Q&A - High risk merchant expert

Why companies seek offshore merchant account’s? Back to top

Companies seek out offshore merchant accounts for many reasons. Some businesses classify as high risk and can’t get domestic processing, some seek
offshore banks because it enables them to continue growing their business without caps or limits. Whether you are a start-up business, E-commerce site, or
are coded as a high risk merchant we have a custom solution based on your type of business

Why is my business considered high risk? Back to top

Each individual business type is given a certain code which describes what type of business they are often referred to as an MCC code.

Issuing Bank’s have to follow Visa, MasterCard & Federal regulations, and as regulations change so does how banks classify your type of business. Some
types of businesses used to be able to process domestically and because of the changing regulations have had to seek out offshore merchant accounts at
High Risk Merchant Xpert We are constantly finding new solutions for businesses who seek out offshore merchant accounts.

What is a corporation? Back to top

A corporation is a legal personality, usually used to conduct business. Corporations exist as a product of corporate law, and their rules balance the interests of the shareholders that invest their capital and the employees who contribute their labor. People work together in corporations to produce. In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment, for their goods and services, for the value of the pensions, for economic growth and social development.

The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders will lose their money, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability, and it is why corporations end with “Ltd.” (or some variant like “Inc.” and “plc”).

Despite not being persons, corporations are recognized by the law to have rights and responsibilities like actual people. Corporations can exercise human rights against real individuals and the state,[1] and they may be responsible for human rights violations.[2] Just as they are “born” into existence through its members obtaining a certificate of incorporation, they can “die” when they lose money into insolvency. Corporations can even be convicted of criminal offenses, such as fraud and manslaughter.[3] Five common characteristics of the modern corporation, according to Harvard University Professors Hansmann and Kraakman are…

delegated management, in other words, control of the company placed in the hands of a board of directors limited liability of the shareholders (so that when the company is insolvent, they only owe the money that they subscribed for in shares) investor ownership, which Hansmann and Kraakman take to mean, ownership by shareholders.[4] separate legal personality of the corporation (the right to sue and be sued in its own name)
transferable shares (usually on a listed exchange, such as the London Stock Exchange, New York Stock Exchange or Euronext in Paris)
Ownership of a corporation is complicated by increasing social and economic interdependence, as different stake holders compete to
have a say in corporate affairs. In most developed countries excluding the English speaking world, company boards have representatives
of both shareholders and employees to “codetermine” company strategy. Calls for increasing corporate social responsibility are made by
consumer, environmental and human rights activists, and this has led to larger corporations drawing up codes of conduct. In Australia,
Canada, the United Kingdom and the United States, corporate law has not yet stepped into that field, and its building blocks remain the
study of corporate governance and corporate finance.

What is a general partnership? Back to top

A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

Sole proprietorship explained. Back to top

A sole proprietorship, or simply proprietorship (British English: sole trader) is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a “sole” proprietorship in the sense that the owner has no partners. A sole proprietorship essentially refers to a natural person (individual) doing business in his or her own name and in which there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship does not have to be concerned with double taxation, as a corporate entity would have to.

A sole proprietor may do business with a trade name other than his or her legal name. In some jurisdictions, for example the United States, the sole proprietor is required to register the trade name or “Doing Business As” with a government agency. This also allows the proprietor to open a business account with banking institutions.

Advantages
An entrepreneur may opt for the sole proprietorship legal structure because no additional work must be done to start the business. In most cases, there are no legal formalities to forming or dissolving a business. A sole proprietor is not separate from the individual; what the business makes, so does the individual. At the same time, all of the individual’s non-protected assets (e.g homestead or qualified retirement accounts) are at risk. There is not necessarily better control or business administration possible with a sole proprietorship, only increased risks. For example, a single member corporation or limited company still only has one owner, who can make decisions quickly without having to consult others.

In the United States a sole proprietorship has the option of buying health care for self-employed persons, such as a Health Savings Account.

Furthermore, in most jurisdictions, a sole proprietorship files simpler tax returns to report its business activity. Typically a sole proprietorship reports its income and deductions on the individual’s personal tax return. In comparison, an identical small business operating as a corporation or partnership would be required to prepare and submit a separate tax return. A sole proprietorship often has the advantage of the least government regulation.

Disadvantages
A business organized as a sole trader will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organized as a corporation or limited liability company. It can also sometimes be more difficult to raise bank finance, as sole proprietorships cannot grant a floating charge which in many jurisdictions is required for bank financing. Hiring employees may also be difficult. This form of business will have unlimited liability, so that if the business is sued, the proprietor is personally liable. The life span of the business is also uncertain. As soon as the owner decides not to have the business anymore, or the owner dies, the business ceases to exist.

In countries without universal health care, such as the United States, a sole proprietor is also responsible for his or her own health insurance, and may find difficulty finding any if one of the family members to be covered has a previous health issue.

Another disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation. In the United States, a sole proprietor could also form a limited liability company, or LLC, which would give the protection of limited liability but would still be treated as a sole proprietorship for income tax purposes.

There are more than 23.5 million business firms in the US today. Of these, more than 18 million are small businesses owned by one person

Limited liability Explained. Back to top

When the partnership is being constituted or the composition of the firm is changing, LPs are generally required to file documents with the relevant state registration office. LPs must also explicitly disclose their LP status when dealing with other parties, so that such parties are on notice that the individual negotiating with them carries limited liability. It is customary that the notepaper, other documentation, and electronic materials issued to the public by the firm will carry a clear statement identifying the legal nature of the firm and listing the partners separately as general and limited. Hence, unlike the GPs, the LPs do not have inherent agency authority to bind the firm unless they are subsequently held out as agents and so create an agency by estoppel or acts of ratification by the firm create ostensible authority.

Prior to 2001, the limited liability enjoyed by LPs was contingent upon their refraining from taking any active role in the management of the firm. However, Section 303 of the Revised Uniform Limited Partnership Act eliminates the so-called “control rule” with respect to personal liability for entity obligations and brings limited partners into parity with LLC members, LLP partners and corporate shareholders.

The 2001 amendments to the Uniform Limited Partnership Act also permitted limited partnerships to become Limited Liability Limited Partnerships. Under this form, debts of a limited liability limited partnership are solely the responsibility of the partnership, thereby removing general-partner liability for partnership obligations. This was in response to the common practice of naming a limited-liability entity as a 1% general partner that controlled the limited partnership and organizing the managers as limited partners. This practice granted a limited partnership de facto limited liability under the partnership structure. For a discussion on this practice and background on the modification of GP liability, see Thomas E. Geau & Barry B. Nekritz, Expectations for the Twenty-First Century: An Overview of the New Limited Partnership Act, 16 Probate & Property 47, 48-49 (2002).

Charge Backs Explained. Back to top

Most charge backs are initiated by the cardholder, who may contact his/her card issuing bank regarding an inconsistency in his/her monthly credit card statement. This begins the dispute process that may eventually lead to a charge back, and a reinstatement of credit to the cardholders account.

One of the most common reasons for a charge back is known as a fraudulent transaction. A credit card is used without the consent or proper authorization of the card holder[1]. In most cases, a merchant is responsible for charges fraudulently imposed on a customer.

Charge backs can also result from a customer dispute over credit. This type of charge back is usually described as credit not processed. A customer may have returned merchandise to a merchant in return for credit, but credit was never posted to the account. In this example, the merchant is responsible for issuing credit to its customer, and would be charged back.

Other types of charge backs are related to technical problems between the merchant and the issuing bank, whereby a customer was charged twice for a single transaction (duplicate processing) or other various mistakes. Yet other Charge Backs are related to the authorization process of a credit card transaction, for example, if a transaction is declined by its issuing bank and the account is still charged.

Another reason for Charge Backs is when a customer does not receive the item they paid for. In this case, a charge back is initiated and the payment to the merchant is reversed.

List of reasons for a charge back: Back to top

Card holder requests a copy of the transaction receipt.
Card holder did not authorize the transaction.
Non-matching account number.
Transaction was processed more than once.
Transaction receipt was not imprinted.
Refund not processed.
No authorization.
Customer never received merchandise/services.
Card not used within valid expiration date.
Services not rendered.
Error in transaction amount.
Transaction receipt is incorrect, incomplete, or illegible.
Transaction processed for incorrect amount.
Product different from what was described or promised.
Counterfeit transaction.
Transaction not processed within Visa or MasterCard time frames.
Failure to obtain card-holder signature.
Signature on the card was blank.
Signature on receipt different from card.
Card-holder claims merchant changed transaction amount without permission.
Merchant knowingly participated in a fraudulent transaction.
Incorrect Transaction Date.
Card-holder claims invalid mail or telephone order transaction.
Card-holder was denied ability to return item.
Transaction was not canceled successfully.
Card-holder not satisfied with quality of product or services.
Debit-cardholder’s bank initially approves a transaction, but subsequently returns the charge due to non-sufficient funds, an account closure, or the bank “locking” the card due to a subsequent unauthorized use, loss or theft of the card, or multiple unsuccessful attempts to use it at an ATM.
Buyer’s remorse

Handling Charge Backs Back to top
A merchant is billed for Charge Backs as they occur, along with other fees and settlements associated with credit card acceptance. Because a merchant may be charged back in error, and because Charge Backs may often involve complicated customer disputes, a charge back may be appealed by the merchant. This process varies by credit card. If the charge back is found to have been in error, a merchant will be granted a reversal.

Thieves occasionally abuse the charge back system. For example, in a “Friendly Fraud”, an unscrupulous customer will make a purchase over the Internet with his own credit card and then issue a charge back once the product or service is received. In such cases merchants can have difficulty recovering payment.

charge back processing (handling) is complex as a result of frequent rule changes by the major credit card companies (MasterCard, Visa, American Express, etc.). There is an emerging market for business software that simplifies the charge back process as well as separate charge back processing services.

It is possible for the charge back and associated fee to cause an overdraft or leave insufficient funds to cover a subsequent withdrawal or debit from the merchant’s account that received the charge back. This could cause pending checks to be returned due to non-sufficient funds. Unless the merchant detects the charge back in time to cover pending debits, a snowballing effect of penalties assessed could result.

Credit card companies require that for internet purchases, when the items are delivered, the cardholder must sign in their name and other names like roommates or family members do not count. Without the cardholder’s own signature, it is not counted as delivered.Address verification also provides protection by partially verifying the cardholder’s address, however the cardholder’s signature is most important.

Other types of Charge Backs Back to top

Accounts may also incur credit reversals in other forms, such as these:

ATM reversal – An ATM deposit envelope is found to have less funds than represented (if any) and a charge back is made to correct the error. This could result due to a counting error or intentional fraud by the account holder, or the envelope or its contents could have been lost or stolen. If an overdraft results and is too huge or cannot be covered in a quite short period of time, the bank will sue or press criminal charges, unless the account holder has been the victim of the latter scenario, identity theft, or other fraud, and files a sworn police report.
Bank error correction – A bank error credits the account with more funds than intended and makes a charge back to correct the error. If an overdraft results and it cannot be covered in time, the bank could sue or press criminal charges.
Direct deposit charge back – A direct deposit is made to the wrong account holder or in a greater amount than intended and a charge back is made to correct the error.
Returned check deposit – The account holder deposits a check or money order and the deposited item is returned due to NSF, a closed account, or being discovered to be counterfeit, stolen, altered, or forged. This could occur due to a deposited item that he knows to be bad, or he could be a victim of a bad check or a counterfeit check scam. If an overdraft results and it is too huge or cannot be covered in a short period of time, the bank could sue or even press criminal charges.

Point of sale or point of service (POS or PoS) Back to top

can mean a retail shop, a checkout counter in a shop, or the location where a transaction occurs. More specifically, the point of sale often refers to the hardware and software used for checkouts — the equivalent of an electronic cash register. Point of sale systems are used in supermarkets, restaurants, hotels, stadiums, and casinos, as well as almost any type of retail establishment.An acquiring bank (or acquirer)

is the bank or financial institution that accepts payments for the products or services on behalf of a merchant. The term acquirer indicates that the bank accepts or acquires transactions performed using a credit card issued by a bank other than itself.

What is a Payment gateway? Back to top

A payment gateway is an e-commerce application service provider service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.

How payment gateways work Back to top
A payment gateway facilitates the transfer of information between a payment portal (such as a website or IVR service) and the Front End Processor or acquiring bank.

When a customer orders a product from a payment gateway enabled merchant, the payment gateway performs a variety of tasks to process the transaction:

A customer places order on website by pressing the ‘Submit Order’ or equivalent button, or perhaps enters their card details using an automatic phone answering service.
If the order is via a website, the customer’s web browser encrypts the information to be sent between the browser and the merchant’s webserver. This is done via SSL (Secure Socket Layer) encryption.
The merchant then forwards the transaction details to their payment gateway. This is another SSL encrypted connection to the payment server hosted by the payment gateway.
The payment gateway forwards the transaction information to the processor used by the merchant’s acquiring bank. The processor forwards the transaction information to the card association (i.e., Visa/MasterCard)
If an American Express or Discover Card was used, then the processor acts as the acquiring bank and directly provides a response of approved or declined to the payment gateway.
The card association routes the transaction to the correct card issuing bank. The credit card issuing bank receives the authorization request and sends a response back to the processor (via the same process as
the request for authorization) with a response code. In addition to determining the fate of the payment, (i.e. approved or declined) the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available)
The processor forwards the response to the payment gateway.
The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted and a relevant response then relayed back to the cardholder and the merchant.
The entire process typically takes 2-3 seconds
The merchant must then ship the product prior to being allowed to request to settle the transaction.
The merchant submits all their approved authorizations, in a “batch”, to their acquiring bank for settlement.
The acquiring bank deposits the total of the approved funds in to the merchant’s nominated account. This could be an account with the acquiring bank if the merchant does their banking with the same bank, or an account with another bank. The entire process from authorization to settlement to funding typically takes 3 days.
Many payment gateways also provide tools to automatically screen orders for fraud and calculate tax in real time prior to the authorization request being sent to the processor. Tools to detect fraud include geolocation, velocity pattern analysis, delivery address verification, computer finger printing technology, identity morphing detection, and basic AVS checks.