Breadcrumb

What Is Rolling Reserve? Guide for Merchants

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJan 20232 min read

If your business accepts card payments, you’ve probably come across the term “rolling reserve”. But what does it mean exactly? And how does it affect you as a merchant?

In this article, we’ll take you through the meaning of rolling reserve, how it works, and the impact it has on business.

What is a rolling reserve?

A rolling reserve is a certain percentage of money taken from each transaction you carry out by your acquirer or payment services provider. These funds are then placed in a reserve account to potentially be withdrawn at a future date. You will be notified of the percentage amount by your acquirer/provider when entering into a contract.

So, why is this done?

Essentially, acquirers and merchant service providers always risk losing money when entering into business with merchants, either through chargebacks, fraud, bankruptcies or other causes. Therefore, to avoid making financial losses with merchants, providers withhold funds that they can access should losses occur.

Put simply, rolling reserves are safety cushions for acquirers and card processors. However, it can also protect merchants from getting into further financial difficulty if their chargeback rate gets too high.

Each merchant services provider or acquirer decides the percentage they will withhold based on risk assessments they carry out.

How rolling reserve works

The rolling reserve typically requires no intervention from merchants. On each occasion that a transaction takes place, your acquirer or other payment intermediary takes a percentage of the transaction amount (usually 5-10%) and deposits it in the reserve account. This amount is agreed upon between intermediary and merchant and stated in a contract.

These funds are then kept in the rolling reserve merchant account and will be used in the case that your main account balance does not contain sufficient funds to cover chargebacks or refunds.

The precise terms of the rolling reserve agreement will vary between payment provider and merchant. For example, the validity of the reserve account may be only 6 months, or it might be indefinite.

Do all businesses need a rolling reserve?

No, not all businesses require a rolling reserve.

In fact, rolling reserves are typically only mandated for high-risk merchants. This is due to such businesses being more liable to fall foul to fraud, chargebacks or bankruptcy. It’s natural, therefore, that providers want to protect themselves from suffering losses in the case that such eventualities arise.

The percentage of rolling reserve providers withhold from transaction values depends on the level of risk your business poses, as well as how long your reserve account will be valid for.

Below are some of the factors that can influence the calculation of a rolling reserve percentage:

Amount of time a company has been in business
Card processing volume (on average)
Gross annual turnover
Chargebacks percentage
Business owner’s credit history

If you are a low-risk business, then you will likely be able to obtain a merchant account without a rolling reserve.

It’s also important to note that rolling reserves are only typically required for merchants that take card payments. Businesses that accept alternative payment methods may not be affected by rolling reserves at all.

Indeed, you can evade rolling reserves by collecting recurring payments via Direct Debit. Powered by Direct Debit, GoCardless enables businesses to collect payments directly from their customers' bank accounts. As these payments are pull-based, they eliminate the risk of late payments, making them all the more cost-effective.

GoCardless also offers the open banking solution, Instant Bank Pay, for one-off payments. This payment option allows merchants to avoid expensive card transaction fees, as well as rolling reserves.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.