The difference between Onshore and Offshore Payment Processing

What is the difference between Onshore and Offshore?

Onshore processing accounts are facilitated by United States based processors and are therefore beholden to United States banking rules and laws for underwriting new accounts and determining risk. One of the most difficult rules for an onshore merchant to follow is the 1% chargeback rule. In the simplest of terms, if a merchant’s account has more than 1% chargebacks in any month then it subject to closure and all funds are to be held for 270 days.

Offshore Merchant Account providers are foreign firms specializing in credit card processing. These entities are not bound by the statutes of the United States. The main advantage for a US based company to process their transactions offshore is that the chargeback threshold may be higher, up to 2% in some jurisdictions. This is one of many advantages of processing offshore. Overall, there is a general sense that International banking institutions loosen up their Visa and MasterCard’s constraints to the more liberal international rules of commerce, rules which should allow you to operate your business legally and securely within the parameters of V/MC’s terms of service.

Why would I need both? Simply put: Security.

Many merchants operate on the fringe of what Visa and MasterCard consider appropriate, and as the political climate is ever changing, so are the constraints under which legislation may place you on either side of that line. As a high risk merchant processing through a United States based processor, your threshold for chargebacks and other no-no’s in the processing world will be much lower, you’ll be held to a higher standard than other merchants, and kept on a shorter leash. By having an offshore merchant account to backup your onshore account, you can ensure there will not be a lapse in business, as your processing will not falter if your onshore processor shuts you down. Additionally, there will be instances that it will be beneficial to process through your offshore account vs. your onshore account, whether that be due to processing caps, higher tickets with chargeback issues, or a multitude of other reasons.