Not all businesses get to work with domestic banks. Since most native banks have strict laws, firms at high risk are not allowed to work with them. They do not get decent interest rates for loans. These business accounts do not enjoy the same perks as other low-risk firms either. Therefore, if they wish to stick to the product operation, they work with foreign banks.
Offshore merchant accounts are a valuable solution that foreign banks provide to high-risk companies so that they can efficiently conduct their business in an open international market. This also allows them to benefit from the less stringent rules followed by outside banks. Although it does seem as if it is an easy way out for risky vendors, it has nothing to do with it. Any business that relies on foreign banks despite their risk factor has to use offshore merchant processing.
How Does Offshore Merchant Processing Work?
Offshore merchant accounts are not regular business accounts. They work as payment mediators, and this is the most beneficial feature about them. After firms present their products in the foreign market, they promote it for the buyers to notice them. Whenever a buyer makes a payment for a certain product, the money goes directly to the offshore merchant account. Once it goes through processing, the payment reaches the business account. This is a great way to receive credit card payments and simplifies the whole process for the firm since they do not have to go through the hassle of setting up a payment method.
Creating an Offshore Merchant Account
Despite high-risk firms benefiting from offshore merchant processing, the process to get an account is not easy. Banks have an entire checklist of criteria that they have to verify before awarding an account to the firm.
Type of Business
Banks need to know what sort of business the firm involves itself with. If the business has a risk of credit card fraud, then it raises many concerns for the bank. The firm has to follow all the policies to prove that it does not pose any such risk.
Business Length and Expected Lifespan
If a firm has continued operations for several years, it means that the business is successful and has potential. Otherwise, short businesses have the risk of committing fraud and cheating trade policies to gain short-run profits and escape the market.
History of the Business
If a firm has a good history with smooth business functions throughout, it does not pose any risk to the bank policies. However, in case the firm has cases of bankruptcy and fraud to its name, it raises concerns for the bank officials.
Previous Merchant Accounts
A firm that has enjoyed the perks of offshore merchant processing before means that they have the qualifications to prove their potential in a different business again. Banks prefer to reward such firms.
Personal History of the Owner
If the owner of the firm has a doubtful history with the banks, has committed frauds, then the bank does not confer any merchant account to the respective business either. Therefore, it is essential that people who wish to get a merchant account have a clean record at the bank.
Of course, if a business poses a high risk, then the bank does not reject them right away. However, it does mean that they will have to pay higher fees to get approval for their application.
Fees Charged for Offshore Merchant Accounts
Since offshore merchant accounts help firms to benefit from an open foreign market, they have to pay certain fees to continue enjoying the perks. These fees include application and set up charges that firms have to pay while making the account. Besides, they have monthly fees, and depending on the sales of the company, the firm may enjoy certain discounts on it. Along with monthly charges, firms might incur cross-border and rental fees too. This is in consideration with the fairness of international market trade policies. All the fees are liable to change depending on market conditions.
Why Create an Offshore Merchant Account?
With offshore merchant accounts, firms enjoy several perks that they cannot with domestic banks. Since banks want the account holders to perform better constantly, they do not suffer from any monthly limits on money transactions. This improves profits for the firms and increases their investments. In addition to all this, the firms enjoy better approval rates for their loans.
Not only do the firms get access to foreign currencies and cash, but they can also capitalize on the opportunity to boost sales. However, they are also under strict watch due to various security measures that ensure the firms are not committing to fraud. Offshore merchant processing is a great facility as firms get to enjoy better turnovers and global clients benefit from quality products.