What is a Merchant Account Reserve?   

If you’re a high risk merchant, you should have heard about “merchant account reserve,” shouldn’t you? In fact, the amount to leave as a reserve is like equity that loan providers require. So, what is this reserve? To learn more about what it is and how you can get a reliable and affordable high risk merchant account, just keep on reading the article below.

Merchant Account Reserve for a High Risk Merchant Account

Merchant accounts, acquirers, and processors aren’t the same, but there’s a universal feature concerning merchant processing: this is the mentioned reserve.The latter isa concrete amount of the business’ funds that the acquiring bank holds as a deposit that can help it be on the safe side.

By the way, different processors regulate all this differently and offer different criteria when it comes to reserves. The amount that you’ll be required to leave as a reserve and the duration for which it’ll be held are identified during the application process. They’re based on the risk exposure that the acquiring bank calculates for you.

Besides, there’re several other factors that the financial institution may take into consideration when figuring out the amount of your reserve. Namely, these include higher sales of tickets, increased processing volume, and poor personal credit.

So, if your business is tabbed as high risk due to certain criteria, such as higher levels of chargebacks, you should be ready for a merchant account reserve. The good news is that if you turn to a reputable payment processor, you can get the best credit card processing solutions for your high risk business. This means the cheapest rates for your high risk merchant account, the highest level of chargeback mitigation and fraud prevention, etc.

Types of Merchant Account Reserves

Mainly, you’ll come across with the following 3types, which are closely related to the nature of the target business:

1. Rolling Reserve

The most common type. In this case, about 5-10% of each credit card deposit gets reserved for 6 – 12 months.

2.Capped Reserve

The processing company will take a percentage of each credit card deposit until reaching a certain amount.As a rule, this capped amount will make up half the processing volume you have each month.

3.Up-Front Reserve

The processing company will take an up-front payment that’s the very expected monthly volume.

Overall, merchant account reserves aim at keeping financial institutions away from unexpected merchant liabilities. Here’re some examples of financial liabilities that processors want to stay away from:

  • Lost sales orders
  • Large amount of chargebacks
  • Errors by bank
  • Disasters and “acts of God”
  • Deliveriesthat’re missed
  • Factors that can make the processing company lose money

To sum up, a merchant account reserve represents a certain amount of your monthly revenues driven from bank card transactions that’re held by the acquiring bank in a non-interest bearing escrow account. Financial institutions consider this a way to protect themselves from losses that may occur in the future because of chargebacks, and not only.

Author Bio: Electronic payments expert Blair Thomas is the co-founder of high risk payment processing company eMerchantBroker that offers an exceptional high risk merchant account at the cheapest rate in the industry. He’s just as passionate about his business as he is with traveling and spending time with his dog Cooper.