Settlement vs authorisation
Count an approval as cash and your books drift from the bank by every tip, every part shipment and every hold nobody claimed.
Settlement vs authorisation
auth and captureauthorization vs settlement
Authorisation is the moment a card issuer confirms the card can pay and reserves the amount. Settlement is the later moment when the money actually moves between banks. They happen at different times, and sometimes for different amounts.
Think of a hotel. At check-in the desk runs your card for an estimate and the bank sets that amount aside. Nothing has been paid. At check-out the hotel takes what you actually owe, which is more if you used the minibar and less if you left early.
The gap between those two moments is where most payment bugs live. A hold can expire without ever being captured. A capture can come in below the hold. Your customer, meanwhile, sees a pending line on their statement and calls you about a charge that has not happened.
Three balances, not one
Once you separate the two events, one account carries three different numbers. One is the amount authorised. Another is what has settled. Third is what your customer can actually spend right now. Products that store a single balance column end up picking whichever of the three was convenient the day the code was written.
Cards are the gentle version. On US bank debits the gap is wider. Stripe documents standard ACH Direct Debit settlement at four business days, with a 21:00 US Eastern cutoff. Eligible US users can get two business days, cut off at 14:00 Eastern.
- 01Authorised: the issuer approved it and set the money aside.
- 02Settled: funds have moved and the payout is real.
- 03Available: what the customer can spend, which is neither of the above.
- AuthoriseIssuer approves, funds held.
- HoldNothing has moved yet.
- CaptureFinal amount claimed.
- SettleMoney moves between banks.
- PayoutNet of fees, on a schedule.
Only the last two steps put money anywhere. Everything before them is a reservation that can still evaporate.
Related questions
01Is a capture the same as settlement?
No. Capture is you telling the processor how much of the hold to claim. Settlement is the money actually moving between banks afterwards, usually in a batch on the processor's schedule. You can capture today and still be waiting on funds.
02Why does the settled amount differ from the amount I authorised?
Because the authorisation was an estimate for anything that is not a fixed price. Tips, fuel, hotels and partial shipments all authorise one figure and capture another. Your reporting has to expect two amounts per payment or it will show breaks that are not errors.
03What happens to a hold that is never captured?
It expires and the issuer releases the funds, but not instantly and not on a schedule you control. The customer sees a pending amount against their limit in the meantime, which is why abandoned holds turn into support tickets rather than accounting problems.
04Which balance should the customer see in our app?
Show available, and label it. Available is the number that answers what they can spend, which is what they came to find out. Showing an authorised balance makes your app disagree with their bank, and they will trust their bank.
Related reading
- Reconciliation →Proving your ledger and the processor agree, and explaining what does not.
- Idempotency key →Why a retried payment does not become a second charge.
- Why you never use floats for money →Store integer cents, and carry the currency with the amount.
- Fintech software development →Payments, ledgers and trading tools we have shipped.
