If you are new to credit card processing, there are a few different words to describe transactions that you may see on your bank statement.
what does transaction under settlement mean when you’ve paid for something with your credit card?
Transaction under settlement on a credit card statement means that the transaction needs to be closed by the vendor, who finalizes the sale before it goes to the bank for processing. It will usually take a day or two to clear. A “transaction under settlement” prevents fraud and consumer protection.
So, if you’d like to know more about “transaction under settlement” on your credit card’s bank statement, this article will help you understand what it means for the payments process.
Before you familiarize yourself with transactions under settlement on your bank statement, you first need to understand how credit card processing works.
There are a few steps that merchants have to go through to get paid from credit cards that they accept transactions on.
Firstly, a merchant must send batches of the transactions they’ve authorized to payments processors.
Then the payment processor will pass the transaction details to card associations, who will forward those details so that the issuing banks in their network can make the appropriate debits.
Following this, the bank will charge the cardholder on their account for the appropriate amount before transferring it to the merchant’s bank while also deducting transaction fees.
Finally, the merchant’s account will receive the funds when deposited by the merchant’s bank.
These days, these payments processes will typically be conducted overnight, although it may have taken several days in the past.
So a transaction under the settlement will mean that this entire process is still being carried out.
A settlement, in legal terms, refers to the balance remaining on your credit card at the time.
For example, the bank settles a credit card once the necessary funds have been deducted and the payment has been processed.
When the merchant establishment accepts the payment, the merchant will be credited with the funds while debiting from the cardholder’s account.
Although, sometimes, there will be a delay in the transaction, which will only be processed by the end of the day, when the merchant processes all of that day’s transactions through their payment system.
The transactions have to be finalized by the vendor before they go through to the bank for processing.
In some cases, this delay is a mandatory practice to ensure that there’s no foul play in terms of fraudulent transactions.
This delay is mandated to protect consumers.
This procedure may have taken a few days to be processed in years gone by.
Read our article on why cashiers cut credit cards if you’d like to know more about how banks processed credit card transactions before digital transactions simplified the process.
A credit card effectively allows you to purchase goods with money that you don’t have. However, you are obligated to settle the amount of money you’ve spent at a later stage, paying interest on your outstanding balance over time.
However, because you are the cardholder, you are liable for the outstanding funds and anyone could steal or clone your card to purchase goods and services at your expense.
Credit card fraud is a common crime, and banks, therefore, have to put mechanisms in place to protect the cardholder’s account.
Therefore, if a thief has conducted a transaction, the cardholder can dispute the charge, and, pending the outcome of the dispute, the card issuer will not settle the transaction, and it will not be verified.
A successfully disputed transaction will result in a refund from the merchant, while the card issuer will issue a chargeback.
In cases of fraudulent transactions, you will have to go through a personalized recovery plan through the bank. Unfortunately, this claim can take a long time to settle.
Alternatively, you may dispute a transaction if you haven’t received the goods or services you paid for (such as non-delivery of goods purchased online). In that case, the disputed amount will be deducted from the merchant’s account.
Credit cards can create a lot of barriers to financial freedom by plunging you into unsustainable debt. If you’d like to know how to achieve financial freedom, read our 14 step article.
A transaction under settlement on a debit card is very similar to that on a credit card, except that you’re paying with money that you do have rather than going into “debt” for the transaction.
The funds are transferred directly from the cardholder’s current account to the merchant.
For protection against fraud and non-delivery of goods and services, the dispute process works similarly and the transaction process will only be completed when the merchant sends out the batches of payments that they’ve authorized.
A transaction “under settlement” isn’t the only descriptive term used in bank statements for credit cards. Here are a few more terms that you may, or may not be familiar with.
A pending transaction is another term used for a transaction that hasn’t been fully processed yet. It is a broader term that describes any transaction in progress, whether it is still under a settlement or is being delayed for other reasons.
A processed transaction simply refers to a payment that has been settled – your account has been debited the appropriate funds and the merchant’s account has been credited.
A declined transaction is a transaction that cannot be processed due to any number of reasons, such as having insufficient funds in your account or if the card has been canceled.
So, now that you’re familiar with what transaction under settlement means on a credit card, you can rest assured that there’s nothing to be concerned about.
It simply means that the transaction is still being processed and the necessary account debits and credits will reflect within a few days at most.