Card Machine Settlement Reserves Explained

A settlement reserve is a percentage of monthly card volume the acquirer holds back against potential chargebacks. Typical UK reserves are 5 to 15 per cent of monthly volume held for 90 to 180 days, then released as trading history builds. Reserves apply to new businesses, high-risk verticals, and post-shutdown applicants. The reserve is not a penalty, it is the acquirer's buffer against chargeback exposure on transactions that have not yet exited the 120-day dispute window.

What this means for your business

Card scheme rules (Visa, Mastercard) give customers up to 120 days to dispute a transaction. The acquirer is liable for any successful chargeback regardless of whether the merchant still has the funds. To manage this exposure, the acquirer holds back a percentage of merchant settlement as a reserve, which sits in the acquirer's account until the chargeback window has closed. The reserve protects the acquirer from a worst-case where the merchant goes bust during the dispute window leaving the acquirer with unrecoverable chargebacks.

Reserve percentages vary by risk. Mainstream low-risk SMEs sometimes have no reserve at all, particularly on Dojo or Tide where the operating model spreads risk differently. New businesses (less than 12 months trading) typically see 5 to 10 per cent for 90 to 180 days. High-risk verticals see 5 to 15 per cent for 90 to 180 days, sometimes a rolling permanent 5 per cent reserve. Post-shutdown applicants see 10 to 15 per cent for 180 days as a starting point, tapering as trading history builds.

Reserves are released on a defined schedule. Most acquirers release the reserve in monthly tranches after the 90 to 180 day initial hold. For example, on a 180-day reserve, the funds taken in month 1 are released in month 7, the funds taken in month 2 are released in month 8, and so on, forming a rolling release pattern. After 12 to 24 months of clean trading, many acquirers waive the reserve entirely. The reserve is the acquirer's risk hedge, not a permanent cost.

Key points

Reserve is a percentage of monthly volume held back against chargeback exposure
Typical UK rates 5 to 15 per cent for 90 to 180 days
Card scheme chargeback window is 120 days, the reserve covers this plus a buffer
New businesses, high-risk verticals and post-shutdown applicants are most affected
Mainstream low-risk SMEs sometimes have no reserve at all
Reserves taper as trading history builds, many acquirers waive after 12 to 24 months
Reserve is the acquirer hedge, not a penalty or permanent cost

Common pitfalls

Forgetting the reserve in cashflow modelling, 10 per cent on £20,000 monthly volume is £2,000 not available for 6 months
Not asking for a reserve review at 12 months, many acquirers will reduce or remove it on request after clean trading
Treating the reserve as a permanent cost, it is a hold not a fee
Mixing reserve releases with main settlement, the reserve release usually shows as a separate line on the statement

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