Why do acquirers ask some merchants for a reserve?
Acquirers ask for a reserve when they could lose money if the merchant stopped trading. Under scheme rules the acquirer pays refunds and chargebacks the merchant cannot fund. The risk is higher for new businesses, long delivery times, pre-orders, travel, events and subscriptions paid in advance. A rolling reserve gives the acquirer collateral while letting the merchant start processing.
In detail
A reserve is the answer to one question: if this merchant closed tomorrow, how much would the acquirer have to refund?
The acquirer’s liability
Visa’s risk guide for payment facilitators states that acquirers are obligated to pay the settlement obligations of their merchants. The UK Payment Systems Regulator notes that an acquirer may not recover a chargeback if the merchant becomes insolvent. The loss stays with the acquirer.
Situations that raise exposure
- New businesses: no processing history and limited financial cushion.
- Delayed delivery: pre-orders, made-to-order goods, events and travel are paid long before the service is delivered.
- Prepaid subscriptions: annual plans create a refund obligation for months.
- Rapid growth: a sudden jump in volume increases undelivered sales faster than the merchant’s reserves.
- Rising dispute ratios: more chargebacks today suggest more to come.
The 2019 collapse of Thomas Cook is a reference case: customers who had paid by card for future holidays claimed refunds through their banks.
A reserve is one tool among others, next to payout delays, limits and monitoring. See What is a rolling reserve? and chargebacks. Underwriting data collected in the onboarding workflow is what lets a provider size the reserve fairly.