What is a Rolling Reserve?

When you apply for a merchant agreement the acquirer might request a “Rolling Reserve”.

Rolling Reserve is a method used by acquiring banks to create a buffer in case of bankruptcies, fraud and other incidents where the acquirer may lose money. The buffer is constructed by withholding a percentage of revenue for an agreed period of time. After this time it will be released.

In the past acquiring banks were more restrictive in their approach, favoring fixed reserves (deposits or bank guarantees). Since it can often be hard for businesses to find this capital, applications were often rejected by the acquirer. The rolling reserve is therefore a way to allow businesses to build up their reserve rather than providing the required funds up front.

An example could be that the acquirer withholds 10% of revenue over 60 days. This means during the first 60 days of business the Merchant will receive a payout of 90%, with 10% being held back. Therefore on day 61 funds that were held back on day 1 will be released. On day 62 funds held back from day 2 are released, and so on.

There are several factors that can affect an acquirer’s decision in calculating and/or requesting a Rolling Reserve. For example business model, length of time in business, turnover, profitability, delivery period and any customer guarantees (e.g. if you sell tickets the acquirer bears a high risk, since the period between purchase and the ticket being redeemed is typically much longer than for other products, and carries a higher value).

Today, Rolling Reserve is typically only used to provide security for acquiring banks to facilitate VISA and MasterCard processing.