What is an Offshore Payment Processor?
An offshore payment processor, or offshore merchant, is an online account that is able to process debit and credit card transactions overseas. This type of processor is used mostly for business in the U.S. that are considered high-risk vendors. These vendors have a harder time being approved for more traditional payment processors, due to chargebacks, fraud or the industry they are associated with.
By using an offshore payment merchant account, these companies are able to process their company’s transactions, are afforded certain tax incentives, and still have security measures in place that help prevent chargebacks, as well as fraudulent transactions.
Benefits of an Offshore Payment Processor
There are multiple benefits to processing payments overseas. As previously mentioned, there are certain tax benefits to processing your payments offshore. Moreover, merchants are able to process payments in multiple currencies, as well as different credit card providers. This allows businesses to expand their customer base to other countries, and in doing so increase their overall productivity. Another benefit is having an encrypted and secure credit card processor. Just because the transaction is being processed overseas, doesn’t mean vendors will be losing out on certain security measures. These offshore merchant accounts still have security measures in place to help prevent fraud and chargebacks.
For many high-risk merchants, an offshore payment processor may seem like the perfect solution to their payment processing problem. However, using an overseas merchant account to process payments does come with it’s own drawbacks. The most common concern for many U.S. vendors who use an offshore processor is the lack of oversight there is with overseas processors. United States law does not govern banks based outside the country. That’s why if vendors are going to use an offshore payment processor, it is best to go with a company who is reputable and who has higher standards of customer service and security.
Just the usage of the words “high-risk vendor” or “high-risk business” has a tendency to cause many to think the merchant is in the habit of selling problematic or suspicious products. While some industries may get flagged as a high-risk vendor for the previous mentioned reasons, this is not necessarily the case for the many of the companies deemed “high-risk.” For most of the companies listed as high-risk, their products or services they sell are legitimate and genuine, and are not all that controversial.
Why companies are labeled as high-risk includes a lot of factors that most people don’t know about. Let’s take a look at who is viewed as a high-risk vendor and how they are labeled this way.
Which Businesses are Considered High-Risk?
The most notable type of merchants in this category are adult bookstores, hemp oil vendors, and online gaming; just to name a few. But that’s not all the businesses that encompass the category of “high-risk”
Other businesses include:
- Collection Agencies
- Multi-Level Marketing Companies
- Travel Agencies
- Fantasy Sports
- Start Ups
What Makes a Business High-Risk?
Of course there are many more companies that fall under the umbrella high-risk vendors; however, the ones mentioned above are industries that are most well known.
So what do all these companies have in common which has them labeled as “high-risk.” Well, many of them have a tendency to attract customers online who purchase merchandise with stolen credit cards, or the business has a high number of “chargebacks” due to poor customer satisfaction ratings or because of a high potential for fraud. Almost all business that accept credit cards have had chargebacks due to theft or fraud; however, some of the industries already mentioned tend to have a higher rate of chargebacks than most.
Another factor that may make a company be considered “high-risk” is if the company has a history of bad credit or has been late paying their bills. This may make it harder for the business to get payment processor, or a loan from a bank.
The Two Factor Test
Two factors that most financial institutions take into account when determining a vendor as high risk are:
- The company operates within a high-risk industry (i.e. adult bookstores, online gaming, etc.)
- The risk of economic/monetary loss or failure (i.e. start up companies)
These factors are used by most banks and other financial institutions or payment processors when determining if a company is high-risk.
Yet, these factors are not able to encompass all business and industries, but they provide a solid foundation as how to judge certain companies and merchants as high-risk.
What to Expect if your Business is Considered High-Risk?
Although, many people have false ideas as to what a high-risk merchant is, it isn’t necessarily an end-all if your business is considered one.
When considering a payment processor, high-risk businesses will expect higher fees. Some of these fees include higher processing rates and account fees, a long-term contract, and possibly an early termination fee for ending the contract.
How We Can Help
Here, at T1 Payments, we provide a lot of benefits to our subscribers, unlike other payment processors. Some of these include chargeback management, encrypted and secure payment processing, risk and fraud management tools, accepting payments with lower limitations, and much, much more.