Are Offshore Merchant Accounts Worth the Risk?
A reader emailed recently asking my thoughts on offshore merchant accounts, also sometimes called international merchant accounts, so I thought I would share the answer in a post.
Why Use an Offshore Merchant Account
High risk offshore merchant accounts are usually a last resort method for a merchant that needs to accept credit cards. Typically, merchants that use one of these accounts cannot get a traditional merchant account because they either have poor credit history, or a business type that has a high potential for fraud or customer chargebacks. The merchant services industry refers to these types of merchants as “high risk.” Generally, there are domestic options for high risk merchants because some processors will take on a certain percentage of high risk accounts, and those companies usually happily advertise it; however, the processing rates and fees are considerably higher than traditional merchant accounts.
Dangers of Offshore Merchant Accounts
As mentioned earlier, offshore merchant accounts are usually a last resort. This is because they also pose a high risk to the merchant. Anyone considering going into business with an offshore credit card processor should be aware that unless they have a subsidiary in the same country as the processor, they may have no legal means to settle a dispute. Not only are there many legal loopholes, but these companies tend to charge very high rates and fees. As with most merchant account providers, the merchant will need to supply to the processor sensitive personal and financial data including a checking account number for the depository account. Providing this information to an offshore processor can put the merchant at great personal risk for fraud and identity theft. For these reasons, offshore merchants accounts are undesirable at best.
Precautions for Opening an Offshore Merchant Account
This writer recommends that merchants should exhaust all domestic options before opening and offshore merchant account. If a merchant is left with offshore credit processing as its only option for accepting credit cards, here are a few precautions to consider:
- Thoroughly research the processor looking out for complaints of fraud, deception or anything that seems to suggest that the processor may not be reputable
- Carefully read the merchant account contract before signing anything
- Check with your bank regarding its policy for accepting deposits from offshore merchant processors
- Open a separate deposit account used only for deposits from the processor
- If possible, set withdrawal limits on your deposit account to lessen your risk of fraudulent activities
- Once the account is open, closely monitor the merchant account and deposit account watching for anything suspicious
- If fraudulent activity is suspected, immediately contact your depository bank and report the problem
If you have an experience with an offshore merchant account provider that you would like to share with the world, please leave it in the comment section below.
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Disclaimer: The information provided through CardPaymentOptions.com is not a substitute for legal and other professional advice where the facts and circumstances warrant. If you require legal advice or other professional assistance, please consult your own legal or other professional advisor.