and contacts the scheme or the bank if the cause is external. Step 5 of 6 Raise an exception case IN PROGRESS Settlement which the money behind a payment actually DONE Three-way reconciliation Every morning, the reconciliation team DONE Interchange fee depends on the card type DONE Payout file fees deducted, and the net amount to be DONE Raise an exception case Third, the team raises an exception case ACTIVE Three agree When all three agree QUEUED Third, the team raises an exception case and contacts the scheme or the bank if the cause is external.
Three agree PAYMENT OPERATIONS COMPLETE LIVE 01 Settlement - which the money behind a payment actually DONE 02 Three-way reconciliation - Every morning, the reconciliation team DONE 03 Interchange fee - depends on the card type DONE 04 Payout file - fees deducted, and the net amount to be DONE 05 Raise an exception case - Third, the team raises an exception case DONE 06 Three agree - When all three agree ACTIVE When all three agree, the day is clean, and the 200 rupees of fees are recorded separately in the finance system. Step 6 of 6 Three agree COMPLETE Settlement which the money behind a payment actually DONE Three-way reconciliation Every morning, the reconciliation team DONE Interchange fee depends on the card type DONE Payout file fees deducted, and the net amount to be DONE Raise an exception case Third, the team raises an exception case DONE Three agree When all three agree ACTIVE When all three agree, the day is clean, and the 200 rupees of fees are recorded separately in the finance system.

Key points of this lesson, in order.

0:00 / 3:56 Step 1 of 6

Settlement and Reconciliation in Depth

Payment Platform Architecture and Your Career, Lesson 3 of 7, Narration 3:56, D09 Payment architecture and technology

ReconciliationAuthorisationInterchange

What you will learn

Your objective. By the end of this lesson, you will be able to explain settlement and reconciliation. Settlement is the process by which the money behind a payment actually moves between financial institutions.

Why it matters. When a reconciliation break happens, the operations team follows a structured investigation process.

Chapter objective: Learner explains payment platform architecture choices and maps them to career paths, including business analyst, product manager, architect, and operations roles in payments. Learner demonstrates this skill using realistic banking examples, explaining each step clearly and using correct terminology throughout.

Key learning points

  • Settlement: process
  • Three-way reconciliation records
  • Interchange fee
  • Payout file lists every transaction
  • Raise an exception case
  • Three agree

Key terms

Reconciliation: The process of comparing records from two sources, such as a bank statement and an internal ledger, to confirm they agree.

Authorisation: Approval by the issuer for a card transaction to proceed, confirming the card is valid and funds or credit are available.

Interchange: A fee paid by the acquirer to the issuer for each card transaction, set by the card scheme. It compensates the issuer for handling the transaction, funding the interest free period and managing fraud...

Banking architecture diagram showing Settlement and Reconciliation in Depth.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

A bank wants its payment platform to support a new instant rail next year without rebuilding the core. Which design choice makes that possible?

Takeaway and next step

What to remember

The key point for a BA is that authorisation, clearing, and settlement are three separate steps, and each one has its own timing, its own message, and its own risks.

Reconcile the payment in this lesson against its statement and find the break.

Open the Accounting and Reconciliation Lab →

Builds on "Payment Channels, Hubs, Engines and Gateways".

Transcript and full text

Show transcript

Settlement is the process by which the money behind a payment actually moves between financial institutions. When a customer pays a merchant with a card, the merchant does not get the money instantly. The card transaction is authorised in seconds, but the funds are settled later, usually the next business day, when the acquiring bank receives the money from the issuing bank through the card scheme. For bank transfers, settlement happens through the central bank, where banks hold settlement accounts. The key point for a BA is that authorisation, clearing, and settlement are three separate steps, and each one has its own timing, its own message, and its own risks. Reconciliation is the daily discipline of matching transactions to money, and it is one of the most important operational processes in payments. Every morning, the reconciliation team compares three sets of records, the transactions recorded in the payment system, the settlement files received from the card schemes and clearing systems, and the actual money received in the bank accounts. When all three agree, the day is clean. When they do not agree, there is a reconciliation break, and the team must find the cause. Common causes include a transaction that was authorised but never captured, a settlement file that arrived late, and a fee that was calculated differently by the scheme. Fee calculation is a detailed part of settlement that a payments BA must understand. A card transaction involves several fees, including the interchange fee paid to the issuing bank, the scheme fee paid to Visa or Mastercard, and the acquiring margin kept by the acquirer. The interchange fee depends on the card type, the transaction type, and the merchant category, and it can range from less than half a percent for a domestic debit card to more than two percent for a premium credit card. The merchant receives the transaction amount minus all of these fees, and the BA documents the fee rules so that finance can forecast revenue and so that merchants can be given accurate pricing. Payouts to merchants follow a schedule that the BA must specify clearly. Most acquirers pay merchants on a next day basis, but some offer same day settlement for an extra fee, and some hold a reserve, which is a percentage of the merchant's money kept back to cover future chargebacks. The payout file lists every transaction, the fees deducted, and the net amount to be paid, and it is sent to the merchant's bank account through a bulk payment. If a payout fails, for example because the merchant changed bank accounts, the money must be held safely and the merchant must be contacted. The BA documents the payout timing, the reserve rules, and the failure handling. When a reconciliation break happens, the operations team follows a structured investigation process. First, the team identifies the break by comparing the transaction record with the settlement record and noting the exact difference in amount or status. Second, the team checks the most common causes, such as a missing file, a duplicate transaction, or a timing difference where a transaction settled a day later than expected. Third, the team raises an exception case and contacts the scheme or the bank if the cause is external. Fourth, the team posts an adjustment to correct the accounts, and records the root cause so it can be prevented. A BA supports this work by documenting the exception codes, the investigation screens, and the reports that operations needs every morning. For example, a merchant sells goods worth 10,000 rupees on a credit card. The interchange fee is 180 rupees, the scheme fee is 10 rupees, and the acquirer margin is 10 rupees, so the merchant receives 9,800 rupees the next business day. The next morning, the reconciliation team matches the transaction record of 10,000 rupees, the settlement file showing 9,800 rupees, and the money received in the bank account. When all three agree, the day is clean, and the 200 rupees of fees are recorded separately in the finance system.

Settlement is the process by which the money behind a payment actually moves between financial institutions. When a customer pays a merchant with a card, the merchant does not get the money instantly. The card transaction is authorised in seconds, but the funds are settled later, usually the next business day, when the acquiring bank receives the money from the issuing bank through the card scheme. For bank transfers, settlement happens through the central bank, where banks hold settlement accounts. The key point for a BA is that authorisation, clearing, and settlement are three separate steps, and each one has its own timing, its own message, and its own risks.

Reconciliation is the daily discipline of matching transactions to money, and it is one of the most important operational processes in payments. Every morning, the reconciliation team compares three sets of records, the transactions recorded in the payment system, the settlement files received from the card schemes and clearing systems, and the actual money received in the bank accounts. When all three agree, the day is clean. When they do not agree, there is a reconciliation break, and the team must find the cause. Common causes include a transaction that was authorised but never captured, a settlement file that arrived late, and a fee that was calculated differently by the scheme.

Fee calculation is a detailed part of settlement that a payments BA must understand. A card transaction involves several fees, including the interchange fee paid to the issuing bank, the scheme fee paid to Visa or Mastercard, and the acquiring margin kept by the acquirer. The interchange fee depends on the card type, the transaction type, and the merchant category, and it can range from less than half a percent for a domestic debit card to more than two percent for a premium credit card. The merchant receives the transaction amount minus all of these fees, and the BA documents the fee rules so that finance can forecast revenue and so that merchants can be given accurate pricing.

Payouts to merchants follow a schedule that the BA must specify clearly. Most acquirers pay merchants on a next day basis, but some offer same day settlement for an extra fee, and some hold a reserve, which is a percentage of the merchant's money kept back to cover future chargebacks. The payout file lists every transaction, the fees deducted, and the net amount to be paid, and it is sent to the merchant's bank account through a bulk payment. If a payout fails, for example because the merchant changed bank accounts, the money must be held safely and the merchant must be contacted. The BA documents the payout timing, the reserve rules, and the failure handling.

When a reconciliation break happens, the operations team follows a structured investigation process. First, the team identifies the break by comparing the transaction record with the settlement record and noting the exact difference in amount or status. Second, the team checks the most common causes, such as a missing file, a duplicate transaction, or a timing difference where a transaction settled a day later than expected. Third, the team raises an exception case and contacts the scheme or the bank if the cause is external. Fourth, the team posts an adjustment to correct the accounts, and records the root cause so it can be prevented. A BA supports this work by documenting the exception codes, the investigation screens, and the reports that operations needs every morning.

For example, a merchant sells goods worth 10,000 rupees on a credit card. The interchange fee is 180 rupees, the scheme fee is 10 rupees, and the acquirer margin is 10 rupees, so the merchant receives 9,800 rupees the next business day. The next morning, the reconciliation team matches the transaction record of 10,000 rupees, the settlement file showing 9,800 rupees, and the money received in the bank account. When all three agree, the day is clean, and the 200 rupees of fees are recorded separately in the finance system.

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