A rolling reserve is a risk management strategy to protect the merchant and its banks from potential loss due to chargebacks. A portion of the credit card volume processed will be secured to cover for the potential business risk relating to chargebacks. Acquiring banks calculate the rolling reserve amount based on a certain percentage of each transaction (for example, between 5-15% on every transaction). Rolling reserves are kept on hold for a defined period of time and will be released at the end of this period.
How does it work?
A rolling reserve works as a buffer for chargebacks. The more risk a business might face, e.g. longer delivery periods or subscription businesses, the higher the rolling reserve will be calculated by the acquiring bank. Rolling reserve ensures that the merchant account has enough liquidity in case of a high amount of chargebacks are claimed by card holders. The money remains at all times on the merchant account and is then released to the merchant at a later time (a maximum of 180 days). If a rolling reserve is applied to a transaction, the funds will be automatically settled in one of the weekly settlements after the given period stated in the merchant’s agreement. The rolling reserve can be reviewed after some time, if the merchant and the bank have more historical data on the transactions made and chargeback rates.
Is a rolling reserve applicable to all merchant accounts?
A rolling reserve may be applied to a merchant account depending on the business model and the average delivery time of the goods and/or services. Thus, additional information is required after registration in order to draw conclusions.