A reserve account for a payment facilitator is a segregated fund that holds a percentage of transaction volume to cover potential chargebacks, disputes, and merchant defaults.
How It Works in Practice
- 1Establish segregated account with acquiring bank or third-party custodian to hold reserved funds
- 2Deduct reserve amount from merchant settlements automatically during daily batch processing
- 3Monitor rolling reserve balance against predetermined thresholds and merchant performance metrics
- 4Adjust reserve percentages based on chargeback ratios, dispute trends, and merchant stability indicators
Common Pitfalls
Commingling reserved funds with operational accounts, violating PCI DSS requirements and exposing funds to creditor claims
Failing to comply with state money transmission licensing requirements for holding merchant funds in reserve accounts
Key Metrics
| Metric | Formula |
|---|---|
| Reserve Coverage Ratio | (Total Reserve Balance / Outstanding Risk Exposure) × 100 |
| Reserve Release Time | Average days from release eligibility to fund disbursement |
Related Terms
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