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A Merchant’s Guide to Payment Gateway Settlements

  • October 12, 2020
  • 4 minute read
As more customers take the online route for buying things of daily needs, payment gateways have emerged as a necessity for merchants to guarantee customer satisfaction. Simply put, a payment gateway acts as a middleman between the customer and the merchant. It authorizes and handles payments made for goods and services by the customer, and then pays it forward to the merchants.  What is a Payment Gateway Settlement? Payment settlement refers to the final settlement in the merchant’s bank account – after the deduction of compensatory charges charged by the payment gateway. Payment gateways generally have multiple models for merchant settlements. Paytm for Business offers two kinds of payment settlement models. The first one is where the payments paid by the customers reflect in the merchant’s bank account by the next working day. The second one, also called Instant Bank Settlements, allows merchants to transfer funds received from their customers to their accounts whenever they want.  As a product, Settlement is used for all merchants that operate via Paytm. Whether it is an online startup, or a retail shopkeeper, or even a business partner, Paytm offers settlement options to suit each merchant’s needs.  How does it work? Generally, amounts received from customers take time to get deposited in the merchant bank accounts. This period is different for different payment gateways. For example, some payment gateways take T+2 business days to reflect the payment in the merchant account, where T is the date of the capturing of payment from the customer. On the other hand, Paytm offers next day settlement as a default option to merchants. Next day settlements work 7 days a week and might get delayed only when there are bank-side issues. However, it happens very rarely. The status of the payment can be checked in the Paytm for Business App, or the Paytm Dashboard.  Aside from the aforementioned option, Paytm also allows Instant Bank Settlements. It lets merchants transfer funds to their accounts at their own will. As a result, they do not have to wait until the next day for the payment to reflect in their balance.  Instant Payment Settlement options are helpful in multiple scenarios. They are especially useful for smaller merchants who need access to their payments to make their services available for customers immediately. Having immediate access to their payments allows merchants to further pay downstream partners, or make up for demand spikes. Instant bank transfers let merchants handle operational costs and smooth over any liquidity crunches they might face. Other payment gateways have the option of Instant Payment Settlements for merchants online. They transfer payments to the merchant bank accounts in multiple batches throughout the day. The timings of these batches are pre-decided. Paytm offers two options wherever Instant Payment Settlements are concerned. The first is a manual one, in which merchants can transfer funds to their accounts using the Paytm for Business App, as many times as they want throughout the day. These transfers can happen whenever the merchant wishes to do so. However, the transaction amount has to be greater than Rs.50. At the same time, it cannot be greater than the balance available for the day or Rs. 2 lakhs.  The other option with regards to Instant Payment Settlements is one where Paytm automatically transfers the balance to your account for the day. As the name suggests, the ‘same day auto-transfer’ option doesn’t require merchants to manually initiate payment transfers. The automatic balance transfer option further offers three choices. In the first one, payments are processed once at 5:00 AM every day; in the second option, settlements are made twice a day at 5:00 AM and 4:00 PM. The last option offers three transfers during the day – at 5:00 AM, 12:00 PM, and 6:00 PM.  The Instant Payment Settlement option comes with a premium charge that is levied upon merchants. However, there is no extra charge for the general settlement cycles, i.e., payments that are settled the next day. Merchants are free to switch between the two settlement options as per their preference.  Any payment made by a customer via a payment gateway goes through multiple stages before reaching the merchant. These stages are processed, authorized, and analyzed by the payment gateways themselves. Similarly, payment processes also go through multiple stages before reaching the merchant as payment settlement. These stages are as follows: 
  1. At the time of the settlement transaction, Paytm computes the total balance to be transferred after refunds, commissions, and other such deductions. 
  2. Next, the balance amount is transferred to the bank account attached to the merchant profile. This is generally done through processes like IMPS, UPI, NEFT. 
  3. The transferred amount reflects in the merchant dashboard. The Merchant dashboard also has information like reference numbers, among other transactional data. This data can be viewed on the app or downloaded for future references. 
To access the options for the payment settlements, merchants need to have either the Paytm for Business App or the Paytm Merchant Dashboard. After logging in, navigate to the settlements option. Here, the remaining balance for the payment settlement is displayed. Merchants can either wait for the amount to be settled in the regular settlement cycle, or apply for Instant Payment Settlement. In the case of the latter, a premium charge is levied upon the balance. Merchants are then needed to manually select the amount from the time duration they want to be settled in their bank accounts. Once the transaction is completed, the added amount will show up in the Merchant wallet.  In times when all the major businesses are going online, it becomes critical for business owners and retailers to move their business online. To do so, they must evaluate the pros and cons of payment gateways. A payment gateway that if flexible and accommodating of the merchant’s needs with regards to payment settlements is the correct way to go.    
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