UNDERSTANDING ROLLING RESERVE

(Last Updated On: March 26, 2020)

What is a Rolling Reserve? The rolling reserve is a significant buyer protection policy used to create a “buffer” for the future chargebacks. It is usually applied at the very beginning of the merchant account activity for a certain period of time, for example 180 days, during which the acquiring bank withholds some percentage of the gross transaction amount. In that way, the bank lessens the risk associated with the account, making it possible for the provider to underwrite it.
It is worth knowing that the rolling reserve will most probably affect only your Visa and Mastercard transaction unless other card providers specifically require such a reserve as well in some special underwriting cases.

Here are some of the factors that may cause that you have a high the rolling reserve:
1. large average tickets,
2. high processing volume,
3. high-risk merchant and
4. business model types or business owners with poor personal credit.

The general rule is that, the more risky the business, the higher the rolling reserve. In some more drastic cases, the Bank may even request 100% from 6 month transactions to be blocked on the merchant account. Yet, luckily, these instances are not that frequent. The fact is that most of the third-party processors/acquirers require a deposit or a reserve when setting up the merchant account. They simply need to guarantee a portion of the volume processed to cover for the potential business risk relating to chargebacks. Also they make it possible for providers to grant merchant accounts to businesses that otherwise may not be able to get one.

Unlike reserve accounts, which are usually established and funded in reaction to anticipated risk for a merchant, rolling reserves are taken up front from all of a merchant’s sales as a preemptive way for a processor to protect itself from potential loss. Most rolling reserves take 5-10% of a merchant’s credit card sales and hold them for a certain period of time, usually a week or two, before releasing them to a merchant. Business owners who cannot afford to wait for access to 10% of their revenue stream should be sure to avoid merchant accounts with rolling reserves attached.
Generally, all high brand risk merchants needs a reserve, and the reserve is usually enacted from the very beginning of the merchant processing agreement. However, any merchant can be subjected to a reserve at any time. If the merchant’s risk escalates, the processor’s risk protection must also increase.
Generally, those merchants who are forced to implement a merchant account reserve have the following characteristics:

Process card-not-present transactions
Sell specific products or services determined to be risky
Have high average transaction amounts
Have high monthly processing volume
Are in an industry with high chargeback rates

Reserve accounts may be required temporarily at the beginning of a merchant processing agreement and removed after a predetermined time period. Or, the reserve might be enforced for the duration of the agreement.
For Mastercard, Rolling reserve accounts are the most commonly used type of reserve accounts. A percentage of each credit card deposit (10%) is held in reserve for about 6 to 12 months. For Highrisk merchants, this may extend to a maximum of 540days due to the nature of services provided and for the chargeback re-presentment period of up to 540days.

A rolling reserve will gradually release held funds. Once the predetermined time period has expired, the acquirer will begin releasing funds each month. The earliest withheld amounts will be released first; for example, fund held in January will be released in July.

Who determines Rolling Reserve?
The required minimum balance of a merchant account reserve and the duration of the hold will depend on the processing agreement. Each processor has different criteria and policies regarding account reserves based on the merchant’s credit history, business model, and industry norms.
When is the Money Released?
Technically, the funds in the non-interest-bearing reserve are the merchant’s, but the release of funds to the merchant will depend on the type of reserve implemented.
For example, a temporary reserve might only be needed until the perceived risk has passed. After a predetermined time period, the acquires will review the situation. The reserve funds will either be returned or the hold will be extended.
Other reserves might not be released until the merchant account is closed in good standing.
A terminated processing agreement that is enforced by the bank means the account is not in good standing and the revenue hold will be extended indefinitely. In these situations, funds will be held until all risk has past. Since most chargeback time limits are 120 days, the reserve will retain the merchant’s funds for the duration of that time.

Below is a table on both Mastercard and Visa reserve periods and their reason codes, basically the rolling reserve of 540 days are applicable for the following exceptions as highlighted below and high risk merchants in the said category.

THIS IS THE FULL CODE LIST FOR MASTERCARD
Code Time Limit in Calendar Days
4808 – Authorization Related Chargeback 90 Days
4831 – Transaction Amount Differs 120 Days
4834 – Duplicate Processing 120 Days
4837 – No Cardholder Authorization 120 Days
4840 – Fraudulent Processing of Transactions 120 Days
4841 – Canceled Recurring Transaction 120 Days
4842 – Late Presentment 120 Days
4846 – Correct Transaction Currency Code Not Provided 120 Days
4849 – Questionable Merchant Activity 120 Days
4850 – Installment Billing Dispute 60 or 120 Days
4853 – Cardholder Dispute, Defective/Not as Described 120 Days
4854 – Cardholder Dispute, Not Elsewhere Classified (U.S. Region Only)
60 or 120 Days
4855 – Goods or Services Not Provided 120 Days
4859 – Addendum, No-show, or ATM Dispute 120 Days
4860 – Credit Not Processed 120 Days
4863 – Cardholder Does Not Recognize, Potential Fraud 120 Days
4870 – Chip Liability Shift 120 Days
4871 – Chip/PIN Liability Shift 120 Days

Mastercard Chargeback Time Limits: Exceptions which gives rise to 540 days

CHARGEBACK REASON CODE DESCRIPTION TIME LIMIT IN CALENDAR DAYS
4850

Installment Billing Dispute

Within 120 days from when the ongoing services were stopped, with a maximum of 540 calendar days from the transaction settlement date
Between 15 and 120 calendar dates from the transaction settlement date
Between 15 and 120 calendar dates from the delivery/cancellation date of goods / services
For payments of interrupted, ongoing services, the maximum time limit is 540 days after the Central Site Business Date

4854

Cardholder Dispute, Not Elsewhere Classified

60 calendar days after the cardholder reports the issue
120 calendar days after the Central Site Business Date

4855

Goods or Services Not Provided

120 calendar days after the Central Site Business Date when goods or services were provided
120 calendar days after the latest anticipated delivery date when the provision of goods or services was delayed
120 calendar days after the cardholder’s realization that interrupted services have ceased, but not to exceed 540 calendar days of the Central Site Business Date

4860

Credit Not Processed

120 calendar days after the service was canceled or the goods were returned
120 days after credit documentation is issued (day zero is the date published on the document, the date of the merchant’s letter, or the date the issuer received the letter)
The issuer must wait to process the chargeback until 15 calendar days have passed from:
*The date on the credit document
*The date the merchandise was returned
*The date services were terminated
The 15-day time limit can be waived if:
The merchant sends the issuer a letter stating a chargeback can be used to provide credit
The issuer has proof of an improperly disclosed in-store credit
The TID is voided by the merchant

FULL CODE LIST FOR VISA Chargeback Reason Code Time Limit in Calendar Days
10.1 EMV Liability Shift Counterfeit Fraud 120 Days
10.2 EMV Liability Shift Non-Counterfeit Fraud 120 Days
10.3 Other Fraud — Card Present Environment 120 Days
10.4 Other Fraud — Card Absent Environment 120 Days
10.5 Visa Fraud Monitoring Program 120 Days*
11.1 Card Recover Bulletin or Exception File 120 Days
11.2 Declined Authorization 120 Days
11.3 No Authorization 120 Days
12.1 Late Presentment 120 Days
12.2 Incorrect Transaction Code 120 Days
12.3 Incorrect Currency 120 Days
12.4 Incorrect Transaction Account Number 120 Days
12.5 Incorrect Transaction Amount 120 Days
12.6 Duplicate Processing or Paid by Other Means 120 Days
12.7 Invalid Data 120 Days
13.1 Services Not Provided or Goods Not Received 120 Days
13.2 Canceled Recurring Transaction
120 Days
13.3 Not as Described or Defective Merchandise 120 Days
13.4 Counterfeit Merchandise 120 Days
13.5 Misrepresentation of goods and/or service 120 Days
13.6 Credit Not Processed 120 Days
13.7 Cancelled Merchandises/Services 120 Days
13.8 Original Credit Transaction Not Accepted 120 Days
13.9 Non-Receipt of Cash/ Transaction Value at ATM 120 Days

VISA REASON CODES AND WHAT APPLIES FOR 540 DAYS

REASON CODES NAME

DESCRIPTION OF REASON CODE INSIGHTS FROM RULES AND REGULATIONS

13.1

Merchandise/Services Not Received
Services Not Provided or Merchandise Not Received
The cardholder participated in the transaction, but the cardholder or an authorized person did not receive the goods or services because the merchant was unwilling or unable to provide the goods or services. Chargeback time limits associated with VCR 13.1 can change if the merchandise or services were expected to be provided after the transaction processing date. For example, the purchase could be for plane tickets that would be used months after the initial transaction. Which means the dispute may be issued: • 120 calendar days from the last date the cardholder expected to receive merchandise or services. • 120 calendar days from the date the cardholder was told that the merchandise or services won’t be provided. The dispute cannot exceed 540 calendar days from the transaction processing date.

13.3

Not as Described or Defective Merchandise/Services

Not as Described or Defective Merchandise/Services
Either the goods or services did not match what was described on the transaction receipt or other documentation presented at the time of purchase. OR The merchandise received by the cardholder was damaged or defective (All excluding France Domestic). OR The cardholder disputes the quality of the goods or services (All excluding France Domestic). A chargeback categorized under VCR 13.3 can have two different time limits for when disputes must be processed in: • 120 calendar days of either the transaction processing date or the date the cardholder received the goods or services. • 60 calendar days of when the issuer received the cardholders disputes if: • There is evidence of previous ongoing negotiations between the cardholder and the merchant • The negotiations occurred within 120 days of the transaction processing date The dispute cannot exceed 540 calendar days from the transaction processing date.

13.4

Counterfeit Merchandise

Counterfeit Merchandise

The cardholder claims that the purchased merchandise was counterfeit. A chargeback categorized under VCR 13.4 still has a 120-day time limit, but the start day can be one of the following: • The transaction processing date • The date the cardholder receive d the merchandise (Not exceeding 540 calendar days from the transaction date) • The date on which the cardholder was notified that the merchandise was counterfeit (Not exceeding 540 calendar days from the transaction date)

13.5

Misrepresentation

Misrepresentation of the purchased good and/or service
The cardholder claims the purchased good/service was misrepresented during the transaction. Examples include false advertisement and a merchant falsifying the quality of the purchased good/service. A chargeback categorized under VCR 13.5 can have two different time limits for when disputes must be processed in: • 120 calendar days of either the transaction processing date or the date the cardholder received the goods or services. • 60 calendar days of when the issuer received the cardholders disputes if: • There is evidence of previous ongoing negotiations between the cardholder and the merchant • The negotiations occurred within 120 days of the transaction processing date

13.6

Credit Not Processed Credit Not Processed The cardholder received a credit or voided transaction receipt that was not processed (Europe and Inter regional including Europe). OR The cardholder canceled or returned merchandise, canceled services, canceled a timeshare transaction, or canceled a Guaranteed Reservation and the merchant did not process a credit or voided transaction receipt. And, either the merchant did not properly disclose or did disclose, but did not apply, a limited return or cancellation policy at the time of the transaction, or in the Europe Region, the merchandise or services relate to an off-premises, distance selling contract (as set out in the EU Directive and amended from time to time) which is always subject to a 14day cancellation period. (All Regions). OR An original credit transaction was not accepted because either: the recipient refused the original credit transaction, or original credit transactions are prohibited by applicable laws or regulations. A chargeback categorized under VCR 13.6 still has a 120-day time limit, but the start day can be one of the following: • The transaction processing date • The date on the credit transaction receipt

13.7

Canceled Merchandise/Services

Canceled Merchandise/Services
The cardholder claims that the merchant had charged him or her for a merchandise/service that was canceled. A chargeback categorized under VCR 13.7 still has a 120-day time limit, but the start day can be one of the following:
• The transaction processing date • The date the cardholder received or expected to receive the merchandise or services, (Not exceeding 540 calendar days from the transaction processing date)

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