Reserve
Reserve refers to funds held by payment processors, acquirers, or payment service providers as security against potential , , or other financial liabilities from merchant operations. Reserves act as a financial safety net, protecting from merchant defaults and ensuring sufficient funds to cover disputed transactions, regulatory fines, or unexpected liabilities.
Reserve structures
- Fixed reserves: a set amount held regardless of transaction volume
- Rolling reserves: a percentage of daily transactions held for a defined period
- Capped reserves: rolling reserves limited to a maximum amount
- Contingent reserves: triggered by specific risk events such as rising chargeback rates or compliance issues
Reserve requirements are calculated based on merchant risk profiles, transaction volume and patterns, historical chargebacks and refunds, business model stability, and overall financial health.
Reserves affect cash flow by tying up capital that could otherwise fund operations or growth. High-risk industries, including adult entertainment, gambling, travel, and nutraceuticals, typically face higher reserve requirements. Merchants with strong processing history and financial stability may negotiate lower reserves. Understanding reserve structures and release schedules is essential for effective cash flow management.