Understanding the Difference between Payment Gateway Settlement and Reconciliation

You must be wondering about the difference between payment gateway settlement and reconciliation. Read through the blog to unravel the difference between the two terms, process, and how they work. 

The world of digitisation has accelerated manifold since the pandemic, and as per sources, the digital payment transaction process is expected to reach $8.49 trillion at the end of 2022. The world of digital payments has made an excellent way for business and has played the role of catalyst in the digital landscape. 

But what exactly is payment settlement and reconciliation? The blog will teach you about their process and how they work in several businesses. So stay tuned. 

Simply put, payment reconciliation ensures cross-checking several incomes and expenses of a merchant’s account and getting valuable insights into payment analytics. On the other hand, payment gateways have played a pivotal role in assimilating the digital payment landscape and playing the forefront in enhancing the convenience of the payment process. So let’s dive deep into the topic to get better insights. 

What is payment gateway settlement? 

Simply put, online payment gateway in india settlement refers to the process in which payment gateways play an ambit role in the settlement cycle by settling all the payments. 

  • It has the role of crediting the funds and settling them appropriately to the merchant’s account during the accounting style. 
  • The primary reason merchants opt for payment gateway settlements is to maintain the liquidity and cash flow in the business. 
  • Settlement is the interaction with the merchant, where he gets paid by the end clients, and several elements make the settlement complete. 

Types of payment settlements? 

 Payment gateways have several settlement types, which will be discussed as follows: 

  • A standard payment gateway is one of the preferred standard settlement processes. In this type, the issuing bank must process and clear the settlement and forward the payment to the merchant post the clients make the purchase. 
  • On-demand settlement refers to the settlement of funds made instantly to the merchant’s bank account with just one click of a mouse. 
  • Batch settlements: Multiple transactions are collected and settled during batch processing. 
  • Instant or same-day settlement: A settlement can be made multiple times in a day without waiting long. 

Steps of payment gateway settlement

The settlement process involves several steps, starting with the customer entering the payment details, followed by the completed transaction with the funds transferred into the merchant account. Let us discuss the steps in detail in the following section: 

  • The client places the order: Firstly, the client places the order, fills in the checkout page, and the order shipment details are sent to the payment gateway API. Once the purchase is approved, the funds shift to the respective channelled payment gateway from the cardholder. 
  • Verification procedure: The respective party is notified with the debit message once the verification is complete. 
  • Directing of funds: Post the authentication and verification, the payment is transferred to the merchant/acquirer’s bank account through the payment gateway, and the amount is deducted from the customer’s account. 
  • Settlement process: The acquirer’s bank account would confirm with the card network regarding the transfer of funds, and the payment gateway would proceed with the settlement process and statements. Later the merchant’s dashboard would reflect the transactional data details. 

Benefits of payment gateway settlement

  • Timely settlement process without procedural delays from the payment gateways and parties involved. 
  • Account of organisational operations and analytics without any discrepancies. 
  • Easy tracking of payments, monetary transactions and settlement procedures with several tools and specialised software. 
  • Ease of tracking settlement status, manage multiple payment destinations and assimilate procedure into the digital payment landscape. 

What is payment gateway reconciliation?

  • Payment reconciliation is an accounting process that involves verifying and authenticating the transactions, incomes and expenses. The payment gateway processes and settles the pending transactions and customer refunds in the reconciliation procedure. 
  • It is a bookkeeping system for a systematic record of the financial transactions of the respective parties. 
  • At the end of the accounting settlement cycle, transactions would be processed to check the tally with the payment gateway reports. 
  • The essence of payment reconciliation is to balance the incoming and outgoing figures of the funds. 
  • Several payment gateways are involved in tracking and recording every penny of the transaction, which is pivotal in streamlining the payment experience. 

How does a payment reconciliation process work? 

This section of the blog will discuss the working of the payment reconciliation process, so let’s dive into the topic. 

  • A report would be created by the payment gateway, comprising the following elements: 
  • Date, time and amount of settlement
  • The net amount of settlement
  • Order ID and details.

Based on the following details, the accounting department would perform the reconciliation. Certain adjustments will be made to facilitate the reconciliation process per the details. 

  • Retrieval of financial transactions: It would involve collecting, analysing and summarising the financial transactions from internal and external sources like banks and financial institutions. It would include credit card, debit card details and other services. 
  • Analysing and reconciliation: Each transaction would be compared to the bank statements and would follow the procedure of tallying each ledger entry. 
  • Tracking the billing framework using the accounting software
  • Maintaining spreadsheets for both inbound and outbound money transactions.
  • Finalisation of reconciliation stage: This is the last stage where every transaction is listed, including vendor payments, sales, and expenses. If any discrepancies are found, the respective errors will be removed accordingly. 

Need for payment reconciliation 

Just like accounting procedures, reconciliation can be performed monthly, quarterly, or half yearly as it is crucial to detect fraudulent activities. Presenting you some important reasons to perform payment reconciliation, which are as follows: 

  • To detect any fraud or discrepancies and monitor the cash flow and payments in the business. 
  • It helps companies to detect any errors in the journal and ledger entries and correct the irregularities. 
  • Online payment processing and reconciliation would generate appropriate tax returns, file returns, and effortlessly facilitate reconciliation. 
  • It will help the business determine the outstanding expenses, accrued income, and other transactions. 
  • Enable business owners to cater to disputes and refunds and offer a 360-degree overview of the transactions. In a nutshell, reconciliation would enable to perform the payment process without any risk and delays. 

Difference between payment gateway settlement and reconciliation 

BasisPayment gateway settlementPayment gateway reconciliation
TenureIt usually occurs during the end of the accounting cycle. As mentioned above, it can be performed monthly, quarterly, and yearly.
Involvement of Parties The payment gateway settlement would require the involvement of the respective channelised payment gateway to perform settlement between the merchant bank account and the cardholder. It may necessarily require the parties involved from the merchant side. 
Objective The objective is to follow up until the money is settled in the merchant’s bank account. The objective of performing the reconciliation is to tally the payment records to the merchant’s books of account and rectify the 

Wrapping Up

We hope the above-listed pointers gave you significant insights into the difference between payment gateway settlement and reconciliation. Are you looking for a payment gateway offering consolidated analytics reports and monitoring transactions? Your quest for a flexible and seamless payment is now over. Presenting NTT DATA Payment Service and Services, which offers several intelligent payment solutions and a great user experience through the services.