The rolling reserve percentage for any high-risk merchant account is always determined after the comprehensive risk assessment is conducted by the payment service providers. The purpose of keeping a reserve condition on the account is basically to protect the acquiring institution against potential financial losses that may arise because of chargebacks, refunds, fraud, regulatory issues, and even certain conditions like merchant insolvency or bankruptcy.
There are several factors that influence the reserve percentage that may be applied to a specific merchant account. One of the most significant considerations is the industry in which the merchant operates. Businesses that are operating in sectors such as CBD, hemp, vape, paraphernalia, travel, ticketing, subscription, gaming, adult, debt relief, social media, skill gaming, and credit repair generally face higher reserve requirements, and this is because such industries have historically shown elevated chargeback and fraud risk.
The processing history plays a very critical role in relation to the reserve requirement. Underwriters closely examine historical chargeback issues, refund volume, fraud incidents, and also previous account performance, and this way, they assess future risk exposure. Details such as monthly sales volume, average transaction value, and sales consistency are also equally important.
Merchants with a larger transaction amount, unpredictable revenue patterns, or rapid growth trends may be required to maintain a higher reserve, and this is because of increased potential financial exposure. The business model itself can also significantly impact the reserve requirement, and this is especially true for such businesses where the products or services are delivered weeks or months after the payment is collected.
Future delivery businesses, such as travel, timeshare, and credit repair, create much greater risk for acquiring banks because customers may initiate a dispute if the merchant fails to fulfill the order or if the outcome is not as expected per the commitment of the merchant.
The financial strength of both the business owner and the company is also a key underwriting factor. Payment service providers evaluate the business’s financial statement, available working capital, and banking history, and in some cases, they also check the personal creditworthiness of the business owners. Companies that display strong financial reserves and stable operating histories are generally considered at lower risk than newly established businesses with limited capital resources.
The geographical exposure of the merchant can certainly influence the reserve decision. Merchants that process a high percentage of international or cross-border transactions most of the time face increased reserve requirements, and this is due to elevated fraud risk and complexities of dispute resolution spread across multiple jurisdictions.
Similarly, businesses that operate primarily through card-not-present channels, and these include e-commerce websites, telephone orders, subscription billing platforms, SaaS businesses, and online dating businesses, are always subject to higher reserves than traditional card-present retail merchants.
Additional factors that influence the reserve percentage include the merchant’s website, transparency of terms and conditions, clarity of refund and cancellation policies, customer service accessibility, regulatory compliance status, and the overall business reputation. Merchants that have well-documented policies, strong customer support procedures, and extremely effective chargeback management programs generally present a lower risk profile to underwriters.
In every case the reserve percentage is designed to reflect the acquiring bank’s assessment of the potential future liability that the merchant may bring. The higher the perceived risk of chargeback, refund, fraud, regulatory action, or business failure, the higher the reserve requirement will likely be. Merchants that demonstrate good financial stability, better operational maturity, strong compliance practices, and a proven processing history most commonly qualify for reserve, reduced, or no reserve requirement.
Are you struggling because of a high rolling reserve on your merchant account, and do you want to get a more merchant-friendly, cost-effective solution? Then contact QuadraPay today for a low- or no-fee merchant account solution in the US, UK EU, EEA, AU and Canada.