What is the difference between settlement and payout?
Settlement is the transfer of funds between the card issuer and the acquirer through the scheme, in net daily positions per currency. Payout, or funding, is the payment the merchant receives from its acquirer, PSP or PayFac afterwards, net of fees, refunds and reserves, on a contracted schedule such as T+1 or T+2.
In detail
Settlement is the transfer of funds between the card issuer and the acquirer through the scheme, in net daily positions per currency. Payout, or funding, is the payment the merchant receives from its acquirer, PSP or PayFac afterwards, net of fees, refunds and reserves, on a contracted schedule such as T+1 or T+2.
What settlement is
Settlement is the movement of funds between banks that follows a card authorization: the issuer pays the acquirer, through the scheme, for the transactions cleared that day. Clearing is the exchange of the transaction records; settlement is the actual transfer of value between issuer and acquirer, in bulk, through the scheme’s settlement banks.
What payout is
Payout is what the merchant receives from its own provider, and it is governed by a contract, not by the scheme. In the merchant payout, the acquirer or PayFac pays the merchant gross sales minus fees, refunds, chargebacks and any reserve, on the contracted schedule and in the settlement currency agreed. Each payout schedule is a price, a funding cost and a risk exposure: a PayFac that pays sub-merchants faster than its acquirer pays it is lending money.
More detail in our #PayDecoding episode on Settlement.