{"id":4865,"date":"2020-04-29T18:46:04","date_gmt":"2020-04-29T18:46:04","guid":{"rendered":"https:\/\/www.paymentfacilitator.com\/?p=4865"},"modified":"2021-06-15T21:59:41","modified_gmt":"2021-06-15T21:59:41","slug":"what-are-reserves-and-how-do-payment-facilitators-use-them-to-mitigate-risk","status":"publish","type":"post","link":"https:\/\/infinicept.com\/payment-facilitator\/learn\/get-started\/what-are-reserves-and-how-do-payment-facilitators-use-them-to-mitigate-risk\/","title":{"rendered":"What are Reserves, and How Do Payment Facilitators Use Them to Mitigate Risk?"},"content":{"rendered":"\n

Payment facilitators have a number of tools they can use\nto reduce their exposure to risk. To mitigate against credit risk, PFs will\nsometimes hold back funds from the submerchant \u2013 known as a reserve \u2013 to guard\nagainst possible future losses. <\/strong><\/p>\n\n\n\n

When are reserves typically used, and is now \u2013 as many\nbusinesses are experiencing financial hardship because of the coronavirus \u2013 a\ntime to implement them? <\/strong><\/p>\n\n\n\n

One of the primary types of risk that PFs face is credit\nrisk \u2013 the risk of financial exposure from working with submerchants that are\nnot operationally viable. <\/p>\n\n\n\n

For example, if a submerchant is selling a custom product,\nit might take payment for an order upfront. If it then goes out of business\nbefore delivering the order, the consumer could initiate a chargeback to get\ntheir money back. If the PF is unable to recover the funds from the submerchant,\nit is typically then responsible for the amount. <\/p>\n\n\n\n

Using reserves is one way some PFs can reduce exposure to\nthis type of risk. The PF might ask for a certain amount of money from the submerchant\nupfront or set aside a percentage of its transactions until a certain amount is\nreached. The reserve funds are held by the acquiring bank \u2013 not the payment\nfacilitator.<\/p>\n\n\n\n

Whether or not to maintain reserves is typically up to the\npayment facilitator. It can be done for a particular merchant category code (MCC)\nor group of them, on a portfolio basis, or submerchant by submerchant. There\nare times, on particularly risky accounts, when an acquiring bank may require a\nreserve.<\/p>\n\n\n\n

However, while reserves can be a useful tool, they\u2019re not\nconsidered a best practice for every payment facilitator. The practice is most\noften used by payment facilitators who are choosing to operate in higher-risk\nverticals. <\/p>\n\n\n\n

Typically, PFs should instead be more focused on conducting proper\nunderwriting to identify riskier submerchants at the outset. Under normal\ncircumstances, they should be ready to decline a submerchant application or to\nterminate a client that they determine represents significant risk.<\/p>\n\n\n\n

But what about now, during the COVID-19 outbreak? Consideration\nof credit risk is at the forefront for some payment facilitators, as many small\nbusinesses could be struggling to stay afloat.<\/p>\n\n\n\n

While this may be true, using reserves during a time of\neconomic turmoil time should not be taken lightly, according to Deana Rich,\nco-founder and co-CEO of Infinicept. <\/p>\n\n\n\n

\u201cReserves in a time like this are tricky,\u201d Rich said. \u201cIf\nyou put a reserve on a flailing business, the reserve might be the straw that\nputs them under.\u201d<\/p>\n\n\n\n

Working directly with submerchants to find creative\nsolutions is a better approach, and is now more important now than ever, she\nsaid. For example, submerchants could call their own suppliers to ask for\nchanges in terms. <\/p>\n\n\n\n

\u201cPay attention to those submerchants that are most at risk\nand work with them,\u201d Rich said. \u201cDon\u2019t wait for the submerchant to come to you.\nBeing proactive is more important than ever right now, as there are no safety\nnets.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Payment facilitators have a number of tools they can use to reduce their exposure to risk. To mitigate against credit risk, PFs will sometimes hold back funds from the submerchant \u2013 known as a reserve \u2013 to guard against possible future losses. <\/p>\n

When are reserves typically used, and is now \u2013 as many businesses are experiencing financial hardship because of the coronavirus \u2013 a time to implement them? <\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[1017],"tags":[192,196,199,646,750,764],"class_list":["post-4865","post","type-post","status-publish","format-standard","hentry","category-get-started","tag-coronavirus","tag-covid-19","tag-credit-risk","tag-payment-facilitators","tag-reserves","tag-risk-management"],"acf":[],"_links":{"self":[{"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4865","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/comments?post=4865"}],"version-history":[{"count":1,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4865\/revisions"}],"predecessor-version":[{"id":7241,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4865\/revisions\/7241"}],"wp:attachment":[{"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media?parent=4865"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/categories?post=4865"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/tags?post=4865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}