Reserves with Revenew Boost

In the last episode we took a deep dive into multi-seller baskets and revealed how Revenew Boost caters for this scenario out of the box. But that’s only the beginning. Boost’s modular architecture allows for a payment to be split not only between sellers but any thinkable recipient (to use Revenew’s internal terminology here). A recipient can really be any of the following:

• as covered in the last episode: a seller account (multi-seller baskets)
• this episode: a rolling reserve account
• next episode: a third party entity account (what if you’re building a platform for other platforms?)

In the following sections we’ll jump into more use cases that this flexibility enables.

Reserves

Holding reserves is a common practice in the payments industry, ensuring that businesses are covered for cases of refunds or chargebacks on specific payments. The aim of reserves is to avoid balances to go into the negative and making sure that liabilities are covered at all times.

It’s likely that your PSP holds a reserve against your accounts, ensuring that your liabilities are covered at all times. In this article we’ll focus on how you, the platform, can use reserves with your connected accounts so that things run smoothly.

Reserves accumulate by taking a share of a payment or the balance and hold it for a pre-defined time period, typically around 30-90 days (allowing for refunds or chargebacks). There are some variations in the kinds of reserves that are generally used.

Fixed Reserves

With a fixed reserve, a share of each payment is held in reserve. All reserves accumulated within a given time frame will then be paid out to the available balance of the account on a pre-defined date. What a platform could do is collect reserves of 20% on each payment and hold them for a month, releasing them after the last date of every month.

Of course the platform would run the risk of not being able to cover for refunds or chargebacks in the first week of every month, so this might not be the way to go for some (especially those collecting subscription payments at the end of the month).

Thankfully there is an alternative.

Rolling Reserves

Rolling reserves have the distinction that each of them has its very own release date. So, rather than getting lumped in with all the reserves of a specific month, a rolling reserve gets released after its pre-defined time period is over, making for a more constant rebalancing from reserve to available balance.

Now, while this approach is much more balanced than fixed reserves, it might still not be fully bulletproof. The subscription model is a good example. If subscriptions are one’s platform’s main source of incoming payments, then a rolling reserve would have a similar effect as a fixed one, given all reserves collected for subscriptions would be released on (at least more or less) the same day. For this and other use cases, there is a third option.

Reserve + Balance Transfer

In cases where fixed or rolling reserves aren’t enough, like the subscription use case, either of the approaches can be matched with a regular balance transfer. We could for example hold 20% of an account’s balance at the beginning of each month in addition to the predefined rolling or fixed reserve.

User Experience Matters

Choosing the right approach needs to pre-require having taken into account the risk of refunds or chargebacks while making sure the connected accounts on your platform don’t have to wait for their hard-earned money for too long. So, while it’s important that your platform is secure, it’s crucial to understand the implications for your users here and make sure they have the best and fairest possible experience on your platform.

Using Reserves in Stripe Connect

Stripe Connect is an outstanding product for platforms and marketplaces to process payments. Some more advanced features like multi-seller baskets and also reserves are possible, yet cumbersome to implement using Stripe Connect. As such, there is no out of the box product handling rolling reserves in Stripe Connect.

In order to set up reserves for your platform, you’ll need to use Separate Charges and Transfers (SCT).

Things to consider with this approach

1. Additional integration complexity - Each platform that wants to leverage reserves on Stripe Connect needs to build transfer orchestration logic. This increases the cost and complexity of the integration.
2. Lack of reporting - As this is not an out of the box feature of Stripe Connect, there won’t be an easy way to account for all rolling reserves held on all your accounts. Further, without you as the platform building in-house reporting functionality, it will be difficult to see for your connected accounts how much money is still being held for them in reserves. This can be a make or break scenario for a seller choosing to stay or switch platform/marketplace.

How Revenew Boost Enables Rolling Reserves

Like with Multi-Seller Baskets, you can leverage Revenew Boost alongside your existing Stripe Connect integration, allowing platforms to:

• set fixed or rolling reserves
• apply globally, to all sellers
• apply individually, to a specific seller.

The benefits:

1. No additional integration work required - You can manage rolling reserves straight through the Revenew dashboard.
2. Granular reporting from both platform and seller perspectives - Not only does the platform have a comprehensive overview of reserves held. It’s now possible for you to provide this same transparency to your users, who may be waiting for their payout. It’s this kind of user experience that separates the great from the average platform.

If you’re looking into implementing reserves on your platform to keep a better handle on refunds and chargebacks coming through, then pairing your existing Stripe integration with Revenew Boost gives you the most comprehensive and controlled experience.

Reach out to us if you want to know more.