Clearing

Clearing is the process by which transaction records are exchanged and reconciled between financial institutions through the card network infrastructure, establishing what each party owes to whom and preparing the way for Settlement. Clearing is the accounting phase of the payment lifecycle, it occurs after Capture and before the actual movement of funds in settlement.

In the Dual Message Transaction model, the clearing process works as follows: after a merchant closes their Batch Processing cycle, the captured transaction records are submitted to the card network (Visa, Mastercard, or other). The card network routes each transaction record to the issuing bank that holds the cardholder's account. The issuing bank reviews and accepts (or disputes) the transaction. Net settlement obligations are calculated, how much each acquiring bank is owed by the card network (representing all transactions processed on behalf of its merchants), net of what it owes to issuers across all transactions. These net obligations are settled through the card network's settlement infrastructure.

The clearing process also handles additional transaction data elements that were not included in the original authorization, Level 2 and Level 3 data for corporate card purchases (detailed line-item data that qualifies for lower interchange rates), tip adjustments for restaurant transactions, final amount adjustments for hotel and car rental pre-authorizations. This data is included in the clearing record even if it was not part of the original authorization request.

From the merchant's perspective, clearing is largely invisible, it happens automatically as part of the settlement infrastructure. But understanding that clearing occurs and may take time explains why settlement fund arrival follows capture by one to two business days rather than being instantaneous.