Cost Examples and Choosing an Acceptance Set-up
Settlement of card and UPI payments: T+1, instant settlement fees, holds and cash flow
When Indian merchants receive money from card, UPI and gateway payments, what T+1 means, what instant settlement costs, why settlement is held and how to reconcile.
Settlement is when the money from a customer's payment reaches your bank account. For card and UPI payments through a bank or payment aggregator in India, T+1 working day (the next working day after the transaction date) is a common standard, but the actual timeline is a term of your agreement. The RBI's 2025 Master Direction on Payment Aggregators requires the agreement to be fair and to state settlement timelines transparently. Many providers sell same-day or instant settlement for an extra percentage, and some hold settlement for new merchants, high-risk categories or suspicious activity. Waiting costs working capital; paying for speed costs a fee. This guide shows how to weigh the two and how to reconcile settlements. It belongs to the best-fit method.
Common settlement options
| Option | When money arrives (typical) | Cost | Watch out for |
|---|---|---|---|
| T+1 | Next working day | Included in MDR | Weekends and bank holidays add days |
| T+2 or longer | Two or more working days | Included | Ask why; sometimes for new merchants |
| Same-day | Later the same day for payments before a cut-off | Extra fee | Cut-off times |
| Instant or on-demand | Within minutes, on request | Extra fee per settlement or a percentage | Fees add up |
| Direct to account (UPI P2PM) | Instantly into your account | Free | Only for small merchants within P2PM limits |
| Delivery-linked | After delivery or service completion | Included | Pre-orders and marketplaces |
Weekends and holidays. A card payment on Friday under T+1 working days may arrive on Monday; before a long weekend it can be Tuesday or later. Plan festival cash flow around this.
What waiting costs vs what speed costs (illustrative)
Suppose a shop settles ₹6,00,000 a month of card and UPI payments. Instant settlement costs 0.15% of the amount settled.
| Approach | Cost per month |
|---|---|
| T+1 standard | ₹0 extra |
| Instant settlement on everything | 0.15% × ₹6,00,000 = ₹900 + GST |
Is ₹900 a month worth it? Compare with what the money is worth to you for one day. If the shop borrows on an overdraft at an illustrative 12% a year, one day's interest on ₹20,000 (one day's sales) is ₹20,000 × 12% ÷ 365 ≈ ₹6.6; over a month of daily cycles, about ₹200. Instant settlement here costs about four times what the overdraft would. It makes sense only if speed avoids something more expensive: a supplier who gives a discount for same-day payment, or a cash shortage that would stop trading.
Annualised cost of instant settlement. Paying 0.15% to receive money one day earlier is like paying about 0.15% × 365 ≈ 55% a year on that money. Over a weekend (three days), it is closer to 18% a year. This simple comparison shows why instant settlement is best kept for genuine needs.
Why settlement is held
| Reason | What you can do |
|---|---|
| New merchant review or KYC incomplete | Submit documents promptly; ask for the checklist |
| Unusual volume (spike vs history) | Tell your provider before a sale or festival |
| Risk category (for example travel, ticketing, pre-orders) | Expect reserves or delayed settlement; negotiate terms in writing |
| Chargebacks or fraud alerts | Respond with evidence; see chargebacks |
| Account or bank details changed | Verify changes through official channels only |
| Regulatory or court instruction | Ask for the reference |
A rolling reserve holds back a percentage of each settlement for a period. For example, 5% held for 90 days on ₹10 lakh a month ties up ₹1,50,000 at its peak (illustrative). It should be stated in your agreement.
Reconciling settlements
Settlement reports should let you match each sale to its settlement:
- Download the settlement report (transaction-level) for each day.
- Match transaction IDs with your billing or order system.
- Check gross amount, MDR, GST and net for each line.
- Flag lines with fees on zero-charge modes (RuPay debit, UPI up to ₹2,000).
- Track refunds and chargebacks deducted from settlement.
- Book gross sales in your accounts and fees as expenses; see GST on MDR.
Failed and pending payments
If a customer's account is debited but your system shows failure, the RBI's harmonised turnaround time (TAT) framework of 20 September 2019 requires automatic reversal within set timelines (for example, T+5 days for card payments at a terminal where the charge slip was not generated), with compensation to the customer for delay. For UPI, NPCI and the framework set separate timelines. Tell customers to wait for the reversal rather than paying twice; see chargebacks and failed transactions.
Questions for your provider
- What is the settlement timeline for each method, in working days?
- What are the cut-off times?
- What does instant or same-day settlement cost?
- When can settlement be held, and how will I be told?
- Is there a rolling reserve, and when is it released?
- Which bank holds the escrow account? (For non-bank PAs; see payment aggregator rules.)
FAQ
Is T+1 a legal requirement?
The 2025 Master Direction leaves settlement timelines to the agreement, provided they are transparent. T+1 is a common market practice, not a universal rule.
Why did I receive less than my sales?
Settlement is net of MDR, GST, refunds, chargebacks and sometimes rentals. Check the report line by line.
Can I get instant settlement only during festivals?
Many providers let you switch it on and off. Use it when it is worth the fee.
Are UPI payments settled instantly?
Payments into a bank account via a personal or P2PM QR arrive instantly. Merchant accounts with aggregators usually settle in batches as agreed.
Sources
- Reserve Bank of India — Master Direction on Payment Aggregators (September 2025) and harmonisation of TAT for failed transactions (September 2019)
- NPCI — UPI dispute and settlement rules
- RBI Complaint Management System — complaints if a regulated entity does not resolve an issue
