Rolling Reserve Merchant Accounts: The Complete Guide


April 24, 2020

Rolling reserve accounts can be confusing for new merchants venturing into the world of credit card processing, but they are common for businesses that operate in high-risk industries. It is important to understand that rolling reserve merchant accounts are designed to protect both the Payment Service Provider (PSP) and your business. In this post, T1 Payments will explain why most high-risk credit card processors require a rolling reserve account, and how the funds help merchants grow their business.

What is a Rolling Reserve?

When you sign a Merchant Service Agreement (MSA) with a payment provider to begin processing credit card transactions, you are likely to see a clause about rolling reserves. A rolling reserve is usually an amount of between five to ten percent of a merchant’s net sales. This sum is retained in a non-interest-bearing account for a fixed period, which is usually 180 days. This is because a customer has 180 days from the time they receive their goods or services to enact a chargeback with their credit card issuer.

Rolling reserve merchant accounts are different from account reserves. A merchant account reserve contains a fixed, pre-agreed sum of a business’s money held as a security deposit by acquiring banks to safeguard them from financial liability. Rolling reserves, on the other hand, deposit a small percentage of the merchant’s net sales consistently for a predetermined period.

Why do Credit Card Processors Require Rolling Reserves?

Credit card processors typically ask for rolling reserves in their merchant service agreements when working with businesses that operate in high-risk industries. Industries that experience high rates of fraud and chargebacks are perceived to be high-risk by banks and other financial institutions, like travel and booking, online gaming, and adult entertainment.

A man on a laptop using his credit card to make an online paymentChargebacks inflict a heavy financial toll on credit card processors as they are responsible for refunding the customer. When a transaction between a merchant and a customer is completed, the payment processor pays the merchant before receiving the funds from the credit card company. If the customer files a chargeback within the 180-day timeframe, the payment processor should also pay the customer while the issue is being investigated.

Rolling Reserves Hedge Against Financial Loss

To summarize the scenario in simpler terms, a payment processor loses money to both the merchant and customer when a chargeback is filed. A rolling reserve merchant account acts as a safety net for the payment processor. If a merchant can’t repay the payment processor for the chargebacks to its customers, the processor can use the funds from the rolling reserve to compensate for the financial loss. Payment processors demand rolling reserves in their merchant service agreements to mitigate the financial liabilities of increased chargebacks in high-risk industries.

How do Rolling Reserves Help Businesses Grow?

The payment processors that work with high-risk merchants use many risk-mitigation strategies to minimize the liabilities of working with these businesses. High-risk payment processors often charge higher rates and demand a rolling reserve merchant account to offset the risks of working with your business.

While businesses end up paying more for processing credit cards, they will reap plenty of benefits for their investment. For many high-risk businesses, especially eCommerce merchants, not being able to process credit cards will decrease sales opportunities, limiting your growth potential. A high-risk payment provider may be the only option you have to process credit card payments. Many high-risk merchant account providers also offer the capability to process international credit card payments, helping your business go global.

Get a Rolling Reserve Merchant Account to Grow Your Business

Many businesses mistakenly think that rolling reserves are additional fees for maintaining a high-risk merchant account. If rolling reserves are required in your merchant service agreement, do not fret. Rolling reserves protect the payment processor from financial loss and help high-risk merchants acquire credit card services. If you need a rolling reserve merchant account to grow your business, we can help. Contact us now to learn how our high-risk merchant accounts can help your business expand internationally.