Holdback refers to a specific strategy employed in chargeback prevention and protection to mitigate financial risks associated with disputed transactions. It involves withholding a portion of funds from a merchant’s revenue until a predetermined period has elapsed or certain conditions have been met. The purpose of a holdback is to safeguard against chargebacks by providing a reserve that can cover potential losses or liabilities resulting from chargeback disputes.
Holdbacks are typically implemented by payment processors, merchant service providers, or financial institutions as a proactive measure to manage chargeback-related risks. The holdback amount is usually a percentage of the merchant’s transaction volume, sales, or revenue. It serves as a buffer that can be used to reimburse customers in the event of chargebacks, reducing the financial burden on merchants and ensuring a smooth resolution process.
By employing a holdback strategy, merchants can demonstrate their commitment to providing high-quality products or services while protecting themselves from potential chargeback disputes. Holdbacks act as a form of collateral, assuring customers and financial institutions of the merchant’s financial stability and ability to address chargeback claims. This approach is particularly useful for high-risk industries or businesses with a history of chargeback issues.
Written by Andrii Vovk