What is an Offshore Merchant Account?

An offshore merchant account is a bank account which handles the needs of a merchant while being located outside the merchant's home country or in a virtual banking space. There are a number of different reasons for merchants to opt to bank offshore, and some banks specialize specifically in handling offshore banking services. Rates and fees for an offshore merchant account vary, depending on the needs of the accountholder, the nature of the business, and the location of the bank.

Merchant accounts, like regular bank accounts, act as a place to hold money, with people being able to access funds by drawing checks on the account, using a bank card, requesting wire transfers, and so forth. Unlike a regular bank account, a merchant account can also handle credit card processing and payments, allowing the merchant to accept credit cards. Since many people expect to be able to use their credit cards for goods and services, an increasing number of businesses use merchant accounts so that they can offer a credit card payment option.

People pay an assortment of fees associated with processing credit cards. These fees can be quite high for high-risk merchants, merchants in industries which are deemed risky because of concerns about fraud, credit card chargebacks on purchases people change their minds on, and so forth. Some examples include people in the adult entertainment industry, dating services, and travel agents. For these merchants, sometimes an offshore merchant account is chosen because they can negotiate a better deal on fees.

Some people utilize an offshore merchant account because they wish to have some opacity between themselves and tax authorities. Banking internationally has historically been used as a tax evasion technique, to conceal income and move money out of the reach of tax authorities. Businesses can also take advantage of more relaxed fees, and the fact that many offshore banks will allow people to open an offshore merchant account when their business is still new, while domestic banks sometimes will not consider an application until a business is at least two years old.

Having an offshore payment processor is also sometimes convenient for businesses which do business internationally. They may get better exchange rates, or facilitate faster transactions, when banking offshore. Thanks to speedy networks, credit card processing can be just as fast with an offshore merchant account as it is with a domestic one, so customers will not notice a difference.