By Jim Hearsey, Staff Writer
Non-U.S.-based companies still have a hard time breaking into the lucrative U.S. e-commerce market. This is because the majority of U.S. consumer purchases made on the Web are done with credit cards, and obtaining a merchant account that will accept U.S. credit cards such as Visa and MasterCard is difficult for foreign businesses. Most merchant account providers (MAPs) require businesses to have a U.S. bank account and a U.S. address.
The solution is to work with the few providers willing to accept foreign accounts. Most of them charge prohibitive fees and have strict requirements because of risks due to chargebacks, or disputed bills. But there are a few that are reasonably priced and offer multiple-currency capability.
Roadblocks for Providers
The reasons foreign companies have such a hard time obtaining a merchant account are varied but have to do with the additional risks the merchant account providers (MAPs) face. To minimize these risks, the MAPs generally have a tough screening process. They ensure that the merchant’s business is legitimate and that it doesn’t fall under a barred category such as adult entertainment.
Chargebacks are a main concern of merchant account providers. They occur when a customer disputes a credit card transaction or the account number is used fraudulently. The card issuer requests a refund from the MAP, which withdraws the amount from the merchant’s accounts. The merchant has a set time in which to dispute the chargeback. When this happens, the MAP has to put up the money immediately then retrieve it from the merchant later. This costs the MAP interest on funds. Overseas sales are known to be particularly susceptible to chargebacks, which makes MAPs reluctant to give merchant accounts to non-U.S. businesses.
Legal recourse. It is harder for MAPs to force foreign companies to repay bad charges, and the legal recourse they have is often more limited than in the United States. The problems faced with international lawsuits tend to make them not worth considering. So merchant account providers know that if there is any trouble with accounts, they will have to accept losses.
Sociopolitical issues. Businesses located in countries with economic and political stability have problems obtaining international merchant accounts. While it is not illegal for U.S. companies to do business with companies in countries that do not have formal trade agreements with the United States, most MAPs will not offer accounts to these merchants. This is because no standards for fair business have been mutually agreed upon.
Most MAPs also will decline accounts to companies in countries that have trade restrictions placed on them by the U.S. government. It is illegal for U.S. merchants to do business with companies in countries upon which the United States has placed embargoes.
MAPs try to keep abreast of international trading laws and policies. But if a MAP cannot establish whether a country trades with the United States, it will not offer its services to a company based in that country. The rules for each country change so often and so quickly that to keep a complete list is very difficult.
The countries with which MAPs will do business vary from provider to provider. Businesses should contact MAPs individually in order to determine what their specific practices are.
A number of MAPs serve non-U.S. companies. To offset the higher risks involved, they have different rates, rules, and requirements for non-U.S. customers. Most of the time, this makes it unprofitable for businesses outside the United States to participate in U.S. credit card transactions. Here are examples of how many of the providers deal with their foreign customers:
Payment holds and paid-for credit. To make sure they will not have trouble retrieving any chargeback fees and to make more money on interest, most MAPs hold a percentage of a merchant’s sales for a considerable length of time. This is called a holdback. The most common amount is 10 percent to 20 percent of each month’s sales for six months. Some ask for 100 percent of sales for 90 days.
MAPs also commonly ask that merchants put up a percentage of their first month’s estimated sales as collateral for the service fees they will soon accrue. This can be as high as 50 percent. For most small e-businesses, this demand on operating expenses is too great.
High rates. Because the risk of chargeback varies by business type, merchant account providers for U.S. companies vary their rates accordingly. For foreign companies, providers will not serve certain high- risk businesses at all. High-risk accounts include adult-oriented sites, travel, telemarketing, debt collections, detective agencies, and gambling. These businesses are considered high-risk because they generally receive a higher rate of chargebacks.
The figures below show the difference between average MAP fees for U.S. and non-U.S. businesses. Notice the much higher fees levied on foreign businesses.
|Discount rate||2% – 3%||4% – 8% and up|
|Minimum monthly account fee||0 – $20||$25 – $50|
|Per-transaction fee||$.25 – $.50||$.50 – $1.00|
|Application/set-up fee||0 – $200||$300 – $1,500|
|Monthly statement fee||0-$20||0 – $50|
|Monthly gateway service fee||$15 – $25||$20 – $50|
If you can obtain a U.S. bank account, you will have more MAPs to choose from and probably obtain better rates. If you obtain a U.S. mailing address and incorporate in a U.S. state, you’ll be in an even better position. Some MAPs offer these services for a fee. Generally, a MAP will charge the following:
- U.S. bank account: $300.
- U.S. address: $100 per year.
- U.S. incorporation: $400 to $1,200 per year.
Getting a U.S. bank account is the most useful strategy because it gives you the most options in MAPs. Getting one can be tricky, though. Most U.S. banks won’t offer you an account unless you have a U.S. address and file U.S. tax returns. If you do these things, yours essentially become a U.S. business and you pay U.S. taxes as well as those of your home country.
Fortunately, there are MAPs that offer services to merchants who do not have U.S. merchant accounts or U.S. addresses, and whose businesses are not incorporated in the United States.