Processor Reserve Accounts and High-Risk Merchants

Our attorneys are industry leaders in high-risk merchant accounts who can resolve reserve account issues with your processor.

If something has occurred for your processor to consider you a high-risk merchant account, you almost certainly are required to have a reserve account. Whether you think a reserve account is unnecessary, the amount is too high, you have exceeded your reserve with your charges, or some other issue has come up, you need legal help. Let our team of expert attorneys handle these reserve funds/high risk merchant issues for you.

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Global Legal’s expert attorneys can help high-risk merchants navigate the ins and outs of maintaining a reserve account.

Guidance for High-Risk Merchants with Reserve Funds

What is a Reserve Fund?

Processors require high-risk merchants to set aside a certain amount of money to cover their credit card transactions in case of chargebacks and/or fraud. Essentially, the credit card processor wants to ensure that you can pay if a high volume of chargebacks, fraud (friendly or otherwise) occurs.

Low-risk merchants are not usually required to have as high a reserve fund because the processor does not have reason to believe that they will experience a high volume of chargebacks, or to be overly susceptible to fraud. High-risk merchants will sometimes have had an experience that triggers a processor to believe that the risk of a high volume of chargebacks is greater (or, more likely, the industry just lumps your business in with other merchants they’ve categorized as high risk). The amount the processor requires in a reserve fund depends on a number of factors, including the amount of risk identified by the processor as well as the number and amount of your typical transactions.

Sometimes even low-risk merchants may be required to have a substantial reserve fund, especially if they have a low credit score.  Global can help you negotiate your reserve fund.

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Identification of High-Risk Merchants

Processors classify certain merchants as high-risk based on certain issues or occurrences, industries, products, and sectors, most commonly because of a potential for a  high volume of chargebacks or a susceptibility to fraud. Other issues may include accepting foreign currency, fraud, or a poor credit card processing history. Once classified as a high-risk merchant account, it may be difficult to find a processor or process credit card payments. Those who accept you generally require high reserve fund accounts.

Rolling Reserve Accounts

Merchants who are not required to have a reserve account generally have rolling reserve accounts. This means the processor will hold 5 to 10 percent of your credit card sales for a short time before releasing the funds to you. With a rolling reserve account, you are not required to hold a certain amount of funds in your reserve account.

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Addressing Reserve Account Issues

Our merchant legal services expert attorneys are well-versed in reserve accounts. Addressing issues with your reserve account can help reduce or eliminate the need for a reserve account in some cases. In other cases, our attorneys will take a business-first approach to help you determine how to optimally conduct your business while maintaining a reserve account. If you are required to have a reserve account, communicate with your processor to get specifics. Ensure you maintain thorough payment records, ideally for nine months, to protect yourself in the event of chargebacks.

Global Legal Law Firm is Your Expert in Reserve Accounts

Global Legal has successfully helped many clients get their reserve accounts returned as well as navigate the process of maintaining a reserve account. Our attorneys will help you protect your business by ensuring that even high-risk merchants are not subject to overly burdensome reserve accounts. We are industry leaders in providing legal services to the electronic payment processing industry, so you can feel confident that you will receive knowledgeable and tailored advice.

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Reserve Funds FAQ

Due to the pandemic and subsequent lockdown, a dramatic shift toward the use of gaming and gambling apps took place, as consumers in significant numbers utilized betting apps and online casinos to stave off the boredom brought on by the isolation from family and friends. In addition, consumers flocked in record numbers to online stock trading apps such as Robinhood, which saw an increase of over six million users in just sixty days during January and February of 2021.

Gambling and stock trading merchants qualify as “high risk” and as such have to navigate complex regulatory hurdles, where a misstep can spell doom for a business before it’s even had a chance to get off the ground. The most daunting task for merchants in these industries?

Typically, applying for a high risk merchant account from an acquirer involves several administrative and documentation requirements, including obtaining the articles of incorporation, licensing, proof of ID and address for the company and the involved individuals, requirements to undergo verification checks for the company’s principals and attorneys, presenting a source of funding for the company, as well as its processing history going back several months showing transaction volume, fraud and chargeback rates.

In almost all cases, high risk accounts come with higher fees to process transactions, including a higher initial set up fee, sometimes an additional compliance fee as well as regular monthly fees that are often double those of standard merchant accounts. In addition, they may be accompanied by extra fees and fines from acquirers and/or the card bands for breach of chargeback or fraud to sales ratio limits built into their rules. Altogether, high risk merchants are looking at spiraling costs just to be able to accept payments.

High risk merchants generally tend to process more than $20,000 in monthly volume, have an average transaction value in excess of $500 and a chargeback ratio higher than 1% of total transactions. These merchants sell products or services known to attract high levels of fraud and chargebacks. Not only do high risk merchants pay more to protect the acquirer from chargebacks, they also will pay higher prices for each chargeback. If their chargeback ratio matches or exceeds 1% the acquirer can freeze the merchants account or terminate it completely. This doesn’t just mean lost sales, it could put the seller out of business if they are blacklisted (otherwise known as placed on the MATCH or TMF list) with no way to accept credit card or debit card payments.

Work With Us Today

Our experienced team of industry-leading attorneys can help high-risk merchants navigate reserve accounts. Schedule a
consultation today.