Settlement

Settlement is the process by which funds from a card transaction move from the cardholder's bank (the issuing bank) through the card network to the merchant's bank (the acquiring bank), and ultimately to the merchant's account. Settlement is distinct from authorisation: authorisation reserves the funds; settlement transfers them.

The settlement cycle for most card transactions:

1. Authorisation: Merchant sends a request to the issuer via the card network; the issuer approves or declines and places a hold on funds. 2. Batch capture: The merchant groups approved transactions into a batch at end of business day and submits to the acquiring bank. 3. Clearing: The network (Visa, Mastercard) processes the batch, calculates interchange fees, and routes fund movements. 4. Settlement: Funds move from the issuing bank to the acquiring bank, net of interchange fees. Merchants typically receive funds 1-2 business days after the transaction.

For debit cards, settlement affects the consumer's account faster than for credit cards. A debit transaction is debited from the checking account upon settlement (or earlier, if the issuer debits on authorisation). For credit cards, settlement results in a pending charge that becomes a statement balance due on the next billing cycle.

Pre-auth holds and settlement are related but distinct. The pre-auth hold may not equal the settlement amount (e.g., a gas pump pre-auth of $175 that settles for $52 of fuel). The excess hold releases after settlement; this release takes 1-7 business days for debit cards.

Dispute timing: Under Regulation Z, the 60-day dispute window for billing errors runs from the date of the statement on which the error first appears, not the date of authorisation or settlement. Under Regulation E, the 60-day window for the highest liability tier runs from the statement date showing the first unauthorised transfer.