Clearing

Clearing in the context of card payments refers to the procedures related to the processing of payment information and reconciliation of funds between financial institutions. It’s what happens after a transaction has been authorized, accepted, and submitted to the merchant’s processor.

Clearing typically happens daily, when collections, or “batches,” of payment transactions are consolidated and processed together at the same time. At that point, the merchant’s bank (acquirer) send transaction data to the card networks (Visa, Mastercard), who forward everything to the cardholder’s bank (issuer).

The issuer makes sure everything’s on the up-and-up, and if so, the transaction is considered cleared. That’s the point where money is taken from the cardholder’s account and sent to the merchant’s account. Put another way, the transaction has been “settled.”

Clearinghouses act as intermediaries between the parties involved in a clearing. They take on the responsibility for the accuracy, security, and efficiency of the clearing process for their member banks.