Friendly fraud has caused chargeback rates to soar, making acquirers more cautious about accepting risk liability. As a result, offshore payment processing is an enticing option for high-risk merchants who seem to be running out of domestic options.
While securing an offshore account might temporarily solve some of the merchant’s short-term problems, working with an international bank will likely introduce more complex issues down the road.
A Last-Ditch Option
In many cases, merchants who turn to international services do so because they perceive it as the best—or only—option. A merchant might try to open an account with a domestic acquirer, but struggle to find a good fit because of the business’s ‘high-risk’ classification.
This high-risk designation refers to the perceived level of risk that the merchant poses to the acquirer. This can be the result of multiple different factors, including:
- The industry in which the business operates
- The range of products carried
- The payment structure employed
- The sales strategy
- The limited experience and credit history of the business owner
Typically, merchants identified as high-risk—such as travel booking sites, online gaming, or subscription services—may have trouble finding a domestic acquirer.
In addition to merchants operating in these high-risk fields, a merchant may receive a similar designation as a result of excessive chargeback rates. Any merchant placed on the MATCH List will struggle to secure standard acquiring services.
Some merchants actually prefer overseas processing because of the perceived benefits. For example, offshore accounts don’t typically have the hard-and-fast sales volume cap that domestic banks enforce. Merchants could potentially have unlimited processing.
Additionally, because the sponsor bank is outside the U.S., the acquirer is able to underwrite businesses and industry types that domestic entities cannot or will not accept.
Typically, though, the drawbacks of working with an offshore bank outweigh the pros.
Overseas Accounts—All They’re Cracked-Up to Be?
Before signing up with an offshore acquirer, it is important for merchants to fully understand all the potential side effects of this questionable business partnership.
High Minimum Processing Requirements
While merchants appreciate overseas merchant accounts because they don’t have a sales maximum, it is often bothersome to have a sales minimum enforced.
International banks will often demand a high monthly minimum for two reasons. First, they want to earn a substantial profit to justify the more difficult integration. Second, the bank wants to ensure that particular MID isn’t getting just the highest risk transactions each month.
These minimum requirements might be hard for merchants to fulfill.
Limited Legal Recourse
In the U.S., there is an entire body of law dedicated to protecting businesses operating within this country. However, when a merchant works with an overseas acquirer, a relationship with the bank would be subject to the laws of another country—which may not be as stringent about protecting merchants as domestic law.
As a result, merchants working with these services are not guaranteed many of the same protections promised to merchants partnered with a domestic service.
Substandard Data Security
International merchant account providers are not subject to the strict U.S. laws regarding data security or privacy. Considering that acquirers deal in highly-sensitive data for both merchants and their customers, working with overseas providers may put the business and its customers at risk.
Increased Issuer Declines
A U.S.-based business that has local customers and a domestic bank won’t raise many red flags. However, if the merchant works with an overseas bank, the business is technically facilitating cross-border transactions.
As a result, the merchant can expect more declined transactions based on the assumption of fraud.
Locating a Reputable Service Provider
Merchants might be relieved to find a bank willing to do business with them.
However, finding someone that will accept the business isn’t nearly as difficult as finding a reputable service provider to work with.
Find a Reputable Acquirer—Watch for These Red Flags
Merchants need to know what signs to look for in order to identify reputable merchant account providers. Any of these conditions should be interpreted as probable signs that an international merchant account provider may not be trustworthy.
1. Suspiciously Good Offers
Remember the old saying, “if it sounds too good to be true, then it probably is.” Merchants shouldn’t be taken in by low processing rates—these rates may be variable introductory rates that could skyrocket in time, or they might be meant to distract from mounds of hidden fees.
Merchants need to take all service providers’ claims with a grain of salt until they’ve seen some actual proof to back up any “too good to be true” promises.
2. Customer Service Is Underwhelming
An overseas account provider is not likely to provide the same level of service or support to merchants that one might expect of a domestic service. After all, merchants who feel the pressure to work with an overseas acquirer often have little choice in the matter; therefore, acquirers may feel little incentive to provide high-level service.
When looking for an acquirer, merchants should choose one with a reputable and proven record of providing quality service.
3. A Promise of No Fraud Risk
A legitimate acquirer wouldn’t make a promise indemnifying merchants against any liability for fraud or chargebacks.
A reputable acquirer will be straightforward about the fact that there is always a potential risk for fraud and chargebacks when dealing with e-commerce payments. While it is possible to implement solutions to reduce fraud losses considerably, even the most diligent merchants will still experience fraud from time to time.
Acquirers who promise no fraud liability to merchants should not be trusted.
4. Surprisingly Quick Approvals
Just like any other business, an acquirer wants to avoid making a bad business deal. Signing up a merchant without properly vetting the business would increase liability for the acquirer. Therefore, it makes sense that a reputable service provider would have rigorous standards for merchant enrollment.
Remember that an acquirer who seems overly eager to get the merchant through the door is not doing so because he or she is a friend and wants to help. More likely, it’s because acquirers are eager to onboard merchants before they’ve had a chance to evaluate the services and policies clearly.
Proceed with Caution
It’s important that merchants know what they’re getting into before signing on with an international service. Otherwise, they could face challenges they never even anticipated.
If you feel that working with an offshore acquirer is your best option, proceed with caution.
Photo by David Castillo Dominici/FreeDigitalPhotos.net
Monica Eaton-Cardone is Co-founder and COO of Chargebacks911.com.