A Complete Guide to Merchant Account Reserves

A Complete Guide to Merchant Account Reserves
By max April 10, 2024

You may have heard about the merchant account reserves if you are a high-risk business and have applied for a merchant account. Processors often implement a reserve requirement to protect the merchant and the processing bank in case of an unforeseen event.

A reserve is a portion of your income kept aside for unplanned or unexpected events that can possibly result in significant financial loss for your business or the payment processor. Keeping a reserve will help you secure your financial transactions but also help you gain your processor’s trust, as banks are more likely to approve merchant applications of individuals who maintain a reserve account.

In this post, we’ll walk you through different types of merchant reserves, why they are needed, and how you can get the reserve funds back. Keep reading.

Understanding Merchant Account Reserve

Understanding Merchant Account Reserve

Each merchant presents a certain level of risk for the payment processor. This is especially true for a merchant offering goods and services that fall into the high-risk category. A merchant reserve protects your payment processor from the potential surge in your chargeback ratio or the number of fraudulent transactions. Besides, there’s always a risk of the business shutting down because of legal controversies or financial issues. The nature of your business will determine your risk level and the reserve amount you need to maintain to have a merchant account with your acquiring bank.

Usually, it’s a predetermined amount calculated based on factors like your processing history, industry, transaction size, transaction volume, and so on. The riskier your business looks, the higher the reserve you’ll need to maintain. Reserve requirements can vary from processor to processor. Some require businesses to keep 50% of their monthly processing volume, while others might implement a rolling reserve, a small percentage of your earnings from credit card transactions.

The simple purpose of a merchant reserve account is to ensure that funds will be available if the merchant experiences a loss due to a spike in their chargeback requests or fraudulent transactions. They can use the reserve amount to pay the chargeback fee or recover the loss from sudden business failure. These funds are kept in a non-interest-bearing bank for a specified period and are often released in small portions if the merchant proves their credibility. In other words, your earnings kept aside in the reserve account will be transferred to your merchant account if you have a good processing history or no chargeback record.

Does Every Merchant Need a Reserve Account?

It depends on your merchant service provider. They might require each merchant to have a reserve account, but the amount in these separate bank accounts can vary depending on your risk level. Some payment processors have set criteria to determine whether or not a merchant should have a reserve account. Typically, the level of risk you present to the processor will decide if you need a merchant account reserve and how much you need to put aside.

So, which merchant or which industry needs a reserve account?

The best example would be a travel merchant. Your events can be canceled or postponed because of the weather, traffic, and other environmental conditions. In such cases, a customer who has paid in advance might issue a chargeback, requesting a total refund from the merchant’s processor.

Your payment processor will use the reserve funds to manage such events. Simply put, nearly every high-risk merchant requires a reserve. If you are a low-risk business, but your chargeback ratio escalates in the future, or your processing history doesn’t seem credible, your processor might implement a reserve requirement to continue your merchant account. Merchant reserves are a must for some high-risk businesses, like those selling CBD, tobacco, firearms, ammunition, adult content, and other high-risk products. The reserve is usually maintained from the beginning of your merchant agreement with the payment processor and lasts until you terminate the contract.

A merchant reserve account is also needed if you process high-ticket transactions, have a business in international countries, process a large volume of transactions monthly, receive card-not-present payments, or have a subscription-based model.

Different Types of Merchant Account Reserves

Different Types of Merchant Account Reserves

The criteria for obtaining a reserve from merchants can differ depending on the payment processor you choose.

Some require you to keep an upfront reserve equal to the processing volume you are approved for. In contrast, others require a rolling reserve, which keeps a percentage of your income aside in a separate account for a predetermined period.

The type of merchant account reserves you need depends on your risk level and the processor’s requirements. Let’s explore the three common types of merchant reserves.

Upfront Reserve

High-risk merchants often have to meet the upfront reserve requirement to get their merchant account with a payment processor. As the name suggests, an upfront reserve is a fixed amount kept in the escrow account at the beginning of the agreement.

Your payment processor will ask you to keep 50% to 100% of the monthly processing volume in the reserve account. Once the upfront reserve requirement is met, your processor won’t keep any portion of your income aside. In case the merchant doesn’t have the reserve amount, the processor will keep 100% of their income from credit card processing in their reserve account until they reach the required amount.

Suppose you are approved for a monthly processing volume of $20,000, and your processor requires you to keep 100% of your processing volume in the reserve account. You need to deposit $20,000 into the reserve to start processing credit card transactions. If you can’t pay it upfront, you can negotiate the terms with the processor and have your 100% income deposited into the reserve account until your reserve balance is $20,000.

Rolling Reserve

Rolling reserve is the most common type of merchant reserve. Suppose your merchant account agreement requires you to keep rolling reserves. In that case, your payment processor will require you to keep a fixed percentage of your income from the credit card transactions in the reserve account for a predetermined period or until the processor is comfortable releasing the funds back into your merchant account.

There’s no capped amount in the rolling reserve. The percentage of the income kept aside is specified in your agreement, but a rolling reserve requirement can last throughout your contract with the processor. Usually, it’s 5% to 20% of your total account balance but can vary significantly based on your risk level. Sometimes, your processor will give you a fixed timeframe for keeping the reserve and then release it back to you if you have a good financial standing. You can expect the amount to be released within six months of good payment processing.

Capped Reserve

A capped reserve is the amount kept in your reserve account until a specific limit is reached. Your payment processor can fix a specific amount that should be kept aside for unforeseen financial events. It works in the same way as the rolling reserve. Your processor will continue deducting a portion of your income from credit card sales every month and keeping it in a separate bank account.

The difference, however, is that the reserve amount is kept aside until the predetermined value is met. Once the processor reaches the limit, they will stop withholding money from your income and transfer the reserve balance to your merchant account, given that you have proven your credibility. In some cases, the capped reserve remains in the escrow account until your contract ends with the processor. They will hold this sum to protect themselves from financial losses due to chargebacks, fraudulent transactions, legal penalties, and sudden business closure.

Can You Negotiate the Reserve Requirements?

Can You Negotiate the Reserve Requirements?

Reserves are a security deposit that every payment processor requires to ensure protection from financial losses. This amount is used in a chargeback, financial loss incurred due to a fraudulent transaction, and any processing activity that translates into a liability for the payment processor. While that increases the processor’s security and guarantees they won’t suffer any financial loss if the merchant goes bankrupt or experiences a major financial setback, it can be difficult for the merchant to fund their upfront or capped reserve account.

Fortunately, it’s possible to negotiate your reserve amount with the merchant, even if you come from a high-risk industry. You can ask your processor to lower the percentage of the capped amount or the duration to keep the reserve.

However, there are a few things to remember. Reserve conditions can also be renegotiated six months to one year after processing your payment. That means you must build a processing history with the merchant service provider and prove your credibility to be considered for reserve negotiation. If you process credit card transactions without receiving any chargeback request or a financial loss for six months, your merchant might be willing to adjust your reserve amount or even release it back in full.

So, how exactly can you negotiate the reserve terms with your payment processor?

It’s best to leave the task to your merchant account representative. Since they work with acquiring banks and payment processors, they know how to negotiate the reserve terms for you. The merchant service representative will explain to your processor that your merchant account is safe and you are in good financial standing. Based on your requirements and your risk level, the payment processor will decide within 4-6 days. Implementing the new reserve conditions can take up to two weeks, though.

Getting the Reserve Funds Back

You can rest assured that the amount in the reserve account is yours and will be deposited back into your merchant account over time. That happens only when you don’t owe the bank anything. However, when exactly you can access the reserve funds depends on your processor’s criteria for keeping and releasing the reserve balance. It also depends on your risk level and processing history.

You can find the details of the reserve requirement in your agreement. It states the reserve amount the bank will withhold from your income every month, as well as the duration of holding it. If it’s a temporary reserve, you will most likely get it back within a short while, given that the perceived risk is decreased. Some processors might require you to keep the reserve for as long as you have an active merchant account. Unfortunately, they will hold the balance of reserve needed until you end the contract.

Suppose the processor terminates the contract with you, possibly because of the elevated risk level or the financial losses. In that case, your reserve will be held in the merchant reserve account for up to four months and longer. If the processor has to bear a financial loss because of your business closure or a surge in the chargeback, they will use the reserve funds to compensate for the loss. The remaining balance will be transferred to your merchant account within 120 days or when the processor is sure there’s no risk.

How to Maintain Your Merchant Account Reserve?

A few steps for maintaining your merchant account reserve go a long way in ensuring that your hard-earned money will be released back. Here’s what you should keep in mind.

Read the Terms Carefully

Before you sign a merchant account agreement with a payment processor, go over the contract, especially the reserve clause thoroughly. This will show you the total duration for which your money will be withheld in the escrow account, under what conditions will it be released, and how much exactly will be kept in the reserve. Based on this information, you can negotiate the terms with your processor.

Work on Your Processing Records

How much reserve balance you need and how soon it will be released depend largely on your financial standing. Following some healthy financial practices to keep your chargeback ratio as low as possible and improving your security protocols to prevent security violations can help improve your business’ financial health. This will also help you in getting your reserve funds back faster.

Implement Quick Dispute Resolution

Some high-risk merchant service providers work with chargeback.com and other security providers to help you detect and prevent illegitimate chargebacks. The least you can do is monitor the chargeback and fight the dispute. That’s because friendly fraud is not uncommon. You don’t want your chargeback ratio to increase just because you didn’t notice a customer filing an illegitimate chargeback.


Show your business plan, security tools, and projected growth to your payment processor to make a strong case for lowering the reserve amount. Some processors might gladly reduce the reserve requirements, while others might demand a good processing history for at least six months before they consider your negotiation terms.

You should also maintain good communication with your processor. Keeping them up-to-date with your processing status and financial health will build their trust in your brand, which may eventually result in a lowered reserve amount for you.

Stay Informed

Check the latest trends in your industry and the reserve requirements implemented by different payment processors for similar businesses. You can use this information to have your reserve funds adjusted to your preference. You can work with a merchant service provider or a representative to negotiate the reserve terms with your processor.

Choose Your Payment Processor Wisely

Ultimately, your reserve requirements are determined by your payment processor. They might vary significantly depending on who you open a merchant account with. There’s a possibility that a processor can implement a huge upfront reserve, while another processor might lift the reserve requirements altogether if you are in good financial standing. However, reserve isn’t the only thing to consider when choosing a payment processor. You should consider other factors, like processing fees, reputation, services offered, security, etc.

While your reserve funds belong to you and will be credited to your merchant account, they are considered restricted sums that might affect your cash flow. The capped reserve is a good option for merchants who can’t keep a fixed percentage of their income aside for the reserve every month, but it also requires a large upfront amount.

Research might help you find a processor willing to lower the reserve amount or shorten the period for which the reserve is held.


A merchant account reserve is a safety net for your payment processor. They keep this balance to offset the risk they bear for working with a high-risk merchant. That said, some high-risk merchants might qualify for a merchant account with no reserve requirement.

It’s best to discuss the reserve terms with your payment processor to know how much you will need to keep aside. You can negotiate the reserve amount. Although the processor will most likely be reluctant to decrease the reserve amount, as that presents risk for them, merchants can adjust the conditions with a good financial history, no chargebacks, and a solid payment processing record.