educational

Foreign Banks and Merchant Accounts

Melody L

You might wonder why you can’t simply open a Merchant Account in whatever country you like. In a nutshell, it’s because there is a concept of “cross border acquiring” that endeavors to protect all the parties in the credit card processing transaction.

The Internet was a catalyst in the concept of doing business outside of your regular geographical footprint. The ability to allow for e-commerce transactions from consumers anywhere in the world presented new opportunities to merchants and banks, alike. In August 2000, the ETA put out a white paper on International Acquiring and they stated, “Numerous studies have shown that the vast majority of all e-commerce based transactions are completed using some form of credit or debit product.” They went on to present some of the studies that supported that statement. I think it is fair to say that although alternative payments are making some gains in the share of transactions online, credit card still remains the currency of e-commerce as it spans regions around the globe.

Credit card still remains the currency of e-commerce as it spans regions around the globe.

According to the Visa International Operating Regulations, (http://corporate.visa.com/_media/visa-international-operating-regulations.pdf), Section 6.4 regarding setting up of merchant accounts for merchants outside the “acquirers jurisdiction,” it states specifically:

An acquirer must only contract with a merchant outlet within its country of domicile, as specified in the Visa International certificate of incorporation and bylaws or the applicable certification of incorporation and bylaws. The country of the sponsored merchant, not the country of the Internet payment service provider (IPSP), determines the acquirer’s jurisdiction.

There is much more in this section that I encourage you to read, however it is not necessary here to support the overall concept.

The ETA also provides the rationale behind this seemingly unfair competition type rule. Their explanation gave clarity immediately as they pointed out that:

  • “The acquiring side of the credit card business is usually less profitable than the issuing side. As such, Mastercard and Visa hope to promote the development of merchant acquiring in these local markets.”
  • “The established banking communities that currently dominate certain markets have fiercely resisted any move by the credit card associations that would allow foreign acquirers, especially those located within the U.S, to enter their jurisdiction.”
  • They have concern over poor customer service for both the merchants and its customers thus, potentially tarnishing the card associations brands

Therefore, all things considered, since the acquirers in other regions can’t come to the merchant, the merchant must go the bank’s region in some fashion to be eligible for their services. Bon voyage!

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