Finance · Payments

Card Payment Money Flow

Reference entry · last updated 20260920

Card payment money flow is the movement of funds between the participants in a card payment. A four-party card scheme involves the cardholder, the card acceptor, the issuer, and the acquirer.[3] The funds move in four phases: authorization and hold, capture and clearing, interbank settlement, and merchant payout.

1. First principles: obligations and funds

Clearing is the reconciliation, and in some cases the confirmation, of transactions before settlement. It can include netting the obligations and establishing final positions for settlement.[1] Settlement is the completion of processing with the aim of discharging participants’ obligations through the transfer of funds. Settlement may be final or provisional.[2]

Settlement uses accounts held at a central bank, a central securities depository, a central counterparty, or another institution acting as a settlement agent.[2] These accounts are institutional, and they are separate from a customer’s deposit account.

Three events follow from those definitions, and a card statement can merge them. An authorization reserves funds or credit and does not move them. Settlement transfers funds between institutions. Payout moves funds from the acquirer or provider to the merchant. Adyen records a payment as Settled once it has received the funds, and states that this does not mean the funds have been paid out to the merchant.[6]

2. Participants

A four-party card scheme has four stakeholders: the issuer, the acquirer, the cardholder, and the card acceptor.[3] An online payment adds intermediaries between the merchant and the issuer. The table lists the participants in the sequence diagram below.

Participant	Role
Cardholder	The person to whom a payment card is issued and who is authorised to use it.[1]
Merchant (card acceptor)	Accepts the card payment, submits the capture, and receives the payout.
Payment gateway	Collects the payment request at checkout and routes it into the card network through the acquirer.
Acquirer	The entity to which the acceptor transmits the information needed to process the card payment.[4]
Card network	Operates the scheme that connects issuing and acquiring institutions under common rules.[3]
Issuer	Makes cards available to cardholders, authorises transactions, and guarantees payment to the acquirer for transactions that conform to the scheme rules.[1]
Settlement authority	Holds the accounts through which participants discharge their interbank obligations.[2]

A payment service provider can perform several of these roles. Its exact position depends on the region and the merchant agreement, so the diagram separates the functions.

3. The four phases

Each phase has its own timing and moves a different object.

Phase	Typical timing	What moves
1. Authorization and hold	Real time, at checkout	An approval and a reservation of funds or credit
2. Capture and clearing	Batch, after the merchant’s cut-off	Instructions, reconciled and netted into positions
3. Interbank settlement	Institutional settlement cycle	Funds between settlement accounts
4. Merchant payout	Provider payout schedule	Net funds to the merchant’s deposit account

sequenceDiagram
    participant CH as Cardholder
    participant M as Merchant
    participant GW as Payment gateway
    participant AC as Acquirer
    participant NW as Card network
    participant IS as Issuer
    participant CB as Settlement authority

    rect rgb(255, 250, 243)
    Note over CH,IS: Phase 1 - Authorization and hold (real time)
    CH->>M: Pay with card details
    M->>GW: Payment request
    GW->>AC: Authorization request
    AC->>NW: Authorization request
    NW->>IS: Authorization request
    IS->>IS: Check account and reserve funds or credit
    IS-->>NW: Approval
    NW-->>AC: Approval
    AC-->>GW: Approval
    GW-->>M: Authorized
    M-->>CH: Order confirmed
    end

    rect rgb(244, 239, 230)
    Note over M,IS: Phase 2 - Capture and clearing (batch)
    M->>GW: Capture or submit for settlement
    GW->>AC: Capture
    AC->>NW: Clearing message
    NW->>IS: Clearing message
    NW->>NW: Reconcile instructions and net positions
    AC-->>M: Capture confirmation
    end

    rect rgb(253, 251, 247)
    Note over AC,CB: Phase 3 - Interbank settlement
    IS->>CB: Fund issuer settlement obligation
    CB->>NW: Credit network settlement account
    NW->>AC: Credit acquirer, less interchange and network fees
    end

    rect rgb(244, 239, 230)
    Note over M,AC: Phase 4 - Merchant payout
    AC->>M: Payout to merchant account, less processing fees
    end

The diagram is illustrative. Participant names, message paths, and the settlement mechanism vary by scheme, region, and provider.

4. Phase 1: authorization and hold

For card payments, the merchant sends the payment to its provider, which routes an authorization request through the acquirer and the card network to the issuer. The issuer approves or declines the request, and the funds for the payment are reserved when it is approved.[13][6] Stripe describes authorization as a guarantee that places the amount on hold on the customer’s payment method.[9]

The hold has a validity window that depends on the card network and the transaction type. For card-not-present transactions, Stripe documents seven days for Mastercard, American Express, and Discover, and for Visa five days on merchant-initiated transactions and seven days on customer-initiated transactions. Visa’s exact merchant-initiated window is four days and eighteen hours, which allows time for clearing processes.[9] Adyen documents 28 days as the usual validity period for card payments, seven days in most cases for the cards it issues, and notes that some card schemes have specific periods.[6][13] These figures describe different provider configurations and transaction types, not a single industry constant.

If a merchant does not capture before the window closes, the authorization expires. Stripe states that the funds are then released and the payment is canceled.[9]

5. Phase 2: capture and clearing

Capture submits an authorized amount for collection. A capture can be partial, and a partial capture releases the remainder. Multiple captures are available for only some card payments.[9] Adyen describes a capture as the transfer of reserved funds to the provider.[6]

Clearing is the reconciliation step that precedes settlement.[1] Card networks commonly run clearing in batches, so capture and clearing follow the provider’s cut-off times rather than the checkout moment. Provider statuses preserve the distinction: Adyen marks a payment Settled when it has received the funds, and treats the payout to the merchant as a later event.[6]

6. Phase 3: interbank settlement

Settlement discharges the obligations that clearing established.[2] Participants hold dedicated settlement accounts for this purpose, at a central bank or another institution acting as a settlement agent.[2]

In the four-party model the issuer carries the cardholder’s obligation and the acquirer collects for the merchant.[3] The network reconciles the obligations and establishes each participant’s final position.[1] The amount that reaches the acquirer is net of fees taken along the chain.

Interchange is a transaction fee payable between the payment service providers involved in a transaction.[5] Under US Regulation II, a debit card interchange fee is received by the debit card issuer.[10] The merchant’s total processing cost also includes network fees and the acquirer’s markup; the Interchange reference entry covers those components.

The settlement mechanism itself varies. Some schemes settle through a central bank real-time gross settlement system, and others through commercial settlement accounts. The direction of value is the same: the issuer funds its obligation and the acquirer is credited.

7. Phase 4: merchant payout

Payout moves the collected funds from the provider to the merchant’s deposit account. Adyen calculates payouts on a net basis: the merchant receives sales from a period minus transaction costs, refunds, chargebacks, and other adjustments.[7]

Payout timing depends on the model and the merchant’s configuration. Adyen offers a sales day payout, which groups a whole sales day into one batch, and a pass-through payout, which can split one sales day across several batches depending on when the scheme transfers funds. Payout frequency is configurable, and payout funds can take up to two days to arrive.[7]

Providers can also require a reserve. Adyen lets a merchant set a reserve threshold; the amount needed to reach it is deducted from the payable balance when a payout batch closes, and a refund that cannot be covered by the pending or next payout balance is drawn from the reserve.[8]

8. Knowledge gaps

The reviewed sources document the common shape of the flow. They leave the following questions open.

Gap	What the sources document	Open question
Multi-currency and FX	Adyen settles like-for-like without conversion when the payout currency is also supported as a settlement currency by the payment method.[7]	Where conversion happens in the chain, and the markup applied at each step.
Merchant reserves	A reserve threshold is deducted from the payable balance, and refunds can draw on the reserve.[8]	Reserve ratios, rolling dispute-liability holdbacks, and the conditions for releasing them.
Payout schedules	Sales day and pass-through models exist, frequency is configurable, and arrival can take up to two days.[7]	The merchant-specific schedule, such as T+2, rolling payout, or immediate settlement, and its contractual basis.
Card versus account-to-account	FedNow processes and settles individual payments within seconds, 24 hours a day, every day.[11] ACH operators distribute files through scheduled windows and settle in batch.[12]	How reserves, payout timing, and dispute rules differ when no card authorization exists.

A credit-push transfer on a rail such as InstaPay or FedNow does not use the card authorization and hold stage. The sending institution debits the sender and the receiving institution credits the receiver, with settlement between them. The Philippine rails are described in InstaPay, PESONet, and the National Retail Payment System.