What is settlement? Definition and example

Settlement

Settlement is the transfer of funds from the payment provider or acquirer to the merchant's bank account for approved transactions, after fees, refunds, chargebacks and any reserve are deducted, on a schedule such as T+1 or weekly.

Also called: payment settlement, merchant settlement, payout to merchant, funding, settlement currency, settlement report, T+1 settlement

Updated 16 October 2026

How does settlement work?

After a payment is authorized and captured, the acquirer or PSP clears it with the card scheme or method provider and receives the funds. On the agreed schedule, for example one business day after the transaction (T+1) or weekly, it pays the merchant. Most providers settle net: they deduct their fees, refunds, chargebacks and any reserve before paying, and send a settlement report listing every transaction and deduction.

Why does settlement matter for cash flow and reconciliation?

The settled amount can differ a lot from the approved volume. As an illustrative example for one week: USD 500,000 approved, minus USD 17,500 in fees at 3.5%, USD 5,000 in refunds, USD 2,000 in chargebacks, USD 1,500 in chargeback fees and a 10% rolling reserve of USD 50,000, leaves USD 424,000 settled. Finance teams need to match every one of those lines back to individual transactions.

What makes settlement hard with several providers?

Each PSP settles on its own schedule, in its own currencies and with its own report format. Transaction identifiers differ between providers, foreign exchange is applied at different points, and some local methods settle in a different currency from the one the customer paid in. Without a common transaction record, reconciling across providers becomes manual work.

Where does Omno use it?

Settlement takes place between each PSP and the merchant. Omno keeps one transaction record per payment across all connected PSPs, with webhooks and reporting that finance teams can match against each PSP’s settlement reports.

Frequently asked questions

What is the difference between authorization and settlement?

Authorization is the issuer approving a payment in real time and reserving the funds. Settlement happens later, after capture and clearing, when money actually moves from the issuer through the scheme and acquirer or PSP to the merchant. An authorized payment that is never captured is never settled.

What is a rolling reserve?

A share of each settlement, such as 5% or 10%, that the PSP or acquirer holds back for a fixed period, often 90 or 180 days, to cover future chargebacks and refunds. Each held amount is released when its period ends. Reserves are common for high-risk merchant categories and for new merchants.

What decides the settlement currency?

Mostly the acquiring connection. Adyen's documentation, for example, says the settlement currency depends on the acquiring region and payment method. When the customer pays in one currency and the merchant is settled in another, a conversion happens somewhere in the chain, and its rate and timing affect what reaches the merchant.