Gross vs. net settlement: What's the difference?

Gross and net settlement are two forms of financial transactions, offering varying styles, speeds, and benefits.

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December 5, 2023
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Gross vs. net settlement: What's the difference?

Gross and net settlement are two forms of financial transactions, offering varying styles, speeds, and benefits. However, there are key differences to consider.

This page will not only explain the difference between gross settlement and net settlement, but also how they work, which method may best suit your business, and how can support your business with both types of settlement.

What is a payment settlement?

Payment settlement involves the transfer of funds from the cardholder's account to the acquiring bank via a payment gateway. The acquiring bank is responsible for accepting card payments on behalf of the merchant.

After the transaction gets approval and authorization, payment settlement becomes the last step in the process initiated by a customer's transaction. 

Although transaction approval can be almost immediate, the actual transfer of funds into the merchant's account may take several hours, days, or even weeks. The duration of settlement periods depends on various factors, such as the transaction type and the issuing bank responsible for transferring the money.

What is net settlement?

Net settlement is when banks collect and share transaction data during the day with a clearinghouse and the Federal Reserve Bank. This is to settle any remaining amounts owed.

Let’s say Bank X owes Bank Y $5,000,000, but Bank Y owes Bank X $3,000,000. Using the net settlement system, the Federal Reserve Bank enables Bank X to transfer $2,000,000 to Bank Y rather than hold two multi-million dollar transactions between the two banks, settling the difference in transaction amounts between the two.

A bank's net settlement is like reconciling a checkbook. The reconciliation becomes difficult when dealing with various incoming funds, such as cash, checks, and direct deposits, and outgoing expenses like cash purchases, checks, and credit card transactions. 

All of these transactions, including purchases, refunds, bill payments, and received paychecks, need to be calculated to understand the complete financial picture.

Net settlement simplifies liquidity management for banks, ensuring they have enough physical cash available to meet customer demands at counters and ATMs. 

There are two main types of net settlement systems:

  • Bilateral: this requires the final resolution of payments exchanged between two banks throughout a day and is typically settled by the day's end through transfers between their accounts held at the central bank.
  • Multilateral: these settlement systems enable a bank to have a net balance within the entire system rather than with specific individual banks.

What is gross settlement?

Gross settlement, also known as real-time gross settlement (RTGS), is a system that instantly sends funds and settles transactions as they happen rather than in batches. This instantaneous process makes transactions final and irreversible.

RTGS systems are overseen at a national level by a country's central bank and are accessible only to individuals or entities banking within that country. Although the operating hours of these systems vary, some RTGS systems may operate continuously, 24 hours a day.

Gross settlement systems are ideal for larger transaction amounts that need fast and secure fund transfers, reducing fraud risks due to their rapid settlement timeframe.

Differences between gross settlement and net settlement

Here, we’ll explain the four key differences between gross settlement and net settlement. We’ll then compare the pros and cons of each settlement method.

  1. Net settlement typically involves processing a bunch of transactions together at the end of the day or a specific time period. On the other hand, gross settlement deals with each transaction individually and settles them instantly as they happen.
  2. Gross settlement is usually more suitable for moving and settling large amounts of money quickly.
  3. Net settlement groups transactions together for processing, while gross settlement handles each transaction separately without waiting.
  4. Transactions in gross settlement are final and can't be reversed because they happen instantly.

Which method is right for your business? Well, here are the advantages and disadvantages of net and gross settlement methods:

Gross settlement

  • Gross funding improves your cash flow as it postpones fee payments until the month's end.
  • It simplifies reconciliation by aligning the total processed amount with the deposited sum in your bank account.

Net settlement

  • Choosing net funding helps organize your cash outflow by paying processing fees on a daily basis instead of monthly.
  • However, net funding might involve extra effort in reconciling the daily processed amount with the deposit in your bank.

Learn more: makes around-the-clock liquidity a reality with stablecoin settlement

How to use as a payment gateway

At, we’re a payment gateway that supports both net and gross settlement methods. Payment gateways serve as the vital link for authorizing transactions and settling funds between issuers and merchants, accommodating both card and alternative payment methods. 

At, we specialize in addressing your payment settlement needs, with our comprehensive payments solution serving as both an acquirer and processor, enabling faster transaction processing and settlement. 

We also ensure near-real-time authorization of payments and provide you with the flexibility to decide when to capture your customers' reserved funds, extending up to seven days after authorization via our platform.

Moreover, our platform grants you access to valuable data and insights, empowering you to improve your payment experience, boost acceptance rates, and drive revenue growth. 

Experience the difference with for seamless, efficient payment settlement solutions tailored to your needs. Contact our sales team for more information.

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December 5, 2023 11:23
December 5, 2023 11:23