How Payments Work

Authentication, Authorisation, Clearing and Settlement Explained

Understand the four core stages of a payment, what happens at each stage, and why a successful authorisation does not always mean you have been paid.

Authentication, authorisation, clearing and settlement are the four core stages that every electronic payment passes through. They answer four different questions: is this really the payer, may the money move, how does the instruction get between the banks, and when do the banks actually exchange the money.

The stages are easy to confuse because customers experience them as a single moment — a tap, an approval, a confirmation screen. For a business, though, the difference between an authorised payment and a settled payment is the difference between a promise and money in the bank.

What is authentication?

Authentication verifies the identity of the payer before a payment or mandate is accepted. South African examples include:

A card PIN at a point-of-sale terminal, or 3D Secure for online card payments.
Bank app, USSD or ATM approval of a DebiCheck mandate before collections begin.
Logging in to internet banking before sending an EFT or PayShap payment.

Authentication protects the payer. It proves the person authorising the payment controls the account or card, which in turn reduces fraud and strengthens the payee's position in later disputes.

What is authorisation?

Authorisation is the payer's bank approving the specific payment. The bank checks that the account exists and is open, that funds or credit are available, and that nothing on the account (such as a stop payment) blocks the instruction. The result is an approval or a decline.

For card payments, authorisation happens in real time and often places a hold on the cardholder's funds before the merchant captures the amount — see Authorisation, capture and pre-authorisation. For batch debit orders, there is no upfront funds check; the "authorisation" is the mandate, and the funds check only happens when the collection is processed on the action date.

What is clearing?

Clearing is the exchange of payment instructions between banks and the calculation of what each bank owes the others. In South Africa, interbank clearing for EFT, debit orders, DebiCheck, RTC and PayShap runs through BankservAfrica, the country's automated clearing house.

During clearing:

The instruction moves from the sponsoring or acquiring side to the payer's bank (or the reverse for credits).
Each bank posts the debit or credit to its customer's account.
The net obligations between banks are calculated for settlement.

Clearing determines when the payee sees the money in their account, but it is still an interbank IOU until settlement completes.

What is settlement?

Settlement is the final transfer of value between the banks themselves. South African banks settle their obligations through the South African Reserve Bank's real-time gross settlement system (SAMOS). High-value payments settle individually in real time; retail streams such as EFT and cards settle on a netted basis in scheduled settlement windows.

Once settlement completes, the interbank leg of the payment is final. Note that finality between banks does not prevent all later reversals: a debit order can still be disputed by the payer, and a card payment can still be charged back. See Refunds, reversals, disputes and chargebacks.

Why does authorised not mean paid?

The stages complete at different times, so a payment can be approved and still never become money you keep:

Stage	Question it answers	Can it still fail afterwards?
Authentication	Is this really the payer?	Yes — the bank can still decline
Authorisation	May the money move?	Yes — capture, clearing or settlement can still fail
Clearing	Has the instruction been exchanged?	Yes — debit orders can be returned unpaid; disputes remain possible
Settlement	Have the banks exchanged value?	Interbank leg is final; customer disputes remain possible

Treat a payment as reliably yours only once it is settled and reconciled, and remember that pull payments carry dispute risk even after that. Reconciliation practices are covered under Clearing, settlement and reconciliation.

Payment Lifecycle

Follow a payment from initiation to final settlement, including the stages, statuses and timeframes that apply to cards, debit orders, EFT and PayShap.

Payment Participants