Everything There Is to Know About Merchant Account Reserves

May 30, 2019

Merchants can feel overwhelmed when they sign on for credit card processing. Getting a merchant account to have the ability to accept and process credit and debit cards requires many elements, a number of which are unknowns until businesses are in the thick of the process.

One of those elements that many businesses are unaware of are merchant account reserves, which are set amounts of a merchant’s money that is put into a separate account by an acquiring bank. It is similar to a security deposit that is held when a person rents an apartment. It protects a bank for unplanned liability.

Reasons Acquirers Require a Merchant Account Reserve

Acquirers keep funds in a reserve similar to the way banks require equity for a loan. The funds are held in until chargeback time limits expire. If a transaction moves ahead without a chargeback, the reserve is not touched. But, if a shopper disputes a transaction, the acquirer could use the reserve funds to repay the person.

In other words, it’s an escrow fund that protects the acquirer from financial losses.
Even if a merchant business account doesn’t hold enough money to cover a chargeback, a bank won’t be on the hook to cover the disputed transaction.

What Types of Businesses Need Merchant Account Reserves?

Though every processor has its own rules and criteria for requiring merchant account reserves, risk levels is one of the biggest factors. In general, all high-risk merchants, such as those involved in gaming, adult entertainment, or CBD, must submit a reserve.

Typically, a reserve is required at the time a merchant account is approved. However, if a business’ risk level changes, such as it begins accruing more chargebacks, a processor can require a reserve.

Merchants often require merchant account reserves if they:

  • Sell high-risk products or services
  • Sell products with high average ticket prices
  • Have high volumes of monthly transactions
  • Process contactless transactions
  • Operate in sectors with high chargeback ratios

Understanding the Different Types of Reserves

Processors can use three different types of reserves, including:

  • Rolling Reserve Accounts: These are the most common types. This is when a percentage of each credit card deposit, which is often between 5% and 10%, is held in a reserve for up to one year. Rolling reserves are released gradually. After the agreed upon period is up, the acquire releases funds back to the merchant each month.
  • Capped Reserve Accounts: This type of account keeps a percentage of each card transaction until a fixed amount is reached. The amount often is equal to half of a merchant’s monthly processing volume. However, it may be as high as entire month’s processing volume. Unlike rolling accounts, these funds are held in the reserve until the merchant agreement expires.
  • Upfront Reserve Accounts: This type of reserve is the amount of money that is based on projected monthly volume that must be placed into escrow when a processing agreement is signed. Upfront reserves can be funded with:
  • A letter of credit from the merchant’s bank
  • Transfer the funds from another bank account
  • Permit an acquirer to retain all credit card transaction deposits until the required reserve is met

How Reserve Amounts are Determined

Each processing agreement outlines the terms and required minimum balances of reserve accounts. Every processor has its own criteria, but most consider business models, credit histories, and reputations for chargebacks.

When Acquirers Hold Reserves

If an account is not in good standing, then a bank will terminate a processing agreement. When this occurs, the reserve is extended for an unknown period of time. IN most cases, reserves are not released until all risk has passed.

In Conclusion

Merchants looking to process credit cards need to know what to expect. Many should expect to need to put up merchant account reserves.

Apply for Merchant Account Services

If you are a business interested in obtaining a merchant account, contact eMerchantBroker.com. EMB works with all types of businesses, including those in high-risk sectors. Apply online today.

Let us help you get a high risk merchant account today!

Get Started

Award winning.

  • 2012
  • 2013
  • 2014
  • 2015
  • 2016

Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

Live Chat