Is an Offshore Merchant Account Right for You?

Offshore merchant accounts, or international merchant accounts, are a great idea for businesses looking to expand into a foreign market. They can also offer advantages for merchants who are considered too ‘high risk’ in their home country to get a merchant account or who need higher processing volumes than their home country allows.

Key factors to keep in mind when looking for offshore merchant accounts include:

1. Whether you need an offshore merchant account
2. The location that would be most advantageous for your business
3. The paperwork required for the offshore merchant account
4. The level of data security offered by the offshore account
5. The level of in-country support if you have any issues
6. The fee structure for processing payments through the offshore account

An Offshore Merchant Account Is Great for International, High-Volume & High-Risk Merchants

The main reasons that merchants look for offshore merchant accounts either involve specific offshore merchant account benefits or a need to circumvent limitations associated with domestic merchant accounts.

Target Country Advantages

Offshore credit card processing makes sense if you’re selling goods and services to customers located in a different part of the world. The advantages include:

• Higher acceptance rates for foreign cards
• More favourable tax rates
• More favourable terms for the merchant’s industry
• Specific business incentives in the country where the offshore account is located
• Cheaper cross-border transactions for merchants receiving worldwide income

Circumventing Domestic Merchant Account Limitations

Many merchants—particularly in the United States—find that offshore payment processing is the only solution that allows them to accept payments. This is often the case for:

• Large companies that process more than €50,000 a month
• High-risk businesses that can’t secure a domestic merchant account
• High-risk businesses that wish to diversify their credit card processing options

Offshore merchant accounts often allow higher processing volumes than acquiring banks in the United States—often with no caps on the monthly processing volume at all. For businesses that have a monthly turnover that exceeds €100,000, an offshore merchant account might make the most sense.

High-risk merchants (who work in a restricted industry or an unstable industry like concert tickets and airfares) may also find more favourable terms with offshore merchant accounts compared to domestic accounts. Moreover, different countries can vary in the industries that they consider ‘high risk’ and/or culturally appropriate, meaning that merchants could open offshore merchant accounts in several countries for processing funds related to specific industries.

All Countries Are Not Created Equal When It Comes to Opening an Offshore Account

If your business operates in a foreign country or you regularly sell goods and services to customers who live in foreign countries, the choice of location for your offshore merchant account will be fairly straightforward. Some international businesses may even choose to have a different acquiring bank in every country where their business operates.

If geography isn’t an issue, look for an offshore merchant account that offers:

• The most appropriate processing volume for your business (both now and into the future)
• Multi-currency processing capabilities
• The most favourable rates and terms for your industry
• The best tax rates for offshore accounts
• The best level of security and data privacy
• The best customer support in your language
• The best range of merchant services

It’s important to be aware that offshore merchant accounts will typically charge higher rates and fees than domestic merchant accounts. However, higher processing volumes, more relaxed regulations and tax breaks may more than make up for it.

Data Security Is Paramount

Credit card processing is inherently risky because it involves:

1. The transfer of sensitive data
2. Borrowed funds

When you’re talking about international merchant accounts, these risk factors are amplified thanks to the potential for a data breach or internal corruption in a country with lax regulations.

For e-commerce merchants who want a high level of security, offshore merchant accounts in Europe are an excellent choice, thanks to the high level of regulation at the level of the European Union. There are several EU directives that relate directly to data privacy, e-commerce and offshore banking, including:

• The General Data Protection Regulation (GDPR)
• The e-Commerce Directive
• The Digital Services Act package

Merchants from the United States, in particular, can benefit from the high processing limits and favourable terms for high-risk merchants in Europe while keeping risk factors to a minimum.

Make Sure There’s Comprehensive In-Country Support

The other main risk of using offshore merchant accounts is not having the same level of support if something were to go wrong. For example, if there were a disagreement with a foreign bank, merchants often have little to no legal recourse—much apart from being able to speak the language to call and seek a resolution.

If you do decide to use an international merchant account that offers credit card processing through an offshore bank, choosing a merchant account provider that offers in-country support in every country where your business operates can help tremendously when problems arise.

Different Fee Structures Are Available for Offshore Payment Processing

Offshore merchant accounts offer a wide range of fee structures, and it’s best to obtain several quotes—even for high-risk merchant accounts—to make sure you’re getting the best deal you can. The most common fee structures are:

1. Interchange-plus
2. Tiered rates
3. Fixed rates

In the case of a high-risk merchant account, you may also be looking at monthly processing caps, withholding periods and/or a rolling reserve to protect the acquiring bank in the case of insolvency.

Generally, the most cost-effective pricing structure is interchange-plus. However, some high-risk businesses may need to settle for tiered pricing. Make sure to factor in merchant account fees as well as local tax rates for an offshore bank account to make sure you’re getting the best deal.

You’ll Need Several Documents to Open an Offshore Merchant Account

Even if you know what you need to open a merchant account in your home country, offshore accounts present a whole different set of challenges. The process for opening an offshore merchant account is generally similar around the world, although the length of time spent on the underwriting process may vary. Have the following documents ready when requesting quotes and applying for an account:

• Identification documents
• Certificate of incorporation
• Business bank statements
• Processing history
• Proof of a physical address in the country where the offshore account is located (in some cases)
• A business number, VAT (for European accounts), EORI (if applicable) and tax identification number or employer identification number

After you provide all of the requested information, the underwriting and approval process can take anywhere from a few days to a couple of weeks. Once you’re approved, the provider’s global payment gateway can usually be installed in hours via an API plugin and you’ll be ready to go!

Go Global with An Offshore Merchant Account

Whether you are starting a business for the first time or looking to expand your company’s reach, an offshore merchant account could be the secret to unlocking a global market and removing the limitations you need to scale.

After reading this offshore merchant account overview, be sure to get several quotes and research the companies well to make sure you’re getting the best rates for your business. Then you can proceed with confidence, knowing that your offshore credit card processing is in the best possible hands.