Many of the payment processing rules and regulations that are in place to protect consumers and businesses alike are also the same issues that make it difficult for some business owners to operate within those constraints. Many businesses can have a hard time getting and/or keeping a domestic merchant account. Are you a brand new business without much sales volume? Maybe you have too high of a monthly sales volume or too many chargebacks. Maybe your type of industry is just too high a liability. Visa and Mastercard have an exhausting list of business models they deem to be high risk which makes it difficult for these businesses to find competitive rates for processing, or any bank that will take on their processing at all sometimes. You may think high risk only applies to obvious models like an adult oriented business, but many seemingly “everyday” businesses such as travel, timeshare sales and subscription services fall into this category as well. They also set conservative limits on how many chargebacks a business can have in a one month period. Some business models happen to have a higher rate of chargebacks than others and find it difficult to stay under the 1% max set by Visa/Mastercard. Most traditional banks shy away from doing business with merchants such as nutraceuticals and supplement companies. The conflicting rules and regulations surrounding labeling and advertising for these industries just represent too high regulatory risks for them to take on.
These types of situations can force you to consider offshore payment processing or risk having no way to take payments at all.
Offshore processors are traditionally more lenient than our traditional U.S. based banks. They will often do business with you even if you have been terminated and blacklisted by domestic acquiring banks. Offshore processors will generally give you much more liberal limits for chargebacks. Sometimes the country they are located in won’t have such stringent regulation on labeling and advertising as we see here in the U.S.
For all of these reasons, it can be very enticing to move to a more loose offshore payment processing situation. But there are definitely some downsides to processing offshor
e and a few important things to consider before you make the move.
Both Visa and Mastercard frown upon any offshore processing at all. Visa only allows offshore processing if you also conduct a portion of your business outside the US. They employ strict rules and specific situations where offshore processing is allowed. Violating those rules will land you with significant fines as well as being prohibited from any further processing.
Another risky practice that many offshore processors employ is the use of an aggregate account.
The merchant account provider is the one who actually holds the merchant account. Then they allow several businesses to accept credit and debit card transactions (without having a merchant account themselves) through the use of their merchant account. Sometimes they are doing this to essentially “hide” the nature of a business from the card networks.
The problem with this is there is a big risk of having the whole aggregate account shut down because of one bad merchant. When this happens the funds are held for the whole account leaving all of the good merchants without their funds. Sadly, this oftentimes is the first a merchant realizes that they were even part of an aggregate account.
Your chargeback rate may be one of the reasons you need to process offshore in the first place, but processing offshore can only end up exacerbating the problem.
You are given a specific amount of time to reply or contest a chargeback. With an offshore processor you may not have access to online, real time reporting and the reports they do send you can be delayed and out of date. This will make it difficult for you to meet the deadlines to dispute or correct the chargeback request with your customer. Besides the fact that it is made even more difficult by sometimes having contracts requiring you to solve the dispute in the country the account resides. The extreme costs of gaining legal council and fighting a dispute in a foreign country render it impractical and most merchants just end up taking the loss.
Another downside to offshore payment processing is guarantee of security or lack thereof.
You might be risking you and your customer’s private information. The U.S. has adopted strict laws where data security and privacy are concerned. Many of the countries where these offshore accounts are originated do not have these strict requirements.You will be giving them access to highly sensitive data, both yours and your customer’s, putting you at greater risk for a data breach.
You also may be setting your business and customers up for more declined transactions. Because you work with an overseas bank the transaction looks to the card issuer as a cross-border transaction. This could cause the card issuer to decline the transaction due to possible fraud if the customer doesn’t normally make purchases out of the country.
Some of these offshore processor’s customer service is underwhelming to say the least.
When you have this type of account you are in need of even more customer service than normal and just when you need it you can’t get it. Make sure that you find a reputable processor with a proven record for providing quality customer service after you sign the contract.
And of course, there is the cost of offshore payment processing.
Processing fees can be astronomical when you process offshore. In fact, this is true for all costs involved including transactions fees, chargeback fees, and set up fees. You may be required to establish reserves before the processor will start transferring any funds to your account and if they are the unscrupulous type, you may never see those reserves again. Some will subject you to what is called a rolling reserve where they will hold 20% or more of your sales each month for anywhere from 60 to 120 days in order to wait for the chargeback window to pass. Most of these offshore processors know that you may have no other choice and therefore take advantage of that.
If you find yourself in the position where there is really no other choice make sure you do some due diligence on the options.
There are some ways you can try to limit the risks and protect your business.
First be wary of any offers that seem too good to be true. After all, you are a high risk so if someone is offering unnaturally low rates that could be your first red flag. Most of the time they are just teaser rates meant to lure you in and distract you from a bunch of hidden fees.
If they claim they have very low or almost no fraud risk. Big red flag. There is always a risk for potential fraud and chargebacks even if they have strong solutions in place to reduce the incidence of fraud. Any reputable company will be straightforward about these risks.
How difficult is the approval process? If they are very eager and quick to approve your merchant account this could be a red flag. Any processor worth their salt is going to take time to properly research your business. Don’t be frustrated when this takes time. The acquiring bank takes on an increased level of liability with high risk accounts so obviously they will want to stick to rigorous standards when it comes to merchant enrollment if they are actually a reputable company and sometimes this takes time. It is worth it for you in the long run so be patient.
Keep in mind that there are many domestic processors that do offer high risk merchant accounts, as well as legitimate, reputable merchant service providers that can help you if you do need an offshore account. The costs associated will be higher than if your business were not high risk, but the peace of mind is immeasurable in knowing that you are running your business with a legitimate company and you will reap the benefits of real support and customer service as well as enjoy the use of current financial technology.
At Bankcard Brokers we have been delivering on our promise of providing “Credibility, Legitimacy, Transparency and World Class Support” for over 10 years. Because our brokers all hold the rare certification as ETA Certified Payment Professionals from the ETA CPP certification program you know you are getting a professional who is highly educated in they payment industry and abides by the ETA’s strict Code of Conduct. If you want straightforward, no nonsense help with your high risk merchant account don’t hesitate to give Bankcard Brokers a call today or feel free to visit our website and get started with a quote right away.