What Is an Instant Settlement Payment Gateway?

Payment gateways are a crucial part of the payment processing infrastructure for e-commerce businesses. They're valuable for brick-and-mortar merchants, too.  

These gateways help to bridge the gap between the many players and tools involved in a card-based transaction. They also provide valuable security for both merchant and customer. Additionally, payment gateways support compliance with rules like the Payment Card Industry Data Security Standard (PCI DSS).

There are plenty of good reasons to use a payment gateway, from the simple need to complete a transaction to protecting sensitive customer data. Finding the right payment gateway means taking functionality, compatibility, and specific features into account.

Instant settlement payment gateways offer a unique advantage compared to other options.  

So, what is an instant settlement payment gateway? We'll go into more detail later on in this article. For now, we'll point out their key advantage.

Instant settlement gateways offer much faster access to the money paid to your business than traditional gateways. The funds from a transaction will reach your merchant account in real-time or close to it.

However, there are also drawbacks to consider when it comes to payment gateways. Keep reading to learn more about payment gateways in general. Then, we'll dive into more detail about instant settlement payment gateways.

Do you already know you want to incorporate an instant settlement payment gateway into your card payment workflow? Or, do you want to optimize your overall approach to accepting card payments?

Swipesum is here to help.

Our independent payments consultants understand this complex market without being beholden to any specific providers. They learn about your needs, research the options, and present a curated list of suggestions. They can take the lead when negotiating merchant services fees and other costs, too.

Ready to change your approach to card payments for the better? Book your free consultation now.

What are Payment Gateways?

Payment gateways provide a connection between different parties in card-based transactions. A card payment starts with being entered into a checkout page online or swiped, tapped, or dipped at an in-store point-of-sale (POS) system.

At that point, the payment processor you work with will check with your customer's bank to ensure they have the necessary funds. If those funds are present, the money moves from the customer's account to your merchant account with the help of your payment processor.

That sounds like a complete process, but there is often a link missing between the checkout page or POS system and the payment processor. Direct API connections exist but are not universal. Situations in which a direct connection isn't possible is where payment gateways provide their value.

The gateway gathers the transaction information near the beginning of this process after the card information is entered digitally or shared physically. Crucially, the payment gateway also encrypts sensitive payment data before it's passed along to the payment processor.

What Are Payment Gateways With Instant Settlement?

Now that we have a clear picture of what payment gateways do, it's easier to understand instant payment and settlement in this context.

An instant settlement payment gateway serves the same function as a standard payment gateway. It connects the necessary parties in a card-based transaction and encrypts sensitive payment information.

What sets instant settlement payment gateways apart is the ability to instantly, or near instantly, receive funds from a transaction.

Cashfree Payments, a payment service provider that offers instant settlement gateways, explains this concept in more detail. Standard payment gateways use a T+2 days model, meaning funds are posted to a merchant account two working days after a transaction is completed.

However, the time it takes to actually receive those funds can stretch out due to weekends and holidays. In certain circumstances, like a transaction happening the day before a weekend followed by a holiday, it could take as many as five days to complete settlement.

That kind of delay can leave merchants waiting a relatively long time to receive customer payments. Depending on the needs of your business, that wait could disrupt your cash flow and lead to a variety of negative consequences.

Instant settlement payment gateways address this important issue effectively. However, they can also have their own unique drawbacks.

It may be more difficult for a business to qualify and be approved for an instant settlement gateway, for example. Providing quick access to customer payments often comes with a closer review of business finances.

The convenience of receiving funds instantaneously can come with a higher cost, represented by increased service fees. Providing funds more quickly than the standard timeline means more work on the part of the instant settlement payment gateway provider.

Integration with existing payment technology is also worth considering. Even if your business qualifies for an instant settlement payment gateway and the fees make sense, it may not work seamlessly with the rest of your tech stack.

Changing the other tools and providers involved in payment processing might be worth it. However, a careful analysis is required to truly be sure. For business owners without a deep background in the card payments field, finding the best path forward is often far from easy.

That's where an experienced independent payments consultant can help.

A Partner for Optimizing Card Payments

Swipesum is your chief payments officer. We bring knowledge and expertise in payment processing and merchant services to the table at no additional cost to your business.

Our independent consultants aren't backed by any specific tools or providers for payment processing. That independence means their only goal is finding a payments solution that works for your business.  

They'll review providers and tools based on the unique needs of your business and then present a curated list of options that address those needs. Crucially, they'll do so at no additional cost to your business.

Get the experts on your side for fee negotiation, payments system analysis, and so much more. Book your free consultation now!