When you pay for something with a card or a check, the money does not move instantly. It goes through a process called clearing, where banks exchange payment instructions and settle the balances between them. Clearing is the plumbing of the financial system. It is invisible to most people, but nothing works without it.

Clearing happens in several ways. Check clearing involves the bank of the payer sending the check to the bank of the payee, either physically or electronically, and the funds being transferred. Card clearing involves the merchant's bank sending transaction data to the card network, which routes it to the cardholder's bank for approval and settlement. ACH clearing batches electronic payments and settles them through the Federal Reserve. Wire clearing transfers funds immediately through a real-time gross settlement system.

Clearing is not the same as settlement. Clearing is the process of matching and confirming transactions. Settlement is the actual transfer of funds between banks. In the United States, the Federal Reserve operates the Fedwire and FedACH systems, which handle settlement for most transactions. The Clearing House, a private organization, operates CHIPS, which settles large international dollar payments.

Clearing times vary. Wire transfers settle same day. ACH transfers settle in one to three days. Card transactions settle in one to two days. Check clearing can take up to five days. Faster clearing is a priority for regulators, who want payments to move as quickly as information does.