Offshore Merchant Accounts Explained

March 13, 2023

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.

About The Author

Phillip Parker

In the late 2000s, as a broke college student struggling to make ends meet, I was contacted by a merchant services company after uploading my resume to a job listings website. This company promised substantial commissions and ongoing residual income for simply persuading businesses to accept credit card payments. It seemed straightforward enough—after all, what business doesn’t need to process credit card payments? Following a phone interview with a persuasive “sales director,” I found myself embarking on what I believed would be an easy job that would significantly boost my bank account with reliable monthly income and large sales commissions. However, the lessons I learned would profoundly change my life in ways I could never have imagined.

After completing my sales training, I hit the ground running, eager to make sales. This broke college student was determined to improve his financial situation! My first attempt at a cold call, with no prior appointment, ended with a burly man in his 50s yelling at me to leave, claiming he had been “totally robbed” by someone like me before. As I hastily exited, puzzled and intimidated by his reaction, I couldn’t help but wonder what he meant. Throughout the day, I encountered similar hostility from other business owners, all expressing disdain for the industry I had been so excited to join that morning. Confused and curious, I decided to shift my approach from selling to listening.

I quickly uncovered that the merchant services sector was riddled with unethical practices, including hidden fees, deceptive marketing, fine-print traps, and much more. It dawned on me that I had nearly been tricked by a dubious company into selling overpriced services under contracts with long-term commitments, all without being fully aware of what I was promoting. Outraged, I resigned from that company but learned that there were indeed ethical credit card processing companies that treated their clients fairly. Over the next four years, I worked for one such company, assisting hundreds of businesses in securing cost-effective processing solutions. Yet, I also met many more who had been misled and trapped in onerous service agreements. Determined to help people steer clear of these unscrupulous providers, I launched this website in my spare time, dedicating myself to researching and sharing my findings on every merchant account provider I could investigate.

Gradually, more and more business owners began to discover my articles. As word spread, search engines started to rank my content highly, amplifying its reach. My efforts were making a difference! Eventually, the website garnered enough traffic to enable me to leave my job and focus on it full-time, a journey that has now spanned over a decade. This path has not been without its challenges; unscrupulous company owners have tried to intimidate and sue me into silence on several occasions. Yet, I have stood firm against each threat. Here I am, continuing to publish reviews and articles, hoping to safeguard others from the pitfalls of the credit card processing industry.

If you believe in my mission and wish to contribute, please share my articles on your websites and social media. Thank you for visiting!

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Reader Comments

Tell Us What You Think

4 User Reviews

Eric

December 24, 2017

Hi Philip, I sell Kratom, CBD and nootropics online. All legal products but no domestic solution for taking credit cards on my woo commerce store. I’m currently having to send invoices after an order is placed and have already lost several thousand in sales because customers decide not to buy after I send the invoice. I set up a foreign payment processor account with NMI but every transaction failed and they said each customer needs to call their bank to allow it. That’s obviously worse than sending an invoice. What would you suggest, are there any solutions where customers can just buy immediately on my websites? I own buynaturalmeds.com. Any help would be appreciated.
Thanks
Eric

Reply to Eric Post Your Own
- Phillip CPO
  
  December 28, 2017
  
  Hi Eric,
  
  All of those products fall into gray areas of legality and regulation right now. It is unlikely that you will find a card processing solution until the banks have relaxed their policies. Best of luck to you.
  
  Reply to Phillip CPO Post Your Own
Eric

August 7, 2015

Hello Phillip,

I am a Canadian living and operating a hotel in Costa Rica. I have a Panama registered corporation. To reduce our taxes, I am searching for the best off-shore credit card processing company that will process US dollar credit card pre-payments coming from all over the world to stay at my Costa Rican hotel but deposit the proceeds into my Panama bank account. From Panama we will issue vouchers to stay at my Costa Rican hotel. Please tell if you know anyone that does this type of thing.

Best regards,

Eric

Reply to Eric Post Your Own
- Phillip CPO
  
  August 10, 2015
  
  Hi Eric; You have a very specific and complicated requirement for how you wish to handle your credit card payments. It is doubtful that any processor, international or otherwise, would approve an account under such circumstances because the nature of your business poses extreme risk for fraud and chargeback problems. Even if a processor would approve an account for you, they would probably require you to establish a large cash reserve to hedge against the risk. On top of that, you would likely have exorbitant processing rates. Most offshore providers require you to have a legal entity established in their country, so you might want to start with the banks in Panama. Other than that piece of advice, I suggest contacting the providers in this list who will have more experience with such a need: Best Offshore Merchant Accounts
  
  Reply to Phillip CPO Post Your Own

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