What Is a Rolling Reserve

A rolling reserve is a type of risk management strategy used by payment processors and acquiring banks to protect against potential losses from chargebacks, fraud, or other financial disputes. In essence, a rolling reserve is a portion of a merchant’s revenue that is withheld for a predetermined period, usually between 90 and 180 days, before being released. 

For example, a processor might hold back 10% of a merchant's daily transactions and release those funds 90 days later on a rolling basis. This means that each day, new funds are withheld and older funds from 90 days ago are released. 

This system ensures that the processor has a financial buffer to cover unexpected issues that may arise from the merchant’s transactions. Rolling reserves are most commonly applied to high-risk merchants, such as those operating in industries with high chargeback rates, large ticket items, or recurring billing models, where the likelihood of disputes or financial instability is greater. 

While this type of reserve can impact a merchant’s cash flow, it also provides reassurance to payment processors, helping them mitigate financial exposure. Merchants can often negotiate the percentage and duration of the reserve based on transaction history, chargeback ratios, and overall financial stability.

How Does a Rolling Reserve Work

A rolling reserve temporarily holds back a fixed percentage of a merchant’s daily processed payments as a safeguard against potential losses like chargebacks, refunds, or fraud. Each day, the payment processor or acquiring bank deducts this percentage from the merchant’s total sales and keeps it in a separate reserve account. 

These withheld funds are not kept indefinitely; instead, they are released back to the merchant after a set period, commonly ranging from 90 to 180 days. The term “rolling” refers to this ongoing cycle of withholding and releasing funds, while a new portion of revenue is being held each day, an older portion from the same timeframe in the past is simultaneously released. This continuous loop ensures the processor always maintains a financial buffer to cover any unexpected disputes or losses that may arise during that period. 

For example, if a merchant has a 10% rolling reserve with a 120-day holding period, 10% of every day's sales will be withheld and then returned 120 days later. The rolling reserve protects the processor and provides liquidity to cover claims without immediately impacting the merchant’s operations, though it does reduce short-term cash flow for the business. Over time, as a merchant proves reliability with lower chargebacks and stable processing, the reserve percentage or holding duration may be reduced or eliminated.

Fixed Reserve vs Rolling Reserve

A fixed reserve is a set amount of money that the payment processor holds from the merchant’s funds, usually established upfront and held for a specific duration or until certain conditions are met. This reserve is often a lump sum or a fixed percentage of the merchant’s anticipated transaction volume and remains constant regardless of daily sales fluctuations. Once the agreed-upon period ends or the merchant meets predefined performance metrics, the fixed reserve is released in full. Fixed reserves are generally simpler to understand but can tie up a significant amount of capital, potentially impacting the merchant’s cash flow until the reserve is returned.

In contrast, a rolling reserve is more dynamic and involves withholding a percentage of the merchant’s daily transactions continuously over a defined time period, typically between 90 and 180 days. Instead of holding a lump sum, the reserve amount “rolls” forward daily, meaning new funds are withheld each day while older withheld funds are simultaneously released after the holding period expires. This creates a moving reserve balance that adjusts with the merchant’s transaction volume. Rolling reserves offer processors ongoing protection against chargebacks or refunds that may arise from recent sales while providing merchants with a steady, though reduced, cash flow. Because the reserve is released incrementally, it is often seen as more flexible than fixed reserves.

Types of Businesses that Need a Rolling Reserve Merchant Account

Businesses that typically need a rolling reserve merchant account are those considered higher risk by payment processors due to the nature of their products, services, or sales patterns. These businesses often face higher rates of chargebacks, refunds, or fraud, which prompt processors to withhold a portion of funds as a financial safety net. Common types of businesses that usually require a rolling reserve include:

1. Subscription-Based Services: Companies offering recurring billing, like gyms, SaaS platforms, or membership clubs, often face challenges with customer cancellations or disputes, increasing the risk of chargebacks.
2. Travel and Hospitality: Travel agencies, airlines, and hotels frequently deal with cancellations and refunds, making their transactions more prone to disputes and chargebacks.
3. E-commerce Merchants with High Ticket Items: Online stores selling expensive electronics, luxury goods, or other costly items face greater financial risk if transactions are disputed or fraudulent.
4. Adult Entertainment and Dating Sites: These industries are often flagged as high risk due to regulatory scrutiny and a higher incidence of chargebacks.
5. Nutraceuticals and Supplements: Sellers of dietary supplements or health products sometimes attract chargebacks related to customer dissatisfaction or regulatory concerns.
6. Event Ticketing and Promotions: Businesses selling event tickets may encounter cancellations, refunds, or fraud attempts, increasing their risk profile.
7. CBD, Vape, and Cannabis-Related Products: Because of legal complexities and regulatory variability, these industries are often classified as high risk.
8. Telecommunications and Tech Support Services: Due to the complexity and potential for service disputes, these sectors frequently require rolling reserves.
9. Forex and Cryptocurrency Trading Platforms: The volatile nature and regulatory ambiguity in these markets contribute to higher chargeback risks.
10. High-Chargeback Industries in General: Any business with a history of frequent chargebacks or disputes may be required to maintain a rolling reserve to assure processors against potential losses.

How Long Are Rolling Reserves Held for

Rolling reserves are typically held for a period ranging from 90 to 180 days, although the exact duration can vary depending on the payment processor, the merchant’s risk profile, and the specific terms of the merchant account agreement. This holding period is designed to cover the window during which chargebacks, refunds, or disputes are most likely to occur after a transaction. Processors withhold funds for this length of time and create a financial buffer to ensure they have access to money if a customer files a claim or requests a refund within that timeframe.

Some processors may offer shorter or longer reserve periods based on factors such as the merchant’s processing history, transaction volume, or the stability of their business model. Merchants with a strong track record of low chargebacks and consistent sales may be able to negotiate a shorter reserve period or a reduction in the reserve percentage. New or high-risk businesses may face longer holding periods as processors seek to minimize their exposure.