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What are Real Time Settlements and Why are they Good For You

October 1, 2020

What are Real Time Settlements and Why are they Good For You

October 1, 2020

Speed is key in this day and age, with demands for faster service and more immediate satisfaction permeating virtually every industry and aspect of daily life. While there is definitely virtue in slowing down and “enjoying the scenery”, there are some areas of business where you shouldn’t have to wait. 

Let’s talk about settlements, for example. 

What are Merchant Settlements? 

The term “settlement” refers to the stage in the purchasing process – whether merchant-customer, or B2B – when the funds are confirmed transferred into the merchant’s account. Once the settlement of funds occurs, they are available for use. 

Oftentimes, settlements occur on intervals, with cashflow being settled on the merchant side once every 10 days or even up to once a month. Real time settlements (also referred to as real time payments) eliminate this gap, with the funds transfer being completed – you guessed it – in real time. 

Essentially, the process goes like this: 

When a customer uses a card to purchase – either in-store, or online – from a merchant, the PSP (payment service provider) system sends the transaction details to the card issuing bank. Once the issuing bank approves the transaction, and the sale is completed. All of this happens automatically in the background, and typically within a matter of seconds. 

The merchant sends a batch of transactions through the PSP, generally once a day. The PSP reconciles the authorizations with the credit card processor, and facilitates the receipt and deposit of funds into the merchant’s account. 

Impact on Workflow 

Merchants know that one of the biggest impacts on business is cash flow. Having to wait two weeks or even a month for funds from transactions to become available can delay other parts of doing business: paying invoices, processing payroll, implementing improvements, or even making seemingly simple decisions on hiring new staff, not to mention, feeling secure in case of ‘emergencies’.  

One report shows that “61.3 percent of brick-and-mortar microbusinesses said they might delay vendor payments as a result of not having access to cash.” With instant settlements, cash is available at the time of doing business and can be used how you need it, when you need it. 

Take, for instance, the case of a tour booking agency. Their clientele book everything from airfare to safaris through their booking experts, both in-store and online. Previously, settlements were made once every two weeks on payments received through their purchasing system. This meant their accountants could only settle and account for funds in the bank twice a month. 

As a small business, it wasn’t enough to simply make sales and reinvest in the company – they needed to calculate their moves based on the settlement schedule. By moving to a real-time settlement scheme, their accounts were balanced at the time payments were received and they were able to take control of their own finance and purchase schedule, giving them much more freedom and flexibility in operations. They were also able to use their funds to reinvest in operations, giving their booking agents access to new equipment which helped them work more efficiently and effectively, increasing their sales and helping the business to grow.  

With B2B real time payments, settlements are achieved instantly, meaning the booking agent is able to receive funds from business partners and direct them to suppliers without delay. This swift business workflow has built confidence and trust between the agency and its vendors, leading to more opportunities, and more offerings for customers. 

How to get Real-Time Settlements 

Settlements are a function of the PSP (payment service provider), who handles, amongst other things, the legwork of receiving and processing payments for merchants. With a PSP like DPO, instant settlements are a reality. In fact, DPO is the first PSP in Africa to offer real time settlements (RTS). 

With RTS, merchants can receive payments from their customers or business partners and have immediate access to the funds using their DPO Merchant Card. The card can be used online and offline, anywhere credit cards are accepted, including to: 

  • Shop online 
  • Purchases on point of sales and payment to suppliers  
  • Withdraw funds from any MasterCard labelled ATM 

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