Who needs an offshore merchant account, and why?

Over the last few decades, there has been a great rise in e-commerce and online business models due to the convenience and advantage of modern-day technology. A business bank account that allows a business to accept and process electronic payments and card transactions is called a merchant account. If you’re running a business in today’s day and age, it’s a given that you will have a provision for some form of no contact or online payment, be it in the form of a credit or debit card.

Merchant accounts require partnership with a merchant acquiring bank who will facilitate all communications for the transaction. An offshore merchant account is the kind of account where the facilitating bank is located in a region outside of the business’s primary location.

Some of the largest companies take complete advantage of the legal and financial benefits provided by offshore accounts. They set up accounts in places where the financial structure is beneficial to them, and they need not pay hefty taxes and processing fees to maximize profit.

Why should you have offshore merchant accounts?

The merchant account acts as the middle link behind the scenes of your transaction. It sends a request to the customer’s bank to withdraw funds and make the payment to the business’s account. Once the payment processor sets up your merchant account, you are free to conduct transactions with your customers.

An offshore account allows you to process transactions from all over the world and in all forms of currency. It’s a viable solution for e-commerce merchants who want to extend their business or service beyond their domestic jurisdiction or have a global reach. The merchant account will allow businesses to accept payments through non-local banking institutions. Offshore accounts are usually beneficial to corporates or entities who:

  • Conduct a majority of their business overseas.
  • Have several physical offices across the globe.
  • Deal in a variety of high-risk activities such as brokerage, biotech, and gambling, among others.

How an offshore merchant accounts works

Most domestic merchants conduct transactions via a card machine or point-of-sale (POS) machine. These include retail outlets, shopping malls, eateries, gas stations, etc. In such instances, the card is swiped in the machine, your banking information is checked to confirm the availability of funds, and the transaction is conducted. In such cases, the risk of compromising your secure data is less.

However, the process isn’t so simple in online transactions or payments made via a business’s website or instances where the card is not physically required. Online payments are made through a payment gateway or portal, connecting to the debit/credit card company to facilitate the transaction. Such online payment gateways usually charge the business a large fee to process the transaction.

The Pros of keeping offshore merchant accounts

  • Lower tax burden – Domestic merchant accounts usually charge a large fee for processing the transactions. By having an account in a region where tax is lower as compared to the merchant’s domestic processors, profits can be maximized.
  • High-risk businesses – If you are a high-risk business (you are either a very young business or pose a risk to banks due to poor credit or large chargebacks), then it could be near impossible to set up a domestic gateway. Offshore accounts let you explore banks with lower acceptance requirements.
  • All currency accounts – Businesses will seamlessly conduct transactions across currencies without losing currency value after applying conversion rates.
  • A high volume of transactions – Most domestic portals also limit the volume of transactions that can take place within a given time frame or the amount of money that can be transacted. Offshore accounts permit higher volumes of transactions. If a business is aiming to increase its sales steadily, then offshore is the way to go.
  • Protection of assets – Having an offshore account lowers the risk of litigation from local consumers, and businesses can save money on frivolous lawsuits. This is usually the case for young businesses, start-ups, or those that have yet to build up a reputation.
  • Confidentiality – Most banks that have international dealings provide high levels of security and absolute discretion while maintaining transaction confidentiality.
  • Location – geographic location of the bank or business becomes irrelevant since the offshore account allows the funds to be sent anywhere globally.

Businesses looking to benefit from having offshore accounts include the adult entertainment industry, tobacco items, travel-based, gambling, cash, etc. Even big-time giants like Apple and Microsoft take full advantage of the financial and legal provisions of such accounts.

A low-risk and hassle-free way to transact internationally

Though offshore accounts provide many advantages, it becomes a real struggle for merchants to find a bank suited to their needs and requirements or a bank whose requirements they readily meet. 

Most businesses go through a boarding process where the bank thoroughly screens them. A risk assessment is also conducted to protect the bank’s interests. It could also take some time for the bank to prepare and process the paperwork and documentation relating to the business before they partner with them.

When choosing an offshore merchant provider, it could be helpful to opt for a service provider that charges you zero to minimum membership fee with a low transaction fee. Some payment portals protect against chargebacks though they may charge you for it. They must also be able to provide you with access to 24/7 customer support. Also, they should not limit the volume of transactions you can make online. 

Take Away

A merchant account is like a middle man who handles the transaction for you behind the scenes taking care of purchases and refunds. Domestic accounts may have strict laws and high tariffs, which could prevent your business from reaching its fullest potential. Offshore merchant accounts provide businesses with flexibility regarding the volume of transactions, gateway fees, and maintaining client confidentiality.

High-risk businesses are the most beneficial from Offshore Accounts. These businesses entail Online Casinos, Adult entertainment, money lenders and loan agencies, and substance companies. These banks also protect their clients’ assets with high security and discretion. Though having an offshore account isn’t illegal, in some countries, hiding it is. As long as you stay off the IRS radar, your business is safe and sound.

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