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MERCHANT ACCOUNT RESERVE
A reserve in a merchant account is a one
part of the revenue of each month for
the processing of the credit card
transactions of the merchant which may
be held by the credit card processing
company. This is done as a precaution so
that when possible losses and
chargebacks occur, the company which
processes the credit cards can claim the
loss from the reserve. This is done
mainly in the case of high risk
accounts. After the successful
completion of a pre-determined amount of
time, the reserved will be given backs
to the dealers. In rolling reserves, a
reserve is usually held each month for
some time period. In the following
month, the precious month’s reserve will
be released to account holder. This
process is repeated very month until a
reserve no longer exists.
A few businesses come under the high
risk category when compared to other
businesses. These high risk businesses
are known to generate a high level of
chargeback. All the dealers who operate
in an environment which is
non-face-to-face are categorised as high
risk dealers. ECommerce and direct
marketing are examples that fall in this
category. However, only a minor fraction
of high risk businesses are asked for
merchant account reserves. In most
cases, the businesses which involve high
volume processing have larger average
ticket. A new business which operates on
the internet is also a candidate for
reserves. High risk merchant accounts
which do no have an American processor
are most likely to be asked for reserves
if they are applying for offshore
providers.
A merchant will be asked for a reserve
if a not-so-good credit history is
prevalent. In such cases, personal
guarantees may also be asked. When
reserves are required, merchant accounts
for small businesses need to have at
least a 20% reserve balance. Usually,
new traders can build their reserves by
sending across transactions that are yet
to be withdrawn till the required
balance for reserve is achieved. After
the minimum reserve balance is reached,
a trader can withdraw his/her excess
funds into the checking account.
Each and every credit card processor for
merchant accounts has a varied
underwriting policy. Hence, it is best
to request for a number of proposals for
the processing of credit cards before
the final decision is made. When the
several proposals are looked at, one may
come across a credit card processor
which does not have the reserve
requirement. Also, a trader needs to
know that the reserve fund is an amount
which is kept with justifiable reasons.
It can be summarised that a merchant
account reserve is a fallback system for
the acquiring banks and merchant account
providers. However, during the selection
process for a merchant account provider,
the merchant account reserve is one
among several other factors that need
taken into account. Other important
factors which need to be considered
before selecting an account include
services for fraud prevention, tools for
risk and chargeback management, customer
service, processing costs, and reporting
capabilities during transactions.
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