Merchant Accounts in Other Countries
The concept of processing credit card transactions through merchant accounts in countries where the merchant has no physical presence is a topic that comes to my attention at least weekly. Therefore, for the benefit of those who need a refresher and for those whom it is a brand new concept, here is a high-level look.
If you are located in a country, for example, Australia, and you are looking to target another market, such as the U.S., then you have some choices regarding merchant accounts.
1. You can try to open a merchant account in the country in which you have a physical presence, in this case, Australia.
2. You can set up a presence in the U.S. and then apply for a U.S. merchant account
3. You can apply at an IPSP and use their merchant account
4. You can set up a presence nearly anywhere in the world and then apply for a merchant account and run the transactions for the U.S. market through that merchant account.
The solution that you choose will inevitably be determined by what is right for your business and the level of effort you are willing to undertake to achieve it. Each one of these choices has its benefits and limitations. Let me delineate those conditions now to better guide your choices, in the future.
1. Opening a merchant account in your home country is often the desired option. From your company perspective this keeps everything very certain, in that you already know the legal environment, taxation and cultural aspects of that region. The problem that comes into play is that you may not find a bank in your region that can offer you a competitive merchant account for your selected type of business. Even if a bank does offer you a merchant account, they may not be able to process the transactions in the currency of the consumer you are targeting. Both of these issues create obstacles to the increased success of your business.
2. To open a merchant account in the U.S., you must have a presence in the U.S. Setting up a presence requires the following actions: you must incorporate in the U.S.; you must employ someone in the U.S.; and there must be a physical location. The U.S. merchant account providers perform site visits to ensure that the merchant does indeed have a US presence. This solution can create significant complexities when you start considering the new region’s corporate tax structure, employment agreements and the laws of the U.S. that now apply to your organization.
3. Utilizing an IPSP is a fine option but as per the regulations of the card associations you are still required to be a registered company in the region where you will be processing through the IPSP. In other words, if you are going to be a sponsored merchant in the U.S., for instance, you will still be required by the card association regulations to be incorporated in the U.S. Further, in this model, the consumer transaction becomes the responsibility of the IPSP and, as such, they will service the billing of that consumer based on their policies and procedures. Although you will get regular payouts for your activity, you essentially become a marketing arm for that IPSP.
4. Looking to other regions is always a great possibility. The advantage of other regions is that they enjoy a diversity of rules and regulations that can benefit your organization, including what constitutes a “presence” (e.g. simply incorporating with a local corporate secretary may be all that is required). For instance, Visa chargeback ratios could be as high as two percent and more than 200 chargebacks a month in some regions. Also, other countries’ tax regimes may make them a more ideal location to set up a corporation for your processing needs. Further, global acquirers tend to understand the needs of multicurrency and offer products and services that allow you to bill consumers in their own currency, yet the bank can settle to you in your desired currency.
The bottom line is that if you want to open a direct merchant account for your company, you will need to have some sort of corporate presence in that region. The region which is best for you will be determined on a case-by-case basis. You should discuss options with a knowledgeable firm to plan out the strategy that best fits with your plans.