Reserve Account

Overview

The reserve process helps Cybrid manage transaction risk with its partners. It primarily applies to ACH return risk (often R01 type returns) for ACH deposits on Cybrid's platform.

The reserve itself is an account that holds a balance of funds provided by the partner, and can be used by Cybrid when and if needed to cover transaction losses due to ACH returns.

Holding a reserve with Cybrid is optional, but without the reserve Cybrid implements a 2 business day hold on all ACH deposits to mitigate against financial losses.

Why is a reserve needed?

When dealing with ACH deposits originated by Cybrid, the counterparty bank (where we pull the funds from) has 2 business days to ask for an administrative return. This is often of the type R01, which denotes an NSF or insufficient funds error. It may be surprising, but counter-party banks will sometimes send the funds, and only later realize that there was not enough funds in the customer's account, then issue a return. Returns of type R01 are not the only return, and there are variety of other returns that can also be issued within the 2-day administrative window.

If an ACH return occurs, our bank must respond immediately and return the funds to the counterparty bank. This results in situations where the funds could have already been used on the Cybrid platform to make a payment, or to swap for a digital asset, but our bank has to send the funds back regardless. Cybrid then incurs a loss.

The reserve fund limits Cybrid's liability against ACH return losses, and is essential when partner's want to remove the standard 2 business day hold that Cybrid places on ACH deposits.

How is the reserve account managed?

Each production bank on the Cybrid platform has an associated Reserve account that can hold fiat funds. Cybrid's compliance team assesses the risk of a partner, and their overall transaction flow or projections, and determines the amount of reserve you must hold on the Cybrid platform.

The reserve account can be funded by performing a book transfer from your bank-level fiat account. Partners can connect an external bank account to their bank-level fiat account for funding a balance on the platform. It should be noted that partners can only send funds to the reserve account, and not withdraw funds from the reserve account. Only Cybrid can withdraw funds from the reserve account if and when needed, as part of a loss recovery process.

What are loss recovery transactions?

When a loss is incurred on the platform due to a transfer return, the lost funds must be recovered using the partner's reserve account on the platform.

If a loss recovery occurs, you will see a transaction of type loss_recovery on the platform. This transfer type specifically indicates when Cybrid has used funds in your reserve account to return a customer's fiat account from a negative balance to a $0 balance.

You can review loss recoveries by querying the LIST /api/transfers endpoint.

What does the loss recovery process look like?

When a return is processed for a customer, Cybrid attempts to recover funds that the customer may have, such as from the fiat balance or crypto holdings from an associated crypto purchase. In some cases, Cybrid can recover most or all of the returned funds, however sometimes there is a negative difference after selling assets, and other times there are no funds to recover. In these situations, a customer's account will have a negative a balance.

Cybrid does not immediately process loss recoveries after processing a return, but rather processes them on a bi-monthly basis, usually around the 1st of the month and the 15th of the month. This typically gives partners some time to work directly with customers to recover funds, without Cybrid needing to pull funds from their reserves.

If Cybrid has pulled funds from your reserve account as part of a loss recovery, our support or an automated message in Slack will let you know this has occurred.

Topping up your reserve account

You are required to maintain at least 70% of your reserve balance. When the reserve drops below 70% Cybrid will automatically enable a two business day hold on ACH deposits until the reserve level is restored. If your reserve drops below this threshold, our support teams will let you know that you need to top up the reserve up.