Quarterly report pursuant to Section 13 or 15(d)

Settlement Assets and Obligations

v3.19.1
Settlement Assets and Obligations
3 Months Ended
Mar. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Settlement Assets and Obligations SETTLEMENT ASSETS AND OBLIGATIONS


The standards of the card networks restrict non-members, such as the Company, from performing funds settlement or accessing merchant settlement funds. Instead, these funds must be in the possession of the member bank until the merchant is funded. The Company has relationships with member banks to facilitate payment transactions. These agreements allow the Company to route transactions under a member bank's control to process and clear transactions through card networks. Amounts for payment card
settlements included in settlement assets and obligations on the Company's consolidated balance sheets represent intermediary balances arising in the settlement process.

Reserves Held For ACH Customers

For the Company's ACH business component that conducts business as ACH.com, the Company earns revenues by processing ACH transactions for financial institutions and other business customers. Certain customers establish and maintain reserves with the Company to cover potential losses in processing ACH transactions. These reserves are held in bank accounts controlled by the Company. As such, the Company recognizes the cash balances within restricted cash and settlement obligations on its consolidated balance sheets.

Merchant Reserves and Estimated Shortfalls

Under agreements between the Company and merchants, merchants assume liability for obligations such as chargebacks, customer disputes, and unfilled orders.  However, under its risk-based underwriting policy, the Company may require certain merchants to establish and maintain reserves designed to protect the Company from anticipated obligations such as chargebacks, customer disputes, and unfilled orders. A merchant reserve account is funded by the merchant but controlled by a sponsor bank during the term of the merchant agreement. Unused merchant reserves are returned to the merchant after termination of the merchant agreement or in certain instances upon a reassessment of risks during the term of the merchant agreement. Sponsor banks held merchant reserves of approximately $120.5 million and $186.2 million at March 31, 2019 and December 31, 2018, respectively. Since these merchant reserves held at sponsor banks are not assets of the Company and the associated risks are not liabilities of the Company, neither is recognized on the Company's consolidated balance sheets. 

In the event the amount in a merchant reserve is insufficient to cover expected or incurred losses, the Company may be liable to cover the shortfall.  The Company recognized a liability for estimated shortfalls of approximately $2.1 million and $2.0 million at March 31, 2019 and December 31, 2018, respectively.  The liabilities are included in the Company's consolidated balance sheet as contra balances against settlement assets.

The Company's settlement assets and obligations at March 31, 2019 and December 31, 2018 were as follows:

(in thousands)
 
 
 
Settlement Assets:
March 31, 2019
 
December 31, 2018
Card settlements due from merchants, net of estimated losses
$
936

 
$
988

Card settlements due from processors
70

 
54

Total settlement assets
$
1,006

 
$
1,042

 
 
 
 
Settlement Obligations:
 
 
 
Card settlements due to merchants
$
767

 
$
777

Due to ACH payees (1)
12,614

 
10,355

Total Settlement Obligations
$
13,381

 
$
11,132


(1) Amounts due to ACH payees are held by the Company in restricted cash.