Payment Tips

What is a Merchant Account Reserve?

Merchant Account Reserves are a confusing topic, here's what you need to know
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Josh Phelps
October 24, 2022


If you have already tried to open a merchant account for a high-risk business at a traditional bank, there’s a pretty good chance that you are more confused and have more questions now than before you consulted with your friendly neighborhood banker. If your application wasn’t rejected outright, and you were told about the stricter requirements for high-risk businesses, one of those questions might be “What is a merchant account reserve?”

That question was probably followed by “Do I have to have one?” If you made it all the way to thinking “Why do I have to have one?” you might not be in the best mood right now.

Well, Zen Payments is here to help, so let’s see if we can make it a bit clearer.

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It’s Probably Because of Chargebacks

If you’re not sure why traditional banks aren’t very welcoming to your high-risk business, or why the bank suddenly canceled your merchant account, you can assume that it has something to do with chargebacks , and there’s an excellent chance that you’ll be right. There are, of course, a variety of reasons that certain industries or types of business are considered to be high risk, but having a chargeback rate that is higher than the set maximum is one of the most common.

Since chargebacks are something that every business that accepts credit card/debit card payments must deal with to one degree or another, it’s not surprising that some businesses will have characteristics—sometimes inherent to the industry—that make them more susceptible to chargebacks. Banks and merchants both dislike chargebacks. In a nutshell, the reason is that chargebacks are a drain on money and time without adding any value.

A “Just in Case” Safety Net

Providing a merchant account and other merchant services to high-risk businesses places certain obligations on the bank. Ordinarily, when a customer initiates a chargeback, the bank provides the refund, and then is reimbursed by the merchant. There are also various penalties and other additional fees that the merchant is required to pay when there is a chargeback. If a business doesn’t have enough money in its merchant account to cover the refund and fees, the bank is stuck with the loss. It can also cover things like loss due to fraud, failure of your business, etc.

Many people are familiar with escrow accounts that are set up when a bank provides someone with a loan. A certain amount (usually a percentage) is placed in the escrow account in preparation for a situation in which the person that took out the loan is unable to make payments, or there are other factors related to the loan that result in a loss by the bank. The money in the escrow account belongs to the customer, but it can’t be accessed by the customer until certain requirements are met, indicating that the bank’s risk of loss decreased enough.

A merchant account reserve is basically the same type of arrangement. In this case, however, the “loan” provided by the bank is the amount used to provide the refund, etc. As with a typical escrow account, the amount of the reserve is a percentage of the transaction. The percentage is usually around 10%, but it can be higher depending on the specific type of risk that is involved. The money in the account is still your money, but you can’t access it until you have fulfilled certain requirements and the money is released.

Do I Have to Have a Merchant Account Reserve?

The answer to the question “Do I have to have a merchant account reserve?” ultimately depends on the bank. Different banks have different rules , and the rules of a single bank may differ greatly depending on the industry. However, there are a number of things that can be good indicators of whether you will have to maintain a reserve.

One such indicator is how high the risk is for your high-risk business. The exact definitions and thresholds, etc., vary, but there are three broad categories for assessing the level of risk.

A business in this category is considered by banks to pose an unacceptably high level of risk. In most cases, applications from these merchants are rejected, so the need for a merchant account reserve doesn’t even come up.

A business in this category is considered by banks to pose an acceptable level of risk, so there is no significant need for the bank to establish extra protection against financial loss. In this case as well, the need for a merchant account reserve may not even come up.

In some cases, a business or industry is considered to have, at the very least, a level of risk that requires consideration or caution, but not to the degree that it should be rejected outright. The bank may be willing to give your business a chance, but only if you are willing to make sure that there are funds to cover potential losses by the bank.

That’s where a merchant account reserve can be useful. You may have all the confidence in the world in your business, but that doesn’t mean that the bank does. The compromise is that the bank gives you a chance and you ensure that any loss incurred by the bank will be minimal.

Types of Reserve

There are three basic types of merchant account reserve, as follows.

This is usually what people mean when talking about merchant account reserves. A certain percentage (generally 5% to 15%) of each credit card transaction is withheld and put in the reserve account. It remains in the reserve until a set amount of time passes, and then it is released and available for the merchant to use.

It is a straight percentage, so there is not necessarily a maximum amount that can be held in the reserve, just a maximum percentage that can be withheld from each transaction.

At the end of the hold period, amounts that were put in the reserve at the start of the hold period will be released. It is then replaced by a percentage of recent transactions. That cycle continues, providing the “rolling” part of “rolling reserve.” Although the amount in the reserve may not change much, it is “new” in the sense that it is associated with a new transaction.

For the most part, a capped reserve is identical to a rolling reserve, with the only real difference being that a capped reserve also has a maximum amount. Money is withheld at the set percentage, but when the total balance reaches the set maximum, money is no longer withheld unless the balance drops below the maximum again.

An up-front reserve is similar to a security deposit that is paid when someone rents an apartment. The amount may be calculated according to a percentage, and there may be a maximum balance, but what differentiates an up-front reserve from rolling and capped reserves is that the total maximum amount must be paid (placed in the reserve account) at the beginning of the period of services provided by the bank.

* It should be kept in mind that some banks, etc., offer (or require) an account that is, to a certain degree, unique to that financial institution. Be sure to ask as many questions as necessary to make sure that you understand what is available and what is required in your specific case.

What Can You Do?

To a certain extent, there’s not much that a high-risk business can do to avoid being required to have a merchant account reserve. The good news is that it doesn’t have to be permanent . In many cases, 90 consecutive days of no chargebacks is enough to get the requirement lifted.

Of course, opening a high-risk merchant account with a high-risk payment processor can take care of a lot of these problems. Because a high-risk payment processor such as Zen Payments specializes in payment processing for high-risk industries, it knows those industries better than a traditional banker would, and could be exactly what you need, not only to get a merchant account, but also to get your high-risk business operating smoothly and effectively. From reducing chargebacks to preventing fraud to making sure that your customers always have an easy-to-use payment portal and a trouble-free experience, we can help you navigate the sometimes confusing path of a high-risk business.

When choosing a high-risk payment processor, be sure to ask as many questions as necessary until you’re satisfied with the responses and clear on what you can expect and what will be expected of you. Our team at Zen Payments would be happy to speak with you and find ways to help your business prosper, so please don’t hesitate to contact us .

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Josh Phelps is an experienced sales professional with eight years of expertise, including four years in payment processing. Throughout his career, Josh has successfully secured approvals for thousands of businesses, demonstrating his skill in navigating and optimizing the payment processing landscape.


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