Payment processing, your options

Being able to accept payments is absolutely crucial for any business. Unfortunately, it can often be more of a challenge than it should be, especially for location independent businesses. In this guide, I cover how different types of businesses can solve this challenge right now in 2018.

 

Accepting payments online

Considering how easy paying for online purchases has become, it would make sense to assume that the same also holds true for accepting those payments. Unfortunately, a series of regulatory changes in recent years, mainly as part of the global fight against tax evasion and money laundering, has had the reverse effect. Knowledge is key here, as is often the case, in getting around those difficulties and getting a proper payment processing deal in place for your business. This guide covers the most popular jurisdictions and provides innovative solutions to common and uncommon problems.

 

US businesses

The United States is home to Visa, MasterCard, AmEx and a number of smaller card networks such as Discover. It also is home to the largest and most popular payment processing services, including PayPal and Stripe. As such, you would expect that getting a good payment processing deal for a US company would be a walk in the park and for the most part, it is, if you have a social security number that is. If you do not, things can get a bit more complicated. The issue is not that US payment processing services do not want to open accounts for non-residents, it simply is that most rely on the information they get from the credit bureaus to comply with federal KYC regulations and without a social security number (or ITIN in some cases), it is impossible to conduct those checks which means that a costly manual review must be conducted.

In practice, this means that non-residents can only sign up with the payment processing services which do not rely on the credit bureaus for their KYC compliance and those that are willing to use alternative processes to verify applicants. Fortunately, there are many such services including PayPal, Braintree, Stripe, 2CO and Authorize.net.

To open an account with any of the above, you will need a proof of ID (or SSN if you have one), information about your business and an EIN. In most cases, you will also need a US-based bank account in the name of your business (a local account from the likes of TransferWise or WorldFirst can also be used).

Transactions in multiple currencies at the client level are supported by most US payment processing services but very few support foreign currencies settlements. This means that in most cases, settlements are converted into USD before they are paid out. This is in contrast to the many UK payment processing services that support foreign currencies settlements. It also is an added cost to take into consideration as the conversion is rarely done fee-free.

Processing rates tend to be competitive although in some cases, they can be higher than in the European Union (where they are capped by government regulation). Low-risk businesses can expect to pay 1-3% while higher risk businesses can expect to pay 3-5%.

Declines are not an issue with US processors. That said, do remember to turn off AVS verification as this can cause issues with non-US credit and debit cards.

Businesses focused mainly on the US market can benefit from an abundance of financing services such as PayPal Credit and Bill Me Later. Such services allow customers to pay in installments but at no impact to your business as you still get paid upfront. This can be a game changer when selling high ticket items.

Services like Venmo, Square and Amazon Payments can also be used to increase conversions with US-based customers.

 

Freedom Surfer-registered US businesses
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UK businesses

The UK’s payment processing services, unlike their US counterparts, do not rely on the credit bureaus to perform their due diligence checks and this makes them much easier to work with as a non-resident. They also tend to work better in an international context especially when it comes to handling fraud as they do not rely on an addressing system.

To open an account, you will usually need to provide a proof of ID, a proof of address (can be outside the UK), your company registration number as well as information about your business activities. In some cases, you may also need to provide a proof of address for your business (UK address).

While the UK’s official currency is the GBP, the vast majority of payment processing services support multiple currencies and some even support multiple currencies settlements. In practice, this allows a UK-based business to accept payments in USD, EUR etc and then have those payments deposited directly to a USD, EUR etc bank account.

As is the case in the US, financing services such as PayPal Credit are available to UK-registered businesses. Their usefulness is more limited, however, due to the smaller size of the local market.

 

Freedom Surfer-registered UK businesses
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EU businesses

EU businesses benefit from access to a large number of payment processing services, including some from the UK and US. They are undoubtedly EU-focused, however, with few decent options for businesses selling internationally. Support for AmEx, Unionpay, JCB and RuPay cards is spotty and the situation is even worse for the digital wallets (Alipay, WeChat, Venmo etc). Fragmentation is also an issue, resulting in fewer financing options and higher costs related to currency conversions (EUR, PLN, SEK etc) and local payment methods (iDEAL, SoFort, Giro etc).

There are a few sweet spots, however, such as Every-Pay in Estonia (1.20% + next day settlements) and Mollie (wide selection of payment methods + fees as low as 0.9%).

 

Hong Kong and Singapore businesses

Up until the introduction of Stripe to both Hong Kong and Singapore, securing a decent payment processing deal in those two jurisdictions was somewhat of a nightmare. Their markets were dominated by the banks and a handful of specialized gateways. Everything was expensive, complicated and in many cases, physical presence was even required.

Nowadays, locally-registered businesses have several options including Stripe, Braintree and Adyen. In the case of Hong Kong, physical presence is no longer required thanks to the rise of the online banks (such as Neat). Singapore, on the other hand, does not have any online bank as of 2018 and as such, physical presence is still required.

On a darker note, fees in those two jurisdictions are much higher than in the US, UK and EU. For example, Stripe charges a flat 3.4% + 2.35 HKD in Hong Kong and 3.4% + 0.50 SGD in Singapore.

 

Special circumstances

While payment processing can be hard for normal businesses, it can be near impossible for those with special circumstances. This includes businesses in higher risk industries and those with banking difficulties.

 

High risk businesses

Businesses in higher risk industries will often struggle to secure a payment processing deal. None of the major payment processing services will accept them, leaving only a few specialty processors. These tend to be very expensive and restrictive, not to mention that they rarely integrate well with the likes of Woocommerce, Shopify etc. Cryptocurrencies can be an alternate option here and so can direct bank transfers (SEPA Debit, ACH etc). Ultimately, businesses in higher risk industries should be prepared to pay more for payment processing.

 

Banking difficulties

In some cases, it may not be possible to open a business bank account in the country of registration. An easy workaround is to open a business bank account in another country. For example, an Estonian business banking in Germany. Many payment processing services will not accept such arrangements, however, limiting options. A payment processing subsidiary can be used to get around those limitations. Services like WorldFirst and TransferWise Borderless can also be options. In any cases, you should never use a personal bank account to receive business payments.

 

Reputation issues

Businesses registered in higher risk countries will often have to deal with higher decline rates than their counterparts in lower risk countries. This can be a great source of friction especially for businesses focusing primarily on overseas clients. An easy way to address this is by using a high reputation payment processor based in a lower risk country. For example, a Seychelles company using PayPal (US-based) to process payments. Offering multiple payment options can also help mitigate this issue. Alternatively, a payment processing subsidiary can be used if it is not possible for the parent company to open an account with a high reputation payment processor.

 

Cryptocurrencies

While the future of Cryptocurrencies as payment currencies is fairly uncertain, their rise in popularity over the last few years has nonetheless resulted in a large number of online merchants looking for ways to accept them. A number of services have risen up to the challenge, the best known being BitPay and Coinbase. A few credit card processors have also added support for cryptocurrencies, Mollie being a good example. In most cases, the cost of accepting cryptocurrencies payments will be similar to that of credit cards. Businesses selling low ticket items should keep a close eye on transaction fees, however, as they have been known to fluctuate widly.

 

Payment processing subsidiaries

For businesses not registered in the jurisdictions covered above, processing payments can be an almost insurmountable challenge. A number of strategies to get around this problem exist, however, with my favorite being the payment processing subsidiary.

The way it works is simple. In short, you set up a pass-through entity in a country like the US / UK and use it to process all payments on behalf of the parent company. All profits flow directly to the parent company thus resulting in no additional tax burden. Being a full US / UK company, the pass-through entity can open accounts with the likes of Stripe, PayPal, Braintree, TransferWise Borderless etc. It can also open local bank accounts, something especially valuable in the case of the US where banking products are excellent. I have written an article that covers this strategy in more details, you can click here to read it.

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