Collateral

2024-08-22 03:09

Collateral is a portion of the merchant's funds temporarily held by Antom during the cooperation period. It is intended to cover potential risks and losses, such as buyer chargebacks. The collection of collateral is a common industry practice used by acquirers. The specific amount of collateral charged by Antom is determined by the merchant's transaction volume, risk level, transaction type, and business type, and is managed in a dedicated account.

Why collateral is necessary

When a merchant accepts a payment from a buyer but fails to fulfill obligations, or if the buyer disputes the transaction or the merchant's services, the buyer may file a chargeback. The chargeback amount, as well as any fees that may be charged by the card scheme, is deducted first from the merchant's settlement balance account. However, the merchant's settlement balance account may be insufficient to cover the chargeback amount, in which case the amount is deducted from the collateral. Therefore, collateral serves as a protective measure against potential disputes and other reverse funding gaps that may occur, providing security for both the merchant and the buyer.

Collateral type

Fixed Collateral: The amount of fixed collateral is set and is determined by Antom based on the merchant's transaction volume, risk level, transaction type, and business type.

Rolling Collateral: The amount of rolling collateral is dynamic. Antom deducts a certain percentage from the funds of each settlement batch as collateral and sets a rolling window. After the rolling window, the collateral is released and settled with the most recent settlement batch to the merchant.

How collateral works

Collateral charge

The following table shows how different types of collateral are charged:

Collateral type	Charge method
Fixed collateral	Antom deducts collateral from the merchant's batch settlement funds. Through bank guarantee.
Rolling collateral	Antom deducts collateral from the merchant's batch settlement funds.

Figure 1. Collateral charge methods

For collateral to be deducted from the merchant's batch settlement funds, the remaining balance after deducting the collateral must be equal to or greater than the minimum settlement amount. If this requirement is not met, the settlement funds will accumulate until the prerequisite is met.

Collateral release

Fixed collateral can be released in the following situations:

When the collateral charge standard for the merchant is lowered, the excess collateral amount is released to the merchant's batch settlement funds.
After the merchant terminates the acquiring contract with Antom, the collateral will continue to be held for approximately 180 days to cover chargebacks and losses. If any collateral remains after the holding period, it will be returned to the merchant. If the collateral held during the holding period cannot cover the costs, the merchant will be required to compensate for the deficit.

Rolling collateral is released periodically according to the rolling window. The rolling collateral deducted on a specific settlement batch is released after the rolling window and is settled in the latest settlement batch with the merchant.

Example

Fixed collateral

For example, if the fixed collateral amount set by Antom for a merchant is 5000 EUR, the following table shows how fixed collateral works when it is deducted from the merchant's batch settlement funds:

Date

Collateral procedure

Effective date of collateral charge rule

The collateral balance is 0 EUR.

Settlement date

The settlement amount is 6000 EUR (after fee deduction), and 5000 EUR of collateral is deducted.
The remaining settlement amount of 1000 EUR is paid to the merchant.
Settlement reports containing the collateral charge record are generated.

The collateral balance is 5000 EUR.

Table 2. The example of a fixed collateral procedure

Rolling collateral

Consider the following rules for rolling collateral as an example, and refer to the following table for the collateral procedure based on these rules:

Antom deducts 10% of the net settlement funds from each settlement batch as the rolling collateral.
The rolling window for each deducted collateral is 90 days.
The settlement period is on a daily basis. The settlement date is T+4, where T means the transaction day.

Date	Collateral procedure
Effective date of collateral charge rule	The collateral balance is 0 EUR.
First settlement date（T1+4）	The settlement amount is 6000 EUR (after fee deduction), and 600 EUR of collateral is deducted. The remaining settlement amount of 5400 EUR is paid to the merchant. Settlement reports containing the collateral charge record are generated. The collateral balance is 600 EUR.
Second settlement date（T2+4）	The settlement amount is 4000 EUR (after fee deduction), and 400 EUR of collateral is deducted. The remaining settlement amount of 3600 EUR is paid to the merchant. Settlement reports containing the collateral charge record are generated. The collateral balance is 1000 EUR.
Collateral release date （T1+94）	The settlement amount is 2000 EUR (after fee deduction), and 200 EUR of collateral is deducted. The collateral of 600 EUR deducted on the first settlement date (T1+4) is released into this settlement batch. The final settlement amount 2400 (2000 - 200 + 600) EUR is paid to the merchant. Settlement reports containing the collateral charge record are generated. The collateral balance is 1400 (1000 - 200 + 600) EUR.

Figure 3. The example of a rolling collateral procedure

Suggestions for reducing collateral

Antom offers the following suggestions to reduce collateral charges. However, it is important to note that implementing these suggestions does not guarantee a reduction in collateral charges.

Reduce order fulfillment time: For example, shorten the payment or delivery time to reduce the order fulfillment time.
Reduce chargeback and return rates: For example, improve product quality to reduce chargeback and return rates, or offer refunds proactively to reduce chargebacks.