We are hearing some good news lately in the vape payment gateway and merchant processing world in terms of low or 0% merchant account reserves when needed or requested. Historically most online electronic cigarette merchants, especially e-liquid merchants selling nicotine based products have had a portion of their sales- generally 10% – held in “reserve” by their processors. This money if often held for 6 months or more and protects the processor from losses caused by among other things, merchant chargebacks or returns that the merchant cannot cover. The payment gateway providers themselves generally have limited risk beyond their own fees so these reserves are almost exclusively held the processor or merchant account provider.
Some merchants actually like reserves. They consider it “forced savings”. Every day a portion of their sales are taken out of their daily settlement batch and held by the processor – over time these reserves build up and can be substantial. This is seen as positive by many because it protects them from having to scramble to cover processor losses after an account closure, and reduces their chances of getting tied up legally with a processor should there be a business closing, interruption, shipping snafu, fraud issue or data processing error that causes a large amount of chargebacks or refunds after an account is closed (or that is the cause of a closure) that the merchant was not in a position to cover. Some merchants also like the fact that a certain part of their profits are socked away where they can’t touch them. Generally after a period of time the amount held in reserve from each batch is reduced because the total reserve reaches a point that gives the processor comfort or there is a long enough history that the processor trusts the merchant’s business acumen more than when they were new. At that point merchant’s are often returned a portion of the reserve or the entire reserve. When an account is closed, or a business is sold the entire reserve is returned after a period of time (assuming there were no losses and the reserve was not returned prior this can range from 15 to 270 days depending on the situation). This has created a perceived windfall for many merchants who decided to sold or closed their businesses. Not only do they receive the proceeds of the sale, but they often receive the entire reserve balance they built up too. This is like finding money in your pants when you do laundry, you know it was yours all along but when it pops out out of the blue it’s like you never had it before!
Others do not: Many merchants do not like the idea of having their capital tied up by a processor in the form of a reserve. They prefer to have all their resources under their control and are willing to manage the risk of future liabilities on their own. For these merchants it is important for them to be educated upfront and know which questions to ask when setting up their accounts and systems. We have had great success lately recommending gateways and processors to large established vaping merchants (and even start ups) and assisting them in setting up a low or no reserve processing system for them. If this is important to you, you must make this clear upfront with any provider you work with. Once you establish a merchant account you begin to build history and stability with that processor and it is usually a good idea to maintain long term relationships as opposed to switching services regularly. Feel free to contact us any times with your specific situation and we can give you updated industry information.