Rolling reserve in a merchant account is a reserve fund under the name of the acquiring bank, which serves as backup funds in case of loss or liabilities incurred by the merchant. Rates vary basing on the following: type of business, its location, credit history as well as its processing history.
Rolling reserve is the percentage of the gross sales of the merchant that is put on hold by the acquiring bank in case of any refuted transaction regardless of the location, whether domestic or international. Due to high risk nature of the business, an offshore rolling reserve costs a bit higher than the domestic rolling reserve. Although, the rest of the applicable stipulations are the same. It is usually held for 180 days after the purchase to cover potential return or chargeback, but is returned to the merchant after the agreed number of days. However, the method of repaying and the rate will depend on the policy and the location of each company.
Type of business
Industry sectors form a big part in determining the rate of rolling reserve to be charged against a merchant. There are three categories of business industry namely the low risk, medium risk and high risk businesses. The lower risk of the entity, the lesser is the rate of percentage that will be charged against the merchant's account.
Since e-commerce is a worldwide online transaction, the processors serve merchants from all parts of the world. There are certain locations known to have large incidence of fraudulent acts, which make these countries or regions high risk merchants. Greater holdback will be charged for risky type of businesses.
For businesses with bad credit ratings or for a newly launched business with no credit history, getting a merchant account would be very difficult. In cases like these, the rate that will be passed on to the merchants is higher compared to the other established businesses with good credit history.
Processors are more likely to give fair rate to merchants who can present previous processing statements. Statements will make it easier for them to compare and predict chargeback incidence rate and processing volumes.