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.
Legal Considerations of Offshore Credit Card Processing
There are several legalities that U.S. businesses should consider when using an offshore merchant account for payment processing. These include:
Regulatory Compliance
Each country has its own laws and regulations governing payment processing and merchant accounts. U.S. businesses that use offshore merchant accounts must ensure that they are compliant with all relevant laws and regulations in the country where the provider is based. This may require working with legal counsel to understand the regulatory landscape in the provider’s home country and ensure that the business is in compliance with local laws.
Taxation
Offshore merchant accounts may have tax implications for U.S. businesses, depending on the laws and regulations in the provider’s home country. Businesses must carefully consider the tax implications of using an offshore merchant account and work with their accountants or tax advisors to ensure that they are meeting all tax obligations.
Currency Conversion
Offshore merchant accounts may involve currency conversion, which can impact the business’s finances. Businesses must consider the potential costs associated with currency conversion and factor these into their pricing strategies and financial projections. Additionally, businesses must ensure that they are compliant with all relevant laws and regulations regarding currency exchange.
Dispute Resolution
Dispute resolution mechanisms for offshore merchant accounts may differ from those in the United States. Businesses must carefully review any agreements or contracts with offshore providers and ensure that the dispute resolution mechanisms are fair and legally enforceable.
Data Privacy
Offshore merchant account providers may be subject to different data privacy laws and regulations than those in the United States. Businesses must ensure that the offshore provider is compliant with all relevant data privacy laws and regulations to protect sensitive customer data.
Precautions for Opening an Offshore Merchant Account
We recommend that business owners exhaust all domestic processing options before opening and offshore merchant account. If you are left with offshore credit processing as your 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.
Where to Find an Offshore Credit Card Processor
We have research numerous processors who can help you set up an offshore merchant account. See Best Offshore Merchant Accounts for our latest picks.
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.
