Merchant Account Pricing

Merchant accounts provide a way for merchants to accept credit cards from their customers in payment for goods and services. More and more merchants and businesses online are recognizing the benefits of having a merchant service provider which operates ‘offshore’. For a merchant in the United States, an offshore account is typically one located in the Caribbean, some Central American countries, such as Costa Rica and Panama, or sometimes in Europe.

Since these banks or merchant service providers are not operating under the jurisdiction of U.S. laws, they can and do accept businesses which are considered high risk by U.S. standards.

Although merchant service provider rates have dropped dramatically due to the increased competition amongst providers, increased regulatory action by the U.S. government has resulted in stricter guidelines about what constitutes an acceptable business, and about the volume of funds which are being routed through merchant accounts.

Even if the sales increase is a legitimate expansion of business due to more effective marketing, a drastic increase in a short time can result in a merchant account being closed because of suspicious activity. The concern is that the merchant account might be used for ‘money laundering’ purposes which is illegal.

Even though the cost of operating a merchant account has dropped from about 7% to about 3% on average, it’s much harder to obtain an account. The domestic small businessperson may have to provide two years worth of sales volume figures and pay a prohibitive deposit, sometimes $5,000 or more, before the account will be opened. Once the account is opened, the merchant may be required to add additional monthly sales income to the deposit to provide protection against chargebacks and returns.

In the past, the major disadvantage to offshore merchant service accounts has been the rates. There has not been enough competition to bring the prices down as has occurred in the United States. On the flip side, these banks very much want the income potential which would be provided by U.S. businesses. These offshore providers are often willing to establish a merchant account with little or no deposit, with a small volume of sales which can grow, and with discount rates which equal those of the United States companies. In addition, the small business is not required to have a two year sales record before being accepted for a merchant account.

There is no question but that having the option to pay with a credit card on your ecommerce business site will increase sales. If you choose an offshore merchant account provider with a good track record and adequate customer service and technical support, you have provided an opportunity for increased income with less outlay for startup fees.

One additional major factor in the decision to establish an offshore merchant account is the effect it has upon your taxable income in the United States. A tax attorney is the best person to discuss ways to shelter or reduce taxable income in the United States, but an offshore merchant account and/or an offshore corporation may be another way for you as a merchant to keep more of your earnings for your own use, rather than giving it away to the banks or to the government.