When you apply for a merchant account at an e-commerce bank, sooner or later you will hear about a rolling reserve. Since you may then urgently need to clarify this term, please let me explain in advance what it refers to.
The rolling reserve is a significant buyer protection policy used to create a “buffer” for the future chargebacks. It is usually applied at the very beginning of the merchant account activity for a certain period of time, for example 180 days, during which the acquiring bank withholds some percentage of the gross transaction amount. In that way, the bank lessens the risk associated with the account, making it possible for the provider to underwrite it.
It is worth knowing that the rolling reserve will most probably affect only your Visa and MasterCard transactions, unless other card providers specifically require such a reserve as well in some special underwriting cases.
Here are some of the factors that may cause that you have a high the rolling reserve: large average tickets, high processing volume, high-risk merchant and business model types or business owners with poor personal credit. The general rule is that more risky the business, the higher the rolling reserve. In some more drastic cases, the bank may even request 100% from 6 month transactions to be blocked on the merchant account. Yet, luckily, these instances are not that frequent.
The fact is that most of the third-party processors/acquirers require a deposit or a reserve when setting up the merchant account. They simply need to guarantee a portion of the volume processed to cover for the potential business risk relating to chargebacks. Also they make it possible for providers to grant merchant accounts to businesses that otherwise may not be able to get one.
All in all, nowadays almost all businesses need to accept credit cards in order to stay competitive, even if they will need a rolling reserve attached to their account to make card acceptance possible. Rolling reserves are eventually released, and the merchant can go on processing normally.