19 September 2012

The difference between domestic and offshore boarding

If you are a successful ISO or want to become one, then you need satisfied merchants. The easiest way for this is to offer customized solutions for each merchant. The best-case scenario is to engage with a payment processor capable of underwriting both domestic and offshore merchant accounts so that you enjoy an array of different services.

Merchants may require offshore accounts if they are considered an unacceptable business type by US banks or if they have international customers that need to process in various currencies. This type of account is held by a financial institution (acquiring bank) located outside the US. Although the process of establishing an offshore account (e.g. in Europe) is similar to the one for a domestic account, there are several important factors to be kept in mind as well as some vital terms both you and your merchants should be well familiar with.

So, before applying for an offshore merchant account, “revise” the vocabulary!

  • IPSP: an Internet Payment Service Provider is a merchant account aggregating the online processing of many smaller e-commerce merchants under its account.
  • Aggregated Account: This type of account is also convenient for small e-merchants. In contrast to the IPSP, it bundles only merchants in the same SIC code under one account. This main difference leads to a quicker and simpler boarding process.
  • Direct vs. Sponsored account: An offshore account can be either a direct or a sponsored one. If your merchants do less than $15,000 monthly processing volume and cannot provide their customers with own customer and billing support, then they qualify for a sponsored account. Depending on the business model this type of account might be under an IPSP or an aggregated account. In both ways, the merchant will obtain payment processing through the processor’s gateway. This IPSP will carry the liability, will interface with the acquirer and the IPSP’s name will appear as part of the merchant’s descriptor. Every European sub-merchant however must incorporate a European company. A direct account is intended for merchants with a large existing monthly sales volume. With a direct merchant account, the merchant is allowed to define their own descriptor and should provide billing support to their customers. This type of account will still require an EU company incorporation.
  • Multi-currency processing: With an offshore merchant account your merchants will give their customers the convenient option to pay in their local currency (EUR, JPY, AUD or more than 150 other processing currencies) while having their revenues settled in the currency of their choice.

One of the basic differences between a domestic and an international merchant account is the role of the acquiring bank and their additional requirements. First of all, as already mentioned above, your merchants aiming at selling goods and services internationally, need to have a European incorporation which will cost them approx. $500-3000 upfront depending on the country of incorporation and annual costs will depend on the ongoing financial services required. Your processor’s dedicated Account Manager will assist you in gathering all necessary supporting documents and guide you through the process. At the integration stage the processor acts as the liaison between the merchants and the acquirer and facilitates the account setup. This ensures highly qualified in-house technical support and optional additions of various fraud-scrubbing and risk management tools. Depending on your merchants’ readiness, the integration process will take between a few days and a week. Of course, the various sub-steps may vary on a case-by-case basis but the core process of the international setup remains the same.

So, that’s it. A few easy steps and your merchants are ready to process all over the world.