A Rolling Reserve: The Who and The Why

A Rolling Reserve: The Who and The Why

For the countless high risk merchants whom we call upon to offer offshore merchant accounts, sometimes the acquiring bank won’t move forward unless the merchant agrees to a rolling reserve.

From there, the merchant’s reaction is predictable:

‘Wait, why can’t I recoup all the revenue I generate?’ is usually the next question.

We then explain precisely how it works, how it is a protective measure imposed by an acquiring bank that protects both the merchant and the bank.

The merchant begins to understand and realizes It’s not a bad thing.

What is a rolling reserve?

A rolling reserve is a risk management strategy that protects acquiring banks and merchants in the event of potential financial drawbacks such as chargebacks or unexpected fees. As merchants begin payment processing, a percentage of their revenue is put into a separate (non-interest bearing) bank account each month, so that there are funds to cover these expenses.

Why do banks impose rolling reserves?

Rolling reserves serve as a degree of protection for banks when they take on certain high risk industries. For example, if an acquiring bank approved an offshore merchant account for an online tech support startup business, it would do so with (likely) a six-month, 10 percent rolling reserve. An online tech support business is about as risky as a business gets for two reasons:

  • Startups usually don’t have a large financial cushion behind it.
  • Tech support businesses usually deal with high chargeback rates.

As such, a rolling reserve is the bank’s way of protecting itself and the merchant. After six months, the bank would begin releasing the funds back to the merchant.

Benefits of Rolling Reserve: See it as an opportunity

  • A new start: Merchants who have imperfect financial history, or who perhaps have been placed on the MATCH list, will likely be hit with a rolling reserve when starting a new business. This is a chance for a merchant, however, to improve credit history and financials.
  • Chargeback prevention: As explained above, a rolling reserve is a protective measure against chargebacks and refunds. Thus, it pushes merchants in high-chargeback industries – perhaps tech support, travel or online dating – to maintain a keen eye on chargebacks and to use a strategy of prevention.
  • In six months, a windfall: Once the rolling reserve period is complete (usually six months) the acquiring bank releases the merchant’s funds incrementally. It also signifies stability and reciprocal trust in the business.

Instabill merchant account managers are always up for a discussion at 1-800-530-2444.

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