Settlement
Settlement is the process by which funds from a payment transaction are transferred between banks and ultimately credited to the recipient's account, completing the financial movement initiated by authorization.
Settlement is distinct from authorization. Authorization verifies the payer has sufficient funds and approves the transaction in seconds. Settlement is the actual movement of money, which takes longer — minutes for RTP/FedNow, hours for Same-Day ACH, 1–3 days for standard ACH, 2–5 days for cards.
Settlement in embedded finance: the timing of settlement affects float economics, reconciliation complexity, and customer experience. Programs that hold customer funds must account for the settlement lag — during which the payer has been debited but the payee has not yet been credited.
Settlement risk: during the settlement window, the platform or bank bears the settlement risk — the possibility that a transaction is reversed or returned after the platform has credited the recipient. Managing settlement risk is a key consideration in program design, particularly for real-time payment products where settlement is instant and irrevocable.