Card clearing & settlement
The authorisation only promised. Now Demo Coffee Ltd's captured sale becomes a clearing record, interchange is applied, net positions settle between Meridian Bank and Bank Alfa, and Maya Chen's hold becomes a real debit — through Cardnet, a fictional card network standing in for Visa/Mastercard-style networks. (SYNTHETIC / TRAINING ONLY)
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Demo Coffee closes the day's batch
Demo Coffee Ltd (merchant) → Meridian Bank (acquirer) · end-of-day capture batch
At end of day the terminal sends its captured sales — each with its authorisation code — to Meridian Bank. Until this capture, Maya's EUR 42.50 exists only as an approval and a hold.
Step 1 of 8: Demo Coffee closes the day's batch
- 03Clearing obligationCardnet runs the clearing cycle and applies interchangeCardnet (card network)
- 04Clearing obligationCardnet calculates each bank's net positionCardnet (card network)
- 05SettlementNet amounts move between settlement accountsBank Alfa (issuer) → Meridian Bank (acquirer)
- 06PostingBank Alfa posts the final debit and releases the holdBank Alfa (issuer)
- 07PostingMeridian Bank pays Demo Coffee, less the merchant discountMeridian Bank (acquirer)
Full step-by-step text (works without JavaScript)
- 03Clearing obligationCardnet runs the clearing cycle and applies interchangeCardnet (card network)
The network validates each record and attaches interchange — the fee the acquirer pays the issuer on each transaction, set under the scheme's rules. The record now says exactly who owes whom, and how much of it is fee.
Clearing establishes obligations, interchange included. No money has moved yet — that is settlement's job.
- 04Clearing obligationCardnet calculates each bank's net positionCardnet (card network)
Across the day's records, everything each bank owes and is owed collapses into one net figure per participant — multilateral netting. Bank Alfa owes the net of what its cardholders spent; Meridian Bank is owed the net of what its merchants sold.
A net position is still an obligation, not money.
- 05SettlementNet amounts move between settlement accountsBank Alfa (issuer) → Meridian Bank (acquirer)
The scheme's settlement bank moves each participant's net amount. On this transaction Bank Alfa settles EUR 42.40 to Meridian Bank — the EUR 42.50 sale less the illustrative EUR 0.10 interchange the issuer retains — inside Bank Alfa's larger net payment. This is the moment money actually moves between the banks, typically a day or two after the sale, on a timetable each scheme's rules set.
- DR Bank Alfa settlement account — EUR 42.40
- CR Meridian Bank settlement account — EUR 42.40
- 06PostingBank Alfa posts the final debit and releases the holdBank Alfa (issuer)
The cleared record replaces the authorisation hold: the reserve is released and a posted debit takes its place. Only now has Maya's money actually left her account — the 'pending' line on her app becomes a booked transaction.
- RELEASE Maya Chen's card account at Bank Alfa — EUR 42.50
- DR Maya Chen's card account at Bank Alfa — EUR 42.50
- 07PostingMeridian Bank pays Demo Coffee, less the merchant discountMeridian Bank (acquirer)
The acquirer credits Demo Coffee EUR 41.90 — the sale less the merchant discount, the acquirer's charge that covers interchange, scheme fees and its own margin. The figures are illustrative; the actual rate comes from Demo Coffee's acquiring agreement.
- CR Demo Coffee Ltd settlement account at Meridian Bank — EUR 41.90
What this simplifies: One transaction, one clearing cycle, direct participants only. Real card clearing nets thousands of records per cycle, runs several cycles a day, and settles on a timetable each scheme's rules define — often the next business day or two. Fee figures are illustrative; Cardnet is fictional.
Sources for this flow2
- Market practiceMarch 2003 edition
A glossary of terms used in payments and settlement systems ↗ — CPSS (now CPMI), Bank for International Settlements
Terminology has evolved since this edition; newer CPMI publications refine some definitions.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
What this simplifies: One transaction shown inside what is really a multilateral net across many banks and transactions; one clearing cycle; fee amounts are illustrative and settlement timing is phrased generally because each scheme sets its own.
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.