I am often asked “can you put a hold or reserve money on a Bank Account”. The purpose being that the merchant then wishes to decide to bill the user at a later point and wants guaranteed payment. I.e. to know that these payment will clear if requested in the future.
This sounds an easy task and something that all Banks and debit cards should be able to offer. After all credit card companies offer this service.
The reason for this not being possible is not a technical one but a legal one and more importantly a fundamental definition of what a Bank Account actually is.
If you think about what a Bank Account is and is legally defined as, it’s actually a record of what a Bank owes you. It’s actually a contract to state that it will return this money to you.
A Bank Account is a record of what a Bank owes you.
So the problem with reserving funds comes when you try to state how much money do they actually owe you. For example if the Bank owes you £10,000 and but let’s say we want to reserve £2,000, how much does the bank actually owe you?
You might instinctively say well the bank owes you £8,000 as I have £10,000 but £2,000 of this is reserved. But hold on, either I have £10,000 or I have £8,000 which is it? Make up your mind. If I have only £8,000 then my balance is £8,000 and not £10,000 so it is effectively transferred already. Which it legally has been if this is reserved by someone else.
So in summary reserving ownership of funds is actually the same as transferring the ownership of funds since this is all money the Bank owe you. Legally a Bank Account is a record of an obligation of how much money they pay you.
This is the reason you cannot reserve funds for later payment or billing.
The solution for merchants who wish to make sure they will get payment to this is use an Escrow service.
Photo by: Will Porada