Settlement Process Explained

Merchants would expect to get their money credited in their Bank Account as soon as possible due to obvious reasons like they have to take care of payment circulation, service/product delivery, etc. However, with a payment gateway as a medium, the instant settlement is not always easy. In this technologically advanced time also, there are various stages in the process of the settlement that takes their share of time.

The process between Payment Gateway and the Bankside

The accounts department is continuously working on driving the process of the settlement. The flow is not simple and at various stages the time taken is different. Also, it depends on the bank – the time and the formalities.

The reconciliation process is conducted when the actual status of the transaction cannot be determined. This takes additional time in the whole settlement steps and procedure.

When a refund is in question, reconciliation becomes necessary. Or else, the merchant may refund the amount which they themselves have not received.

Payment Process

An ideal payment process would include the below steps right from when the customer does the transaction to the settlement stage.

1.  Customer Order Created

When the customer selects the items and fills the checkout page at that time the Order ID is created and simultaneously there is one PayKun Order ID created after the information is sent to PayKun API.

2.  Send Payment Details

After that when the customer proceeds with the payment; enters the details and selects the payment options and clicks on the Pay Now option then these details are sent to the PayKun server in a secured manner.

3.  Routing of Funds

After this stage, the payment is being deducted from the customer’s bank account (issuing bank) to the merchant bank (Acquiring or in simple words the payment gateways’ bank).

From there, after deducting the respective payment gateway fee, the payment is routed to the merchant’s registered bank account of PayKun.

merchant settlement process

Settlement Process

The payment is credited into the bank account of the merchant as per the settlement cycle predefined on the Merchant Account while its activation. The settlement cycle can vary from T+ 1 / 2 / 3 (T is the transaction date) depending upon various factors such as business model, high-risk ratio, merchant history, etc.

The process can be explained as below:

Authorization of Payment

There is an internal process in which PayKun sends the authentication request for the customer’s payment deduction from the customer’s bank and after the authorization is received from the bank the same amount is deducted and being retained by PayKun.

Once the bank has authorized the customer’s payment, it will be auto captured and verifies that purchase as complete by the merchant. Then no further action is needed from the merchant side.


After the funds are captured by PayKun, it is settled according to the predefined settlement (payout) cycle (T + 1/2/3, where T is the Transaction Date) in the Merchant’s bank account. After the funds are credited in the Merchant’s Bank Account, they are marked as settled.

About Nodal Bank – where your payment rests

As mentioned earlier, before routing the funds to the customer’s bank account, your payment is first routed to the payment gateway’s bank account known as the Nodal Account.

As per the RBI guidelines, the payment gateways and aggregators, need to maintain a Nodal Account. This is controlled and managed by the bank itself which means that the payment gateways or aggregators cannot use the funds in that bank account for any other purpose than to settle it to the respective merchant to whom the payments belong.

Thus, there is no question of the payment gateways earning any kind of interest on that amount which used to belong to the customer in passage to being paid to the merchant.

Nodal Bank Account is just a passage or medium from where the merchant is paid after deducting the respective fees.

Anatomy of the Payment Processing

During this process, there could be various parties included in the background. In front, there are 3 parties only, Issuing Bank, Payment Gateway and the Merchant’s Bank. However, there are other parties too, such as card networks and processors, NPCI, etc depending upon the payment method used by the customer. Thus, at each additional stage, it requires its additional time and accordingly the delay in settlement.


PayKun is committed to provide the ease of access and the best payment gateway service experience. The merchants, as well as their customers, are the top priority. We understand the importance of the payments and its resultant services to the customers, which directly or indirectly depends on the payment gateway process. Payment Gateway experience is equal to the reputation of the Merchant and PayKun aims to keep that up. You may contact the PayKun Customer Support now and get access to the best payment gateway services at the most cost-effective rate.

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