What are payment settlement entities

Payment settlement entities are defined as entities responsible for making payments to participating payees in settlement of payment card transactions or third party network transactions. These entities can be either domestic or foreign and fall into two main categories:

1. Merchant Acquiring Entity: This is a bank or other organization that has the contractual obligation to make payments to participating payees in settlement of payment card transactions. The term "merchant acquiring entity" specifically refers to the entity that processes payment card transactions and ensures that the merchant receives the funds from these transactions.
2. Third Party Settlement Organization: This is the central organization that has the contractual obligation to make payments to participating payees of third party network transactions. A third party settlement organization typically operates a network that facilitates transactions between buyers and sellers, guaranteeing payment to the sellers.

In addition to these primary categories, the regulations also recognize the role of electronic payment facilitators. If a payment settlement entity contracts with an electronic payment facilitator to make payments on its behalf, the facilitator is responsible for filing the required information returns.

Payment settlement entities are required to file information returns electronically for payment card transactions and third party network transactions. They must report the gross amount of reportable payment transactions and provide written statements to each participating payee, including the name, address, and phone number of the information contact, as well as the gross amount of the transactions.

The Secretary of the Treasury has the authority to prescribe regulations to carry out these requirements, including rules to prevent the reporting of the same transaction more than once.

Sources:
FS-2023-6
PLR 201907006
Notice 2011-78
§ 1.6050W-1. Information reporting for payments made in settlement of payment card and third party network transactions.
Publication 1220 (9/2023)
§ 6050W. Returns relating to payments made in settlement of payment card and third party network transactions