What is an offshore merchant account, and what does it have to do with running a high-risk business? We’re glad you asked! It’s something we know quite a bit about.
An offshore account is a bank account designed for businesses that cater to large audiences from different regions.
Because those businesses face increased security risks and often distribute products or services across borders, offshore accounts specifically address their unique needs and risks.
Why would you get an offshore account unless you really need one, though?
This is mostly due to the common misconception that offshore accounts offer better terms and lower fees than a local high-risk merchant account.
Are these widespread beliefs true? And if they aren’t, are there any benefits of getting a high-risk offshore merchant account? Let’s find out together.
1. Get Familiar With the Basics of High-Risk Offshore Merchant Accounts
A business is considered high-risk due to factors such as its industry, what it sells, cross-border sales, higher chances of fraud, increased risk of chargebacks, or any other factor that increases risk or uncertainty for payment processors and banks.
Industries that are mainly categorized as high-risk include:
Adult entertainment
CBD and cannabis
Gambling
Cryptocurrency
Tobacco, vape, e-cig
Travel
Not all high-risk merchants need an offshore account (few do, actually).
However, a merchant in one of these trades might be on the lookout for an offshore bank account because of the flexibility these accounts can provide.
With a non-resident merchant account, it’s often easier to accept various types of transactions in multiple currencies with an enhanced layer of security.
And since many businesses in high-risk categories operate globally, this flexibility is often necessary for success.
It’s also worth noting that the advanced security these bank accounts offer can benefit high-risk businesses because they face increased privacy issues.
This is because the ticket sizes and products offered in such industries are typically higher in value, subsequently making them a bigger target for fraud.
Myths About Offshore Merchant Accounts
Before exploring a few other important things to know about offshore merchant accounts, let’s address some misconceptions surrounding these specialized bank accounts.
For example, some think offshore merchant accounts are for illegal affairs only. While there might be cases of corruption and misuse, this belief is mainly ascribed to the misleading name and ‘unusual’ idea of such accounts.
Other people believe that these services are cheaper, with fewer regulations, and that they have more autonomy over managing the account. Although that can be true to some extent since they do offer certain tax benefits, it’s definitely not always the case.
From our experience at FastoPayments, we’ve seen merchants who have paid double, if not triple, the amount in transaction fees. So, generally, the cost efficiency simply isn’t as great as it’s made out to be.
It's a common misconception that getting an offshore merchant account is cheaper. We've seen people have to pay double in fees for international accounts, up to 7-10%, and there are certain tax benefits in some places, but generally payment terms aren't great.
That’s why it’s important to do your due diligence before applying for an offshore merchant account instead of going off of what you’ve heard online.
2. Understand What Documents Are Needed & How to Apply for a High-Risk Offshore Merchant Account
As always, being in a high-risk industry and applying for a merchant account means you’ll need to prepare for extra documentation and scrutinization on your side, no matter whether the account you’re requesting is local or offshore.
So, it’s wise to gather all the necessary documentation before you start the application process to increase your chances of approval and speed up the whole process.
The required documents may vary depending on the industry and region you’re operating within or the specific goods you’re distributing. However, here’s a list of legal records to have ready:
IDs and passports of all owners and shareholders
Proof of address for owners or shareholders
Certificate of incorporation
Processing history statements (at least the last 3 months, including volumes, chargebacks, and refunds)
Proof of address for the offshore account in the desired country
Contacts of all owners, shareholders
Login credentials to your site if needed
Licenses if needed
Lab tests, if needed (for businesses that sell THC-based products, for example)
Being as transparent as possible and staying true to your mission in providing business details, financial records, and the nature of your products or services sold will make you look more proficient and trustworthy.
Acquirers in high-risk industries look for this since they will also have to carry the risks associated with you.
💡 Want a complete list of the requirements needed to apply for a high-risk merchant account? View our complete checklist here! Then, read our founder’s advice below.
When applying for an offshore high-risk merchant account, you're required to submit documentation depending on where you're applying for the account. If you want a US account, you should have a US company and adhere to US regulations. However, in the US, for example, there are credit checks you'll be required to provide, and only 5-7 documents to start with, whereas in Europe, they require a lot of different items and the approval process is more complex.
💡 Located in the UK? A UK high-risk merchant account actually might work better for you. Read through our guide to the Best High-Risk Merchant Account Providers in the UK to learn more before contacting us for a quote!
3. Ask About Offshore Merchant Account Fees and Pricing Structures
The fee structures associated with non-resident merchant accounts don’t differ much from standard high-risk merchant account fees.
The biggest differences might come from your:
Preferred location of the offshore account
Industry
Processing volumes
Ticket sizes
Product types
However, the location of the actual account will most likely have the biggest effect on the costs.
An offshore merchant account in the US, for instance, includes IRS fees, qualified rates, and pin charges — none of which are required for domestic offshore accounts.
If you're looking for an offshore high-risk merchant account, consider that outside of the EU, UK, or US, the market is a bit more volatile and wild. The regulations are different, and opening offshore merchant accounts can be lucrative if you find good solutions. If you don't, however, you can lose hundreds of thousands in revenue.
Understanding all the fees included is important regardless of the location, though.
So, make sure the proposed pricing is transparent, and you know what you’re paying for and what you’re getting (which includes which features you’re getting, what kind of security or add-ons they offer, etc.).
4. Definitely Look Into Compliance, Security, and Fraud Protection
Maintaining compliance with standard and industry-specific regulations is crucial when getting an offshore merchant account—as in, it’s really, really important.
We feel the need to clarify this because some still believe that offshore merchant accounts don’t require any attention to detail. As in…saying compliant should be easier, right? Sadly, that couldn’t be further from the truth.
The set standards, regulations, and requirements are the same whether you have a local account or a foreign account, especially in high-risk industries.
Reputable non-resident payment service providers, however, should be aware of the threats at hand and offer tools to help you:
Stay compliant
Prevent any breaches
Minimize the risks
These extra measures not only protect your business but the solution provider and your customers as well by ensuring transactions are carried out securely and that you’re able to easily and effectively protect everyone’s data.
That’s why all high-risk merchants should be prioritizing working with processors with an established track record in such industries (like FastoPayments!).
5. Choose the Right Offshore Merchant Account Provider
Finally, don’t rush your decision when choosing the right offshore merchant account provider. It’s a very individual (somewhat personal) process that requires a bit of deliberation.
Research the processor, learn the ins and outs of your own industry, and familiarize yourself with common high-risk struggles, the potential risks involved, and the technology you need to overcome those challenges.
Our high-risk enthusiasts at FastoPayments have come up with a list to help you select the most suitable offshore account provider for your high-risk business:
Do your due diligence on the processor. Look up actual customer reviews and testimonials to have an insight into how they could benefit your establishment. Consult with a broker if needed.
Communicate with the provider. Get a clear overview of what they offer and how their mission aligns with yours so that both parties benefit from the cooperation.
Find a provider with a good support team. Adding on to the last one, to actually acquire that overview of what you’re getting, the provider has to be responsive, obviously. Furthermore, when it comes to solving unforeseen problems, quick-thinking and timely assistance is key.
Get an understanding of the tools the processor offers. In high-risk industries, fraud and cyber risks are more prominent than in any other sector. Hence, a processor that can prevent the potential threats is worth more than its weight in gold (or whatever fee you’re paying them — hopefully not gold).
Consider the processor’s technology integration capabilities. Expanding on the point above, the integration of the tools and solutions has to be seamless for you to benefit from them.
Regardless of where you're getting your offshore high-risk merchant account, do a lot of research on the acquirer you'll be working with. The nature of offshore accounts is volatile, almost like investing in cryptocurrency. Be very careful about who you work with.
So…Is An Offshore Merchant Account Right for Your High-Risk Business?
It’s only fair that this something you might find yourself wondering if you’re a high-risk merchant, which we’re assuming you are since you’ve made it this far.
Here are what we consider to be the pros and cons of having an offshore merchant account.
Pros:
Increased security
Access to wider markets
Potential taxation benefits
Astute legal framework
Assistance with compliance
Cons:
Potentially higher fees
Varying regulations
Reputational risk
Work with the Best High-Risk Merchant Account Provider
Whether you opt for an offshore account or not, it’s important to work with the right merchant services provider as a high-risk business.
Click here to understand what’s included in those services and to get a free, no-obligation quote for a high-risk merchant account. We’ll review your business information and get back to you ASAP.
