Settlement
Merchant reserve
Funds held back by the acquirer (rolling, upfront, or capped) as security against chargeback and fraud risk.
A merchant reserve is a monetary guarantee held by an acquirer to mitigate potential financial exposure arising from chargebacks, refunds, or fraud. These funds act as a security deposit, ensuring the acquirer is not left liable if a merchant is unable to cover transaction reversals or incurs penalties from card schemes like Visa and Mastercard. Common structures include rolling reserves, where a percentage of daily turnover (often 5% to 10%) is held for a fixed period like 90 or 180 days, or capped reserves, which collect funds until a predetermined limit is reached. Acquirers assess the necessity and size of a reserve based on the merchant’s business model, historical dispute ratios, and the time lag between payment and service delivery. For high-risk sectors or those with long fulfillment cycles, reserves are a standard requirement to manage lopsided settlement risk during the lifecycle of the Merchant Identification Number (MID).
Frequently asked
Can a merchant negotiate the release of a reserve early?
Early release is generally difficult and depends on a significant reduction in the merchant's risk profile or a prolonged period of low chargeback activity. An acquirer may reconsider the reserve terms if the merchant provides collateral, such as a Letter of Credit, or if the business model changes to reduce the time between payment and delivery.
How does a rolling reserve affect regular settlement timing?
A rolling reserve does not delay the payment of the entire batch but rather partitions a specific percentage of every day's takings into a separate holding account. While the majority of funds settle according to the standard cycle (e.g., T+2), the reserved portion is only released on a staggered basis once the retention period expires.
Related terms
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