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An introduction to payments, merchant onboarding, chargebacks, and reserves.


In an era of instantaneous deployment, there is now more opportunity than ever to build a profitable business online. Businesses of all different niches and backgrounds, ranging from your local mom-and-pop to a multi-billion dollar institution, can access a global audience with a click of a button. As the barrier-to-entry for online commerce and transactions get lower with the help of tools such as Shopify, PayPal, and Stripe, it is becoming increasingly easier to build and launch an online presence. 

That being said, this new wave of opportunity also creates uncertainty and mistrust. It can be tough to evaluate if a seller is fiscally responsible enough to fulfill their obligations and deliver on their services as advertised. This can range from a malicious seller who has the intention of scamming people and running away with their money, to an honest seller who simply cannot maintain quality control at their current volume of sales. In order to hedge against this risk, there are certain precautions a payments platform can take to ensure that they aren’t fully exposed to this risk (reserves). To understand this, we must first briefly touch on the factors that cause a reserve to be implemented.


When a payment platform is onboarding a merchant, they go through a process to evaluate the merchant’s credibility and risk called “underwriting.” Essentially, their objective is to quantify the maximum amount of risk they are comfortable with given the nature of the business and the merchant’s background. Every merchant acquirer evaluates their risk differently depending on their level of tolerance. Some processing entities, such as PayPal and Stripe, intentionally minimize their underwriting process to onboard the merchant quickly and to service a greater number of merchants. Consequently, this causes a greater trade-off for growing or high-volume businesses as they are more likely to be subject to financial constraints such as holds and reserves.

Dispute and Chargeback Process

A credit card dispute is a complaint filed by the customer to their bank stating that the transaction for the purchase of a good or service was fraudulent or incorrect. This could be for a number of reasons ranging from a stolen credit card to the item purchased was never received or not as advertised. When a customer files for a chargeback dispute, they receive conditional credit equivalent to the value of the transaction while the dispute is being investigated. This transaction is forcefully reversed and the value is removed from the merchant's bank account until the investigation has been resolved.

What happens if the merchant doesn’t have enough funds to cover the chargeback value? Reserves were implemented to ensure that high-risk merchants have sufficient funding in the event of excessive chargebacks.


A reserve account is a sub-account where a portion of the merchant’s transaction volume, or a fixed value, is held for business and chargeback risk. Reserves are an industry-standard practice to hedge against risk of funding defaults. Not all merchants will have a reserve requirement, and some may be temporary to hedge against the current risk of the merchant. Generally, merchant’s who are labeled as “high-risk” are in danger of facing a reserve on their account. The following are a few factors that are associated with a high-risk merchant:
  • Low transaction history or business experience
  • High average transaction sizes
  • High transaction volume
  • Large number of card-not-present transactions (online)
  • New/Poor credit score
  • Risky industry (eCommerce, subscriptions, crypto, software, etc)
There are also different types of reserves. For example, a rolling reserve is where a percentage of your transaction volume is held in a reserve account for a fixed period of time on a rolling basis. If you have a rolling reserve of 10% placed on your account for 60 days, then the amount withheld from Day 1 will not be released until Day 61, from Day 2 until Day 62, and so on. Industry standard is between 5% and 10% of the transaction volume, although many high-growth merchants with a dominant online presence are suffering worse terms. 

Credit card processing is known as a high-volume low-margin business. It is high-volume in that the processor is processing a large amount of transactions, and it is low-margin in that the processor generally takes a small spread as compensation for facilitating the processing. The merchant acquirer also assumes liability for all chargebacks, fees, and other defaults should the merchant be unable to provide such funds. As a result, it is extremely important for the acquirer to evaluate the credibility of the merchant (underwriting) and ensure that they are fiscally responsible and trustworthy enough to fulfill their obligations as a seller. Reserves are a medium to hedge against this potential risk by providing a forced and locked source of funding to pull from.

Our Solution

Our team at Conqr feels that it's unfair that this funding is held from the merchant for reasons that are out of their control. Essentially, if you are a successful founder in the online business space, you are labeled as a “high-risk” merchant and may be subject to a reserve at one point or another. To limit the financial burden this may place on the business, we created a financial product that "unlocks" this reserve so that the business’ cash-flow constraints are greatly minimized and the founder can continue to operate and grow their business. 

We offer two core financial solutions, One-time and Continuous. One-time is a lump-sum solution that immediately advances any capital currently withheld under a reserve or payout hold. If you have used PayPal or Stripe in any large capacity, you may already be familiar with the notorious payout holds, large settlement times, or funding locked in an “unavailable balance.” One-time is a solution to that issue in that we provide the funds to unlock the majority of this hold, as if it was never held to begin with. To ensure you never have to face this financial constraint again we created our Continuous service, a recurring solution that continuously advances any future capital withheld under a reserve or a payout hold. Instead of having to wait a fixed period of time to receive the funds withheld on a transaction, we advance the majority of this hold on a daily business so you can maintain your cash-flow and grow your business. These advances will only be collected, along with our corresponding fees, when the locked capital is disbursed back into your account.

If you want to free yourself from these financial constraints, apply now and let's conquer this together!

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