What is an Offshore Merchant Account

Businesses are often prohibited from accepting payments and processing transactions by underwriting banks. This prohibition can be for several things, including the owner’s financials or credit background to the sales history, transaction types, or industry that the business operates within.

High-risk businesses often go offshore because of the merchant’s business model. This is because offshore banks can absorb more risk and thus have a higher appetite for these merchants. While the notion that these businesses are taking advantage of other laws processing offshore, most if not all would prefer to process transactions domestically instead of a riskier setup outside the USA.

An offshore merchant account operates the same way as a domestic account. The only differences possibly being the currency payments are accepted in and the settlement times into the merchant’s bank account. Settlements can be daily to bi-weekly and usually incur a rolling reserve.

What businesses usually need Offshore Merchant Accounts?

Businesses that generally require the use of an offshore merchant account have similarities. Businesses often offer services or products that are not physical and experience underwriting problems. While they might not have a problem with returns or chargebacks when applying, merchant banks realize that they can quickly become an issue in these online businesses.

These types of businesses are usually unable to secure a domestic merchant account, and their only option is to go offshore. The rates charged by these offshore processing companies is significantly higher while the terms of the account are generally set up to protect the bank’s interests.

These are some typical types of businesses requiring international payment solutions:

  • Software downloads
  • Collection agencies
  • Short-term payday lending services
  • Supplements
  • Credit repair services
  • Online dating services
  • Telemarketing
  • Internet services
  • Cryptocurrencies
  • Gems and other precious metals
  • Fantasy sports
  • Lead generation services

How do you Set Up an Account for Offshore Payment Processing?

If you want to start your application for an offshore merchant account, you must first submit a short pre-app form with previous processing statements. Acquiring banks and providers will review these documents during pre-approval. Only after the initial review has been conductedwill merchants be invited to complete a full application. This requires a more detailed underwriting review to be completed along with full supporting documentation.

Requirements for an Offshore Credit Card Processing approval

Merchants must provide information on the application about the business, the owners, an explanation of the services or products the business provides.  The application will also require such information as the business domain, forecasted transaction, and monthly volumes along with information on their marketing plans.

Most initial reviews will require:

  • Completed pre-application form
  • Last three months of business bank statements
  • Las three months of business payment processing statements

Most underwriters will require:

  • More corporate and personal information
  • Articles of Incorporation
  • Copy of the driver’s license/passport of the business owner(s)
  • Copy of a voided check from the business checking account

The following extra documents are recommended and likely required for application:

  • Utility bill of the business owner that displays owner’s name and residential address
  • List of shareholders and/or a shareholder certificate
  • Last two years’ annual business financial statements. If the company is less than two years old, interim financial statements should be provided and if it is a startup, the owner’s most recent tax returns might be requested.
  • Copy of supplier contracts
  • Copy of any business licenses required for operation
  • Bank reference letter for the owner
  • Business plan or summary that details the experience of the merchant along with future plans to promote growth
  • Larger merchants might be required to provide financial statements (balance sheet, profit, and loss) and most recent business tax returns.
  • Canadian businesses might be required to provide a Canadian EIN, Canadian bank account and Canadian address that can be verified are needed.

Typical Terms for High-Risk Merchant Services

Due to many of the costs of accepting payments in different countries with different currencies, the fees on an offshore merchant account are generally higher than traditional high risk merchant accounts.

Businesses using offshore accounts will generally see prices starting in the high 4% range upwards over 10% for smaller or much higher risk accounts.  These fees do not include the reserves held on accounts plus maintenance and wiring fees.
Reserves for Offshore Accounts
One of the common factors that all offshore accounts share is the use of reserves.  Reserves are a predetermined percentage or a set amount to be held by the payment processor during the life of the account.  Reserves generally vary between 5% to 10% of the monthly volume and are usually held for 6 months, having the first months funds released on month 7, so on and so forth.  This type of account reserve is called a rolling reserve.

Banks requires reserves because of the risk associated with accounts.  Businesses operating in industries that traditionally have chargeback problems will usually have higher reserves.  Reserves are ultimately based on trust, but most banks will not fully release a merchant from a release agreement in the offshore industry.

Hold Period for Offshore Funds

The average hold period for high risk merchant accounts can vary based on the bank, the business history, and the industry.  Most banks hold funds for 10-14 days, then releasing those funds to the merchant via wire.  Businesses that establish a good working history can get those hold times down to a couple of days if they can prove the quality of their sales.  Like the reserves, hold times can be negotiated, but they will be clearly listed in the contract signed with the offshore processor.

Offshore Payment Gateway for Merchants

A reliable and secure payment gateway is essential for any business, especially when sending transactions offshore through a foreign country.  Offshore payment gateways will need the ability of work with several different processing networks, balance transactions between accounts, and support the volume that many offshore accounts have without compromising security.

One of the best features that secure payment gateways can offer offshore merchants today is fraud scrubbing.  These tools allow merchants to set the gateway parameters for their business to help mitigate fraud and eliminate losses without losing real sales.

Offshore merchants often use payment processing services from multiple accounts from different banks.  While this is not the case with most merchants, many experienced operators have opted for this setup when accepting cards offshore.

Apply for an International Merchant Account Today!

If you are looking for an offshore merchant account, speak to the consultants at Allied Payments. Our highly experienced offshore account executives will work with your ecommerce company to set up as many specialty merchants accounts as your business requires. Contact Allied Payments today and an offshore merchant account consultant will contact you shortly.