The Mews Blog > Chargeback reserves: what are they and how to reduce them
At Mews we use the term chargeback reserves. Elsewhere, you may have come across a different name for the same thing – a rolling reserve. What exactly is this and why does Mews keep this chargeback reserve?
What is a chargeback reserve?
It all starts with a hotel guest deciding to file a transaction dispute and initiating the chargeback process with their bank. This leads to a cascade of events regardless of whether the chargeback is justified or not. The card scheme recovers the chargeback amount from the payment service provider, which in turn recovers that amount from Mews. It is at this point that Mews asks you for supporting evidence that we then submit to the payment service provider who then passes it on to the issuing bank to make a decision. The original payment amount is put on hold until the dispute process is finished and a decision is made about whether the money on hold should be returned to the property or to the card holder.
This is where the chargeback reserve comes into play. As Mews is unable to withdraw the disputed amount from property bank account, the chargeback amount is deducted from the recent charges made in the property, which are still sitting in the unpaid Mews Payments balance.
Try to imagine that this deposit is like a safety net. If you don’t have this safety net in place, it could happen that Mews would pay you funds which would then need to be paid back when a chargeback comes. Instead, we hold a small part of the funds that you are due for a period of time to avoid such situations. Therefore, a chargeback reserve should simply be seen as a delay in payment. It is certainly not a fee, and you will eventually get these funds – just a little later.
How do we calculate the chargeback reserve?
We don’t just hold a set amount for each property. Instead, we use a number of factors to calculate your unique chargeback reserve.
First, we look at the historical chargeback ratio for your property. This is calculated as a percentage by comparing the volume of payments that you processed and how much of that volume was claimed back in chargebacks. We use the chargeback ratio to estimate the volume of chargebacks we can expect in your property in the future.
We then apply the historical chargeback ratio to the volume of payments that you processed in the last three months. We consider your estimated future volumes too. Furthermore, we may adjust the calculation to account for increased risk of chargebacks or refunds due to certain global events (such as the Covid pandemic). This happens only in extremely rare cases.
Newly onboarded properties
If you’re new to Mews, we won’t have your historical chargeback ratio. In this case, we use data from comparable properties in your region and apply them to your expected turnover. After three months, when we have data specifically for your property, we recalculate the reserve and then keep adjusting it every two weeks based on your real chargeback ratio and volumes.
If you decide to leave Mews – and we hope you don’t – we set up an offboarding chargeback reserve. The chargeback reserve amount is your available balance at the point of Mews receiving your termination notice. We hold it for 90 days as it usually takes anywhere between 45 and 120 days to receive a chargeback after a transaction is processed. After 90 days, your available balance is paid back to you.
How can you reduce the amount that is kept as a chargeback reserve?
Based on the way the chargeback reserve is calculated, you can see that the only way of reducing the reserve is by trying to minimize the number of chargebacks you receive. The more chargebacks your guests file, the higher the chargeback ratio and the higher the reserve Mews will be holding.
Our tips for handling and reducing chargebacks are summarized in these articles:
- How to handle hotel chargebacks
- Everything you need to know about chargebacks and how to prevent them
Hopefully, this article has helped you to understand the topic of chargeback reserves a little better. The two key takeaways are to remember that chargebacks reserves are here to protect Mews as much as you and that an effective way of minimizing the reserve Mews hold is by actively trying to avoid getting chargebacks. If you have any questions, you can always reach out to Mews support team who will be happy to answer any questions.
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