What is Settlement currency?

The currency in which an acquirer pays a merchant, potentially different from the transaction currency and requiring FX conversion.

Settlement currency is the denomination in which an acquirer credits funds to a merchant’s bank account for processed transactions.

This currency is typically agreed upon during merchant onboarding and specified in the merchant agreement, often defaulting to the merchant’s primary operating currency or the currency of their acquiring bank account.

While a transaction may originate in one currency (the transaction currency), the acquirer will convert these funds to the nominated settlement currency before transferring them, using an exchange rate applied at the time of settlement.

For a merchant, the settlement currency dictates the final amount received in their bank account after all processing fees and currency conversions. Merchants typically view their settlement currency within their acquiring bank statements or payment gateway reports, which itemise the converted amounts.

A frequent oversight is neglecting to factor in the potential for foreign exchange rate fluctuations between the transaction date and the settlement date, which can impact the ultimate profitability of international sales.

Settlement currency differs from FX in that it specifically refers to the final currency an acquirer uses to pay a merchant, whereas FX is the broader process of converting one currency to another, irrespective of the parties involved.