Payment gateway settlement process and time

Picture this, There are two businessmen, Abhishek and Krishna. They have been using the same billing app for months now but Abhishek has been getting money instantly as soon as the customer pays, while Krishna used to receive money in his bank account after 24 to 48 hours of payment from his customer but the invoice used to be marked as paid as soon as the customer paid.

Now, Why do you think this happens? They use the same billing app and they run the same sort of business but the payment is delayed. This is because Krishna uses a much more secure method of payment through a payment gateway. Let's dive deep into the payment gateway settlement process and time and know why payment gateway payments are not instant.

What is a payment gateway

A Payment Gateway is a technology that allows businesses to accept online payments from customers. It acts as a link between your customer's bank and your website, essentially handling the technical aspects of payment processing from start to finish. Simply put, Payment Gateways are made to make your customers' payments quick, easy, and secure.

Steps Involved in the Payment Settlement Process

Step 1: Customer Payment:

You send your customer the payment link and the customer provides their bank account or card details on the payment gateway's checkout form to pay for a product or service.

Step 2: Authentication and Confirmation:

After successful authentication, which may involve OTP or 3D secure verification of your customer, the money is debited from your customer's account, and they receive a confirmation notification.

Step 3: Routing the Transaction:

The transaction amount is then routed through card networks to the payment gateway acquiring banking partners.

Step 4: Settlement with the Seller:

Once the payment gateway receives the amount, it transfers the funds to your bank account after deducting a specific fee.

Payment gateway settlement time:

The standard settlement cycle is T+2 working days, T being the date of transaction capture (Not to be confused with the Time of payment). This means that the captured payments are settled within two working days from the date of capture.

(Working days do not include second and fourth Saturdays, Sundays, and bank holidays.)

Regular working days

Transaction time	Tuesday	Wednesday	Thursday
Monday-Before cut off time	Bank reconciliation	Settlement
Mnday-After Cut off time	-	Bank reconciliation	Settlement

With a bank holiday in between

Transaction time	Tuesday	Wednesday	Thursday	Friday
Monday-Before cut off time	Bank reconciliation	Holiday	Settlement	-
Mnday-After Cut off time	-	Holiday	Bank reconciliation	Settlement

With 2nd Saturday

Transaction time	Saturday	Sunday	Monday	Tuesday	Wednesday
Friday-Before cut off time	Holiday	Holiday	Bank reconciliation	Settlement	-
Friday-After cut off time	Holiday	Holiday	Bank reconciliation	Settlement	-
Saturday-Before cut off time	Holiday	Holiday	Bank reconciliation	Settlement	-
Saturday-After cut off time	Holiday	Holiday	Bank reconciliation	Settlement	-
Sunday-Before cut off time	Holiday	Holiday	Bank reconciliation	Settlement	-
Sunday-After cut off time	Holiday	Holiday	-	Bank reconciliation	Settlement

If the settlement day is a bank holiday, the settlement is made on the next working day after the bank holiday.

Refer to the examples below for a better understanding:

Payment gateway settlement time in working days

You sent an Invoice and a payment link for the amount of 2000 to your customer on September 12, 2023 (Tuesday), and your customer paid on the same day using the payment link. So, the invoice will be marked paid on the same day but the money will be received in your bank account by September 15, 2023 (Friday).

Payment gateway settlement time on holidays

Now, let's picture you sent an invoice and a payment link for the amount of 3000 to your customer on September 15, 2023 (Friday), and the customer paid on September 16, 2023, that is, Saturday evening. As the payment gateway doesn't process payments on bank holidays, you won't be receiving any money in your bank account on Sunday, even though the invoice will be recorded as paid and you should be receiving payment on Sunday or Monday, you will be getting money into your bank account by Tuesday or Wednesday.

Conclusion

Payment gateway settlements may not be instant, unlike UPI, where the acquiring and issuing banks, as well as NPCI, play a role, and the process behind the scenes is far from simple. The complexities of reconciliation, varying bank settlement cycles, and intermediary hops all contribute to the length of time it takes businesses to receive funds. Yet payment gateway is one of the most secure payment methods as it acts as an intermediary, doesn't provide the business’s bank information to the customers, and also provides a link to pay for the customers using credit cards.