September 11, 2023

Why Payment Gateway Settlements are Not Instant ?

According to the Ministry of electronics and IT, by September 1 2022 on an average 28.4 crore digital transactions were taking place in our country. Despite this fast-paced digital world, businesses and consumers have something in common: they expect instant results, especially when it comes to online transactions. However, despite the advancement of technology, payment gateway settlements still take time to reflect in a business's account. In this blog, we will delve into the intricacies of the payment gateway settlement process and explore the reasons behind the delay in instant settlements.

What is the payment gateway settlement process ? 

Payment gateway settlements are the process through which businesses receive the funds paid by their customers via online transactions. When an individual makes a payment through a payment gateway on a business's website or app, the payment gateway facilitates the transfer of that amount to the business's account.

Steps Involved in payment settlement process

Customer Payment: 

The customer provides their bank account or card details on the payment gateway's checkout form to pay for a product or service.

Authentication and Confirmation: 

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

Routing the Transaction: 

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

Settlement to the Seller: 

Once the payment gateway receives the amount, it settles the funds to the seller's bank account after deducting a specific fee.

Challenges Leading to Delayed Settlements:

While the payment settlement process might appear straightforward, it is far from instantaneous due to several underlying complexities and challenges:

Timeframes of Acquiring Banks: 

Every bank has its own settlement cycle, meaning the time taken for settlements can vary. Keeping track of these timelines and reconciling transactions from multiple banks can be time-consuming.

Refunds and Chargebacks: 

Dealing with refunds is particularly challenging, as customers expect them to be processed immediately. However, refunding without proper reconciliation can lead to potential risks for the business.

Reconciliation Complexity: 

Reconciling transactions can be a nightmare for accountants. It is crucial to ensure that the bank statements and reconciliation documents accurately reflect the financial transactions to avoid discrepancies.

Payment Method Variations: 

Settlement timeframes are affected by the mode of payment used. For instance, transactions involving cards or UPI can involve multiple intermediary hops and different entities, contributing to settlement delays.

Improving Settlement Speeds:

Recognizing the importance of faster settlements for businesses, payment gateways like Razorpay are constantly working to streamline the process. Efforts have been made to upgrade settlement cycles from T+3 to T+2 for domestic transactions, reducing the time taken for businesses to receive their funds.

payment gateway settlement cycle

However, certain factors still contribute to the delay in achieving instant settlements:

Nodal Accounts: 

Money movement in online payments happens through nodal accounts, which means that payment gateways cannot earn interest from the money they hold or move on behalf of their customers. This restriction affects the speed of settlements.

Intermediary Hops: 

Transactions often involve multiple intermediary entities, such as acquiring banks, card networks, issuing banks, and in the case of UPI, the National Payments Corporation of India (NPCI). Each entity's involvement can add to the settlement time.


Unlike the case of a payment method like UPI, where along with the acquiring and issuing bank, NPCI also plays a role, payment gateway settlements might not be instant, the process behind the scenes is far from simple. The complexities of reconciliation, varying bank settlement cycles, and intermediary hops all contribute to the time it takes for businesses to receive their funds. Payment gateways like Razorpay are continually striving to optimize settlement speeds and provide businesses with efficient working capital management. As the digital payment landscape evolves, efforts to improve settlement times will undoubtedly continue, bringing closer to the ultimate goal of providing a seamless and effortless payment experience for businesses and consumers. So, This is why the amount of time taken to process the settlements also depends on the mode of payment used to make the transaction. 


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