Card program clearing and settlement: How issuer processors manage the flow of funds after authorization

For issuer processors, clearing and settlement are essential yet distinct parts of the card payment lifecycle. While often mentioned together, these two stages serve different roles and operate on different timelines, impacting transaction accuracy, customer satisfaction, and compliance. Understanding the differences and how they work together is key to building an efficient and scalable card program.

Clearing is the process that occurs after a transaction is authorized where verification checks are conducted to confirm key details such as the cardholder's information, available balance, CVV, expiration date, and other security measures. These checks occur before any actual transfer of funds, ensuring the transaction is secure and valid.

Its primary function from a network perspective is to verify the transaction details, and determine the financial obligations between the issuer and the acquirer.  

As an issuer processor, Marqeta receives transaction data via the card networks from the acquirer. The data in the batched clearing files is parsed into individual clearing records and matched with the transaction to alleviate as much reconciliation burden as possible from our customers. The clearing process starts with data exchange between the merchant’s acquirer and the issuer through networks like Visa or Mastercard. 

This step also includes reconciling the transaction against issuer-side data to ensure accuracy. Once verified, the issuer processor assigns the transaction a status based on issuer criteria and regulatory compliance. The result of this process feeds into the settlement stage, where financial obligations are fulfilled. 

Settlement is the process of moving money. Once a transaction has cleared, the issuer initiates the transfer of funds from the cardholder’s account to the card network. From there, funds are routed to the acquiring bank, which deposits the net amount into the merchant’s account. 

During this process, interchange fees are applied; fees that the issuer may share with the card networks or retain based on network agreements. The issuer processor deducts the transaction amount (plus fees) from the cardholder’s account, updates balances, and sends settlement instructions to the network. The card network aggregates and forwards these to the acquirer. Afterwards, both the cardholder and the merchant receive confirmation that the transaction is complete. 

Though clearing typically happens same-day (unless the currency is exotic), settlement typically takes longer, typically between one and three days, depending on batching schedules and the payment method used. From the issuer processor’s standpoint, it is critical to track these timelines to manage customer expectations and ensure liquidity.

Clearing occurs a few hours after authorization, and involves the acquirer submitting clearing files. The network will ensure that there are no integrity issues, but will not stop forced posts, or transactions that the issuer doesn't want to accept. All clearings must be honored, which means that even if you disagree with a specific transaction, your only recourse is to raise a chargeback after settlement. 

Settlement takes place after clearing and often involves delays due to batching, so can take a few days although it’s not unusual for settlement to complete same-day. Merchants may wait until the end of the business day to capture transactions, after which these are sent in batches to acquirers. 

Only after batching and network processing can settlement occur. This gap between authorization and settlement means that issuer processors must maintain detailed records and provide real-time updates on transaction status to help customers understand why some charges may appear pending.

From the moment a customer initiates a transaction, the issuer processor plays a central role. After the POS system sends an authorization request to the acquiring bank and it reaches the issuer via the network, the issuer validates the transaction based on card details, balance, and fraud rules. If approved, funds are held in the cardholder’s account. 

Capture follows, which may happen hours or days later, especially in cases where the final transaction amount is not immediately known (e.g., hotel bookings, fuel stations). Merchants then batch captured transactions and send them to their payment processor. As an issuer processor, Marqeta provides a transaction matching logic with a ~99% success rate, matching clearings to the preceding authorization. The industry standard is around 88%. 

Once batched reports are received by the card networks, those networks forward transactions to issuer processors. At this point, interchange fees are calculated, plus any program-specific logic, and the clearing process described earlier can begin. These steps are critical for ensuring accurate fee distribution and preparing for fund movement during settlement. 

For issuer processors, it’s also essential to maintain compliance with network rules and country-specific regulations, particularly regarding transaction status codes, dispute management windows, and chargeback procedures.

After clearing is complete and all fees are accounted for, issuer processors initiate the fund transfer to the network. These are net amounts; transaction totals minus interchange and applicable fees. The card network transfers funds to the acquiring bank, which then deposits the amount into the merchant's account. 

Settlement marks the final transfer of funds, but for the issuer processor, the job isn’t done until funding is confirmed and reconciliation is performed. Ensuring that each cleared transaction is fully settled and accounted for minimizes discrepancies and builds trust in the card program.

Reconciliation is the last major step in the process. Here, issuer processors ensure that all funds moved match authorized and cleared transactions. Any discrepancies, whether due to time lags, authorization reversals, or incorrect capture amounts, must be identified and resolved. 

Issuer processors also provide detailed reporting to program managers and cardholders, which helps improve transparency and enables data-driven insights. Reconciliation is not just a financial step; it is a critical trust-building function that supports accurate customer statements and regulatory compliance.

From an issuer processor’s perspective, the distinction between clearing and settlement affects system design, customer experience, compliance, and operational costs. 

Understanding how clearing ensures transaction legitimacy while settlement handles actual fund transfers allows us to build more robust infrastructure, optimize processing times, and handle exceptions more efficiently. It also means we can better inform our customers about what happens between swipe and settlement.

Delays in settlement can lead to customer confusion and impact merchant funding. Batching creates inefficiencies but is often required by acquirers or networks. Issuer processors can mitigate these issues by implementing real-time clearing systems, providing transparent transaction timelines, and offering comprehensive reconciliation tools. 

Other best practices include syncing clearing and settlement processes with real-time reporting, automating reconciliation tasks, and maintaining compliance with PCI DSS and interchange rules.

Clearing and settlement are the backbone of the card payment ecosystem. For issuer processors, mastering these processes is essential to ensuring reliable, secure, and transparent financial operations. 

By separating the functions of verification (clearing) and fund movement (settlement), and optimizing each step, issuer processors like Marqeta can help create smoother payment experiences for cardholders, more accurate payouts for merchants, and stronger compliance for everyone involved. 

In today’s real-time economy, where customers expect fast and error-free transactions, deep understanding and precise execution of clearing and settlement processes are more critical than ever.

Ready to unlock smoother transactions for your programs? Marqeta is here to help.

Contact us today.