Clearing

Clearing is the crucial process used by acquirers (merchant's banks) and issuers (cardholder's banks) to reconcile and finalize transactions after they have been authorized. This phase is essential for the actual transfer of funds from the cardholder's bank account to the merchant's bank account.

During the clearing process, transaction details such as the amounts, dates, and parties involved are confirmed and validated between the involved financial institutions. This process typically occurs after the initial authorization of the transaction, which merely approves the transaction based on the availability of funds and credit limits.

Clearing mechanisms vary based on the type of transaction:

The clearing stage is crucial for ensuring that all conditions of the transaction have been met before funds are fully transferred, which reduces the risk of errors and fraud. Once clearing is completed, the transaction moves to the settlement phase, where the actual movement of funds is finalized and reflected in the accounts of both the consumer and the merchant. This process underscores the interconnected roles of various financial entities and systems in ensuring smooth, secure, and reliable financial transactions.