Often times, when a high-risk business looks to get approved for a merchant account to accept credit cards, the bank will require them to establish a reserve account. But many merchants don’t understand what a reserve account is or how it works. We’re here to help.
In this BCB Processing Point video we’ll quickly explain reserve accounts, how they work, and how you can get the get the best possible rates and terms for your business.
High-risk payment processing doesn’t have to be expensive and daunting.
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Transcription available below for those of you who prefer to read!
HI! Rhett with Bankcard Brokers here with your BCB Processing Point!
A question we get asked quite frequently, especially when it comes to high-risk payment processing, is:
What is a reserve account?
Let’s start out with: What is a reserve account?
Quite simply, a reserve account is kind of like an escrow account. It’s a non-interest-bearing bank account that the acquiring bank is going to establish on your behalf. Now, a percentage of your sales will be held in that account for a set period of time. Generally 180 days.
They establish this account to protect themselves against fraud and/or a large amount of consumer chargeback- in the event that you are unable to repay those funds.
So, essentially, a reserve account is set up to protect the bank from fraud and chargebacks.
Now – How do reserves work?
Well, it’s usually collected as a percentage of your monthly sales. Generally 5%-20% of your sales volume.
It can either be set up as a rolling account, or it can be set up as a capped reserve.
A Rolling reserve is a Fixed percentage of monthly sales.
A Capped reserve is a percentage of your sales up to a fixed dollar amount.
That set dollar amount will stay in the reserve account for a period of time until you can prove clean processing history to the bank.
And the bank feels safe that they don’t need to protect themselves from you, anymore. (laughs…)
So! In essence, that is what a reserve account is.
Now. Are you going to be required to open a reserve account?
Whether or not you’re going to be required to establish a reserve account can vary wildly depending on the industry you’re in and how you’re processing.
For instance, if you’re looking at an offshore processing solution. Then yes, most likely a rolling reserve will be a term of your merchant account to accept credit cards. (Most offshore merchant accounts require rolling reserves.)
However, domestically there can be a number of triggers that cause the acquiring bank to require that a reserve account be a term of your merchant services.
For instance, your personal creditworthiness, or the length of time in business, the industry you’re in, the products you’re selling. And any other number of factors that can come in to play, including your processing history.
This is why it is extremely important to have a merchant service provider like BCB. One who knows and understands the industry. And one who knows how to negotiate the absolute best terms for your merchant account.
So, if you have any questions about your existing merchant account, or you’d like Bankcard Brokers to establish a new high-risk merchant account for you, call us. One of our ETA Certified Payment Professionals would be happy to talk you through the process. And find the absolute best solution for your business.
This has been Rhett, with Bankcard Brokers, with your BCB Processing Point.
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