A rolling reserve is used as a risk mitigation strategy: a percentage or flat amount of each transaction is kept in reserve by the payments processor for a specific period of time. If the merchant’s account is closed or shut down, these funds are used to cover any losses resulting from processing the merchant’s transactions, e.g. to cover the cost of chargebacks and refunds.
What is a rolling reserve in payment processing and how does it work?
A rolling reserve is a policy used by processors as part of their risk mitigation strategy. A portion of income generated from a merchant’s transactions is held back by the processor to cover any losses resulting from the merchant’s activity. These losses are typically the result of chargebacks.
While the merchant’s account is open and in good standing, chargebacks and refunds are debited from the merchant’s bank account, and not from the reserve account. The reserve account comes into play if the merchant account is closed or terminated, and provides the processor with funds to draw from to pay out any subsequent chargebacks or refunds.
How is the amount of rolling reserve determined?
The amount required as a rolling reserve depends on the terms of the contract the merchant has signed with the payments processor. The processor will factor in the level of risk associated with the merchant when calculating the rolling reserve. The higher the risk associated with the merchant, the higher the rolling reserve will be set.
How are rolling reserves handled in IXOPAY?
Rolling reserves can be entered in IXOPAY for each payment method (credit cards, PayPal etc.) used by a merchant. This information can be used during post-processing to calculate settlements on a regular basis (e.g. weekly or monthly).
The rolling reserve information can also be used to calculate fees per transaction in IXOPAY’s Fee Management engine.