Offshore Bank Accounts

Offshore Merchant Account

An offshore merchant account is an account providing the ability to accept credit or debit card payments from customers for goods and services. An offshore merchant account establishes a relationship between credit card processor, the bank and business willing to accept the credit card payments. Unlike with regular merchant account, funds generated from sales and credit card payments are deposited with offshore bank.

Offshore merchant bank accounts are very popular in various industries starting from mega online gambling projects and adult industry sites to small businessmen selling some software or unique products or ideas to everybody in the world through the Internet. As a rule, offshore merchant accounts are connected with Internet business. When opening offshore merchant account, the offshore bank assigns unique merchant ID to business. Such offshore merchant account is associated with offshore business current or checking account.

Funds debited from customers credit cards are processed through merchant account and placed on the business account, less commissions as well as security deposit which is widely used with offshore merchant accounts, especially at the early stage of customer and bank relations. Security deposit means that some portion of processed money is "freezed" for some time as collateral against chargebacks.

The most popular fees related to merchant account are:

Application fee - one time fee for reviewing the application and setting up the offshore merchant account.

Transaction fee - fixed rate that offshore business should pay to the bank for each transaction. This rate depends on offshore bank as well as customer industry and normally is 10 - 30 cents per transaction. This prevents from large number of very small payments to be charged by credit card. If each payment is dollar or less, the customer should consider another type of transaction - the micropayments where payment is made for example by SMS. Such offshore accounts also are available with offshore banks and offshore micropayment processors.

Discount rate - percentage that merchant pays to the offshore bank form the turnover. It is the largest part of all fees payable. Differs from the offshore bank as well as merchant's industry. For example for adult industry this rate is much higher mainly because of higher risks involved and higher margin the merchant earns in this industry.

Chargeback fee - every customer who has purchased something on the internet has rights to dispute this purchase in the case when no different or unquality product/service is received. If customer wins such dispute, the purchase amount is charged back. Normally the offshore bank keeps all the commissions charged from merchant and in addition put some punishment charge on the merchant, as far as high chargeback rates are very dange offshore bank. If offshore bank has too high chargeback rate, the MasterCard, VISA or American Express can cancel relations with such bank. Also the offshore bank should pay fines to these global payment card organisations in the case of chargeback.

Security deposit - if the acquiring offshore bank perceives that merchant's level of risk exceeds their standard guidelines but is not high enough to result in a rejected application, merchant may be required to set up security deposit account with the bank. Such deposit normally is 5% from the six month turnover or more.