How a merchant reserve works
The acquirer pays the merchant within days, but a cardholder can dispute a payment months later, and the acquirer answers to the card scheme if the merchant cannot repay. The reserve covers that gap. The main forms:
- Rolling reserve: a percentage of each settlement, held for a fixed period and then released
- Upfront reserve: a fixed sum deposited or withheld before processing starts
- Capped reserve: a percentage withheld until a target balance is reached
- Holdback or delayed settlement: all funds paid out some days later than usual
What decides a reserve, and when it changes
The size follows from underwriting: the sector, the delay between payment and delivery, chargeback and refund history, and the merchant's finances. Agreements usually let the acquirer raise or impose a reserve when risk increases, for example after a jump in chargebacks, entry into a scheme monitoring programme or a sudden rise in volume. After termination, a reserve is commonly kept until the chargeback period on the last transactions has run.
Why reserves matter to a payments business
For a merchant, a reserve is working capital it cannot use, so the percentage and the holding period matter as much as the fees. For a payment facilitator or payment service provider, reserves are the protection against sub-merchant losses. Its ledger has to track each merchant's reserve balance, releases and offsets separately from the funds available for payout.
Merchant reserve, rolling reserve or chargeback fee?
- Rolling reserve
- The most common form of reserve: a share of each settlement, released after a set period.
- Security deposit
- Collateral provided from outside the card flow, such as a cash deposit or a bank guarantee.
- Chargeback fee
- A charge per dispute, kept by the provider. A reserve is returned if it is not used.
Where a merchant reserve shows up in a platform
Modules that do the work
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- Merchant onboardingBusiness sign-up, verification and underwriting, from application to first payment.
- PayoutsMoney out to bank accounts, cards and wallets, on the rail that fits each payment.
- Card acquiringCard acceptance on the phone, in store and online, through the acquirer you choose.