Risk & Compliance
Holdback
Definition
Holdback funds retained by the acquirer from merchant settlements as security. Similar to rolling reserve but may have different release terms. Some holdbacks are permanent until account closure; others release after a fixed period. May be expressed as a percentage of volume or a fixed amount. Common for high-risk merchants and new accounts without processing history.
Related Terms
Rolling Reserve
A percentage of processing volume held by the acquirer as security against chargebacks and refunds. Typically 5-15% held for 6-12 months before release. The reserve 'rolls' as new funds are held and old funds release. Affects cash flow significantly for growing businesses. Reserve terms are negotiable and often reduce after establishing clean processing history. Alternative structures include capped reserves and upfront deposits.
Settlement
The process of transferring funds from captured transactions to the merchant's bank account. Settlement typically occurs in batches (daily or weekly). Timing varies by acquirer and merchant agreement - next day, T+2, or weekly. Net settlement deducts fees and chargebacks from gross volume. Faster settlement improves cash flow but may come with higher costs.
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