Clearing is the step that follows to authorization and which paves the way for settlement. It refers to the process of reconciling funds between the issuing bank and the acquiring bank. However, in certain cases it also involves confirming transfer orders before proceeding to settlement.
The clearing process works as follows:
- After authorization has taken place, transactions are sent by the merchant to its acquiring bank.
- The acquiring bank sends the payment information to the card association brand (e.g. Visa or MasterCard).
- The card association brand verifies the submitted information and depending on the case, it determines further requirements such as currency conversions and any other fees that might apply.