As a US business owner, you naturally assume that your merchant account will be with a US bank. This is not always the case and luckily, the global economy has changed things quite a bit. Occasionally, offshore payment processing is perfect, especially for a High-Risk Business, and possibly the only option if a business wants to accept credit card and debit card payments from their customers.
Because many US banks are highly conservative and risk-averse. They decline merchant account applications from businesses in industries they consider high risk. Their definition of high risk may be very different from what you and I consider a risky business and we will come to that in a moment.
What are Offshore Payment Processors?
Offshore payment processors are like international banks. It just means that your merchant account is with a bank in another country other than the US. For example, when a US business operates an offshore merchant account in Switzerland, the Swiss account is regarded as an offshore account for the American business. It is totally legal and considered one of the many high-risk merchants Europe processing for the American business. Your customers should not be aware of anything unusual when they pay you by credit card or debit card.
Funds are then rerouted to your regular business account just as they would be if a US bank held your merchant account.
Most businesses seek out offshore payment processors when they are classified as high-risk by traditional banks and credit card processors. High-Risk businesses stand a better chance of securing merchant accounts when they look overseas.
How Does Offshore Credit Card Processing Work?
Offshore credit card processing for your business operates in exactly the same way whether your merchant account is in the US or with an acquiring bank in some other country.
We at SecureGlobalPay provide you with a payment gateway that we configure to suit the offshore credit card processing requirements of your acquiring bank, whether at home or abroad.
Your bank will have its own rules and terms about things like fees and chargebacks just the same as a local US bank would. Customer support teams will be on call in the same way.
The most significant difference is that you will be the proud owner of one of those fabled offshore merchant accounts to accept credit card and debit card payments. Just like the Ballers and Jet Setters you read about in the mainstream media.
Benefits of Online Payment Processing
Possibly you are looking at opening an offshore online payment processing merchant account because your business is rated in the high risk category of industries. That may be the primary driver.
It’s worth being aware of some of the benefits high-risk merchant accounts for offshore online payment processing through a foreign bank offer. Some business owners get one in addition to their US merchant accounts for these very advantages.
Here are the top 4 benefits of offshore payment processing high-risk merchant account processors:
- Bank stability – You may be surprised (or not) to learn that banking regulations in many other countries are far more conservative and tighter than in the US. Controls on banks were overhauled after 2008 and the banking crisis, which began in the US. As a result, banks in many foreign countries are considered safer that at home. Only 5 US banks make this list of the World’s Top 50 Safest Banks (one of many such lists) and the best of those is in position 33.
- Discourages vexatious litigation – Filing a lawsuit in a foreign jurisdiction is a lot more complex and a great deal more costly than here in the US. It’s likely to require two law firms, one here and one in the other country. When you consider that 80% of the world’s lawyers live in the USA (that’s 1.35 million) filing 15 million legal actions every year, it’s an indication that we have the most litigious country in the world. An offshore merchant bank account, or offshore business registration, goes a long way in preventing frivolous legal actions that seem to be common in the US.
- Potential tax advantages – The word “potential” is important here. Opening a bank account in another country is totally legal, as is setting up a company abroad, but IRS requirements must be met. The likes of Google and Starbucks use offshore holdings and strategies that save then significant sums in tax. There are indeed legal and effective strategies that much smaller international business owners can use to reduce taxes while growing their businesses.
- Welcoming high risk offshore payment processing – Many offshore banks and card payment processors do not have the same approach to assessing risk in an industry as their US counterparts. Very frequently, an industry that finds it difficult to obtain a merchant account through a US bank will find more than one offshore bank or card processing company who has no problem in handling their business. Offshore payment processors are traditionally more tolerant of chargebacks and, importantly, may welcome merchants who have been terminated or even blacklisted by one or more US banks.
Are There Any Drawbacks to Offshore Payment Processing?
Doing business through an offshore merchant account bank naturally is a little more complicated than using the bank next door. However, thousands of US merchants have grown their business successfully while having their card payment facilities in different countries.
Some differences may include:
- Applications may take a few days longer to process
- Transaction fees may be higher if you are operating in a high risk industry regardless
- Receiving funds is slower from abroad
- Some acquiring banks may ask you to incorporate in their country as well as in the US
How can my Business be Rejected by a US bank but Accepted by a Foreign Bank?
It’s possible because banking rules and underwriters’ guidelines regarding risk differ. More importantly, the major card networks also apply different rules in different countries.
For example, the Visa operating rules manual consists of 765 pages covering what partner acquiring banks can and cannot do as regards payment processing. Visa has split the world into 5 regions, with the US being by far the biggest. Rules vary in each region. That means that a line of business that Visa will not handle in the US could well be acceptable in, say, Europe. MasterCard operates along similar lines.
As a matter of interest, Visa is only the second largest global card issuer based on volume and value. Leading the pack is China UnionPay which caters primarily to that country’s 1.3 billion citizens but its card is accepted in over 170 countries.
Why is my Business Considered High Risk for Credit Card Payment Processing?
As we said at the beginning, many US acquiring banks are extremely risk averse. They don’t assess the risk profile of an industry in the same way an entrepreneur would size up a business.
Banks look at an industry from the viewpoint of “how likely are we to suffer a loss if we handle its card payment processing requirements?”
The top 3 risks that cause banking losses when payments go wrong are:
- Fraud – such as stolen credit cards or impersonation. Some industries are more prone, as are businesses that sell to customers in certain foreign countries.
- Chargebacks – when customers demand a refund from the card issuer first, not from the merchant. It means high ticket businesses, such as furniture sales, are a risk too.
- Litigation – the risk of litigation is particularly high with new industries such as e-cigarettes because nobody is absolutely certain yet that they are totally safe for health. Similarly, they fear falling foul of highly regulated industries such as nutraceuticals.
Naturally, any refunds or losses will be charged back to the merchant. But if the merchant cannot pay or perhaps has gone bust then the bank or card processing company takes the hit. You can read more here about risk assessment and what industries are considered high-risk.
How to get a High Risk Account from an Offshore Payment Processor?
The core process of getting approval from the best international payment gateway and offshore payment processor is essentially the same as when applying for a US merchant account. Card processing payment underwriters look for the same type of information the world over.
Foreign banks may request a little more detail because you are a foreigner in their eyes.
The important things you will need are:
- Govt issued ID like a driver’s license or EIN from the IRS (or both)
- Voided check from your regular business bank account
- Financial statements covering at least the previous 3 months
- Memorandum and Articles of Association for your business
- Proof of available funds
An offshore payment processor scrutinizes your merchant processing statement and determines if the chargeback ratio is high or low. It is a cause for worry if your chargebacks are high.
However, if a merchant details the steps being taken to bring them under control, the application would most likely scale through.
We will advise you of what a specific underwriter may require once we have matched you with a suitable offshore payments processing partner bank.
What you can do Right Now!
Right now you can take the first step to provide your business with a card payment processing solution and start your revenue flow. Click here for our online application form.
We normally give you a status update for an offshore merchant account in a week to 10 days, or sometimes sooner. If you prefer to speak with one of our payment solution experts then call us on 1-800-419-1772 and we will be happy to answer all your questions.