We have already briefly mentioned rolling reserves in one of our previous articles. However, today we will be covering it in more detail. This article will explain why a rolling reserve is an important tool for online merchants and some of its advantages.
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.
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:
Usually, the riskier the business is, the higher the percentage of the reserve charged by the acquiring bank.
There are several factors that can have a bearing on your business’s rolling reserves:
As you can see, a rolling reserve is an essential part of online business and risk management. We hope that you have received all the basic information you needed to know about rolling reserves and their role. If you have any further questions, please don’t hesitate to contact us for assistance.