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Reserves in High-Risk Merchant Accounts: Why They’re More Relevant Than Ever in 2025
Over the past few years, the electronic payments environment has experienced significant shifts—heightened regulatory scrutiny, rapid e-commerce growth, and evolving consumer behaviors have placed greater emphasis on fraud prevention and risk management. As a result, reserves remain a cornerstone requirement for many high-risk merchant accounts in 2025. In this updated guide, we’ll dive into what reserves are, why they’re often required for high-risk merchants, and how to effectively manage them in today’s fast-changing environment.
What is a Merchant Account Reserve?
A reserve is a percentage of your credit card sales that is temporarily withheld by your acquiring bank or payment processor to protect against potential losses. Essentially, it’s an insurance policy for the processor, ensuring there are funds available if your business encounters chargebacks, fraud, or any other financial liabilities. Once the designated hold period has passed (often rolling over week by week or month by month), the withheld funds are released to you—minus any chargebacks or refunds that may have occurred.
What Types of Merchant Account Reserves Are There?
Reserves can take a number of different forms, depending on the type of business and the individual situation of the high risk merchant in question.
- A rolling reserve is one of the most commonly used reserve models for high risk merchant accounts. For every deposit made to the merchant’s account resulting from a cleared transaction, a fixed percentage of that deposit (typically 5-10%) will be held back for a period of six months. Funds that were held back in the first month will be released to the merchant account in the seventh month, and so on.
- A capped reserve holds back a percentage of each deposit resulting from a cleared transaction (usually 5-15% of the transaction) until a fixed “goal” amount is reached. The amount of that goal is typically one-half the merchant’s monthly processing volume, up to one full month’s processing volume. After that goal is reached, that money remains in reserve but nothing further is held from future transactions.
- An upfront reserve is also based on a percentage of a merchant’s expected monthly volume (though not necessarily the same goal amount as a capped reserve), but that reserve is required upfront, at the beginning of the merchant’s relationship with the credit card processing bank. This upfront reserve can be collected in one of three ways: either 100 percent of transaction deposits will be held in reserve until the target goal is met, the merchant will be asked to wire the requisite amount from their checking account, or a letter of credit will be required from the merchant’s own bank.
Why High-Risk Merchants Need Reserves
1. Chargeback Mitigation
High-risk merchants—especially those in industries like travel, digital streaming, nutraceuticals, subscription services, or adult entertainment—typically see higher chargeback and refund ratios compared to standard-risk businesses. This risk translates into potential financial exposure for processors, who use reserves to safeguard against sudden spikes in disputed transactions.
2. Evolving Fraud Tactics
As of 2025, fraud tactics continue to evolve rapidly. Sophisticated AI-driven schemes, credit card spinning, identity theft, and friendly fraud all pose ongoing threats. For payment processors, reserving a portion of funds is a vital buffer against unexpected fraud losses or chargebacks, helping ensure they can reimburse cardholders if disputes arise.
3. Regulatory Scrutiny
Governments around the world have introduced stricter consumer protection regulations. These laws often mandate higher compliance thresholds for industries with elevated risk profiles—making reserves one of the most common tools to maintain compliance and protect financial institutions from liability.
4. Operational Continuity
From the processor’s perspective, a reserve helps maintain continuity in the event of a sudden business closure or bankruptcy. If a merchant goes offline unexpectedly, the acquiring bank or ISO can dip into the reserve to cover refunds and chargebacks, reducing overall exposure.
The 2025 Payment Landscape: New Dynamics Affecting Reserves
Hybrid & Digital-Only Banks
The rise of digital-only financial institutions has injected new competition into the high-risk space, but many of these challenger banks are also conservative when it comes to underwriting. Expect them to enforce similar or even stricter reserve requirements.AI-Powered Underwriting
In 2025, underwriting decisions lean heavily on AI-driven analytics, scrutinizing everything from your social media footprint to real-time sales trends. This advanced risk scoring can result in dynamic reserve rates—meaning your reserve percentage might adjust up or down based on your most recent performance metrics.Increased Emphasis on Global Processing
Many high-risk merchants now sell internationally. With cross-border transactions come higher fraud risks, stricter regional compliance rules, and currency fluctuations—factors that can increase the likelihood of reserves or lead to higher reserve percentages.Renewed Focus on Data Security
High-profile data breaches over the last few years have led processors to demand tighter security protocols from merchants, including PCI-DSS compliance, tokenization, and encryption. Strong security practices can help negotiate lower reserve rates by minimizing perceived risk.
Strategies to Lower or Manage Your Reserve
1. Proactive Risk Mitigation
Show potential processors you have robust anti-fraud tools in place, such as Address Verification Service (AVS), CVV checks, velocity checks, and sophisticated chargeback mitigation solutions. The more confidence the bank has in your processes, the better your position to request a lower reserve.
2. Strong Chargeback Management
Demonstrate a proven record of maintaining a low chargeback ratio. If you’re currently dealing with high levels of disputes, consider a chargeback alert system or partnering with third-party fraud experts. Over time, a reduced ratio can serve as leverage to renegotiate the reserve percentage.
3. Comprehensive Documentation
Be transparent about your business model, financials, processing volumes, and marketing practices. Provide up-to-date financial statements, tax returns, and licenses. A well-documented merchant is less likely to encounter underwriting hiccups, potentially leading to more favorable reserve terms.
4. Negotiate Review Periods
Ask your provider for periodic reviews—say, every three or six months—to reevaluate the necessity or size of your reserve. If your processing history remains stable and chargebacks stay low, you may be able to reduce or even eliminate the reserve over time.
Common Objections and How to Address Them
Before you submit your application for a merchant account with an underwriter, consult with the account manager at your provider that is helping you negotiate with the bank to learn about how you can prepare to effectively use some of the following responses to common protests by underwriting banks.
“Your Chargeback Ratio Is Too High”
Possible Response: Present a chargeback reduction plan. Show improvements, such as a new refund policy or better customer support, to resolve disputes before they escalate.
“Your Business Model Is Too Risky”
Possible Response: Offer evidence of compliance with relevant regulations and highlight stable sales growth. Demonstrate that you’ve taken steps to mitigate inherent industry risks.
“You Don’t Have Enough Processing History”
Possible Response: Provide detailed financial projections, business plans, or supporting documentation (e.g., investor backing, industry experience). Suggest a higher reserve initially with scheduled reviews to lower it later as you establish a track record.
“Global Sales Expose Us to International Fraud”
Possible Response: Outline your international compliance measures, including region-specific fraud filters and compliance certifications (e.g., GDPR for EU). Show that you’re equipped to handle cross-border challenges responsibly.
How Durango Merchant Services Can Help
At Durango Merchant Services, we pride ourselves on having deep expertise in high-risk processing. We understand that reserves can be stressful—and we work closely with you to determine the most favorable terms possible. Our team:
Evaluates Your Risk Profile
We review your business model, industry category, chargeback history, and financials to find a banking partner that best aligns with your goals.Negotiates on Your Behalf
Our long-standing relationships with acquiring banks allow us to negotiate for competitive rates, lower rolling reserves, and flexible terms.Provides Ongoing Support
We’ll guide you through compliance requirements, help you set up chargeback reduction tools, and schedule regular account reviews so you can request adjustments to your reserve down the line.
The concept of reserves isn’t going away—especially in 2025’s more complex, risk-aware payments ecosystem. However, understanding the reasons behind reserves and taking practical steps to manage them can make a world of difference for high-risk merchants. With the right strategies and support, it’s entirely possible to minimize reserve requirements and maintain steady cash flow, all while staying compliant and safeguarding your processing capabilities.
If you have questions or want personalized guidance, reach out to Durango Merchant Services. We’re here to help you navigate the complexities of high-risk merchant accounts, negotiate the best possible terms, and keep your business moving forward in this dynamic environment.
