What is A Rolling Reserve & How Does It Work? (Quick Guide)

Rolling Reserves Explained

What is a rolling reserve?

A rolling reserve is a chargeback risk prevention tool, and is used with any business model that is deemed high risk of getting them. For the most part bank will set a firm percentage based on the risk involved with the business. Can be 5%-20% of transaction value per month. (10% of 100.000 processed would mean 10.000 in rolling reserve per month). The rolling reserve will be held for x amount of months mostly 4-6 months.

A rolling reserve is a strategy to take care of merchants and their financial institutions and avoid potential losses arising from chargebacks. It is a term that is often used in the banking sector, and many online store owners have undoubtedly come across this concept when opening a merchant account.

It is more profitable and reliable to open and link a merchant account by enlisting the services of specialized companies, which can help to prevent problems from arising. If the acquiring bank or processing company deems your risk level to exceed their standard criteria but is still not high enough to deny you service, you may be required to open a reserve account. This account is usually credited with a certain percentage of sales.

How does a rolling reserve work?

Let’s look at how a rolling reserve works for an online merchant. First of all, we should mention that any payment processing company can require it. The terms of the rolling reserve account are also going to vary from provider to provider. They will depend on factors that are unique to your business, such as your average monthly credit card processing volume, how long you’ve been in business, and many others. What percentage of sales is the rolling reserve? Reserve accounts typically withhold around 5-10% of your credit card transactions. The required balance in a reserve account can be variable or a fixed amount, but it should not exceed 100% of your monthly processing volume.

The process of collecting funds in a reserve account and their return occurs continuously during the entire time a seller is working with an acquiring bank. That is to say, the acquiring bank always keeps a percentage of each transaction for the specified period of time.

Rolling reserves are essential for high-risk merchants. There are two main reasons for this:

  • Their businesses primarily sell unregulated or poorly regulated products or those that are considered to be high-risk (CBD, crypto, etc.).
  • The industry in which their business operates has a significantly elevated risk of chargebacks, for example, adult entertainment.

Usually, the riskier the business is, the higher the percentage of the reserve charged by the acquiring bank.

What can increase your rolling reserve?

There are several factors that can have a bearing on your business’s rolling reserves:

  • Monthly chargeback rate.
  • The minimum payment amount for a product or service.
  • Type of business activity.
  • Countries in which the sale of products or services is planned.
  • Large processing turnover.
  • Short credit history.

What does rolling reserve cover?

The RR covers in the case you are getting terminated so that the bank, and its partners have a buffer between loss and chargebacks disputed by customers. A rolling reserve is possible to get reviewed after months of processing. When a merchant shows to be less high risk than deemed by bank.

Rolling reserve: Is it for all?

It will be applied to any merchant account based on the business model and the average delivery time of the goods and/or services. After applying for a merchant account additional information is required in order to draw conclusions. So always have your KYC close to you, in case they need more documents.

How do I get it back?

Usually it is paid out to a merchant after a certain amount of time which can vary on business model, risk factors and bank. In the high risk space it is usually six months we are talking about, and 10% set from the start. As mentioned earlier in this post, it can be negotiated after proven processing history, to which you didn’t get above 1% in chargeback ratio nor hitting the count. It will be paid out to the merchant in their settlement accounts, after due period.

As you can see, a rolling reserve is an essential part of online business and risk management.

PayFasto  is available to help you getting started. So get in touch with an agent today by calling, or writing.

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