One of the most frequent questions we’ve gotten (or at least one of the more interesting questions) recently was, “how do I get approved for a US merchant account as a non-US resident?” We understand the struggle and payment processors don’t make it so apparent when filing the application.
You could be doing great in your country with rising sales, a low chargeback ratio, and building up a good customer base but still get denied a merchant account abroad—or at least in the United States. Why does that happen? We have some insight for you as well as a few ways around it.
Why Your US Merchant Services Application Is Denied
There are criteria that USA merchant account providers (or payment processors, more directly) have in the application process that you simply cannot ignore or avoid. Here’s the breakdown of why you are denied merchant services, step-by-step.
First, let’s set up the scenario. You have a business bank account, an EIN, and everything that’s needed to run a fully legal e-commerce store in the US. Maybe most of your sales comes from US consumers, or at least a large chunk. Yet, you can’t get approved for a merchant account because you’re a non-US citizen.
Most of you should relate to this. Even if this doesn’t sound like you but you want to operate in the US and get a merchant account there, then follow along anyway.
The Personal Liability Clause
This clause exists on every application. Sometimes it’s called Personal Liability Clause, sometimes it’s called Personal Guarantee. The point is that no matter what it’s called, it functions the same and it’s unavoidable.
What this clause declares is that if your business goes bankrupt, you fraud someone, disappear, or something like this, then fees are covered. In some way, you will cover the fees that accrue and the payment processor is not liable for any of it. It’s your responsibility, you are liable.
You absolutely have to sign this clause, recognize it, fill it out—whatever the application requires you to do, you have to do it. If you leave this part out of your application, you’ll instantly be denied.
Alright, let’s say you fill out this section and everything is on the up-and-up, but you still get denied.
Mandatory Credit Check
After seeing that the application is filled out properly, payment processors run a credit check on you. This allows them to get a glimpse at your credit history, bankruptcy reports, and all the typical stuff that comes up in a credit check.
Here’s the problem: you need a Social Security Number (SSN) to have a credit check run on you. If you aren’t a US resident or citizen, then you don’t have this number. And without this number, you can’t get a credit check and, further, a merchant account.
No credit check means there’s no basis for the liability clause. This is especially frustrating when you have everything else in your favor, like the EIN, proper sales, and so forth. So what do you do?
Solutions and Exceptions to Getting a Merchant Account in the US
We have a few of solutions for you as well as a particular exception that surely will cover any overseas business’ need to operate in the States.
Find a Local Director
The first solution is to find a director who lives in the US, and preferably from the state in which you’ve obtained a business license. For example, if you have an LLC in California, then the director you obtain should also be in California.
A local director is someone who can sign all your papers, like this liability clause, and have a credit check run on them. They are the legal face of your company in the US. The perk for you is this person is not a shareholder, they hold 0% of the shares in your business. All they do is act as the signer whenever something comes up (like credit checks) that requires a US resident.
The downside is this role comes with quite a bit of liability for the person who signs on. It’s their name, credit, and responsibility on the line. If something goes down with your business, the director is technically the one responsible to taking care of it. Because of this, it’s not the easiest solution to make happen.
In short, resident directors are a great way around the issue without giving up ownership if you can find someone to play the role.
Use a Payment Aggregator
3rd-party payment processors like Stripe and PayPal are called payment aggregators. These are a great solution for many sellers, but with a catch.
If you sell white hat products, monthly sales are still within 5 figures (something under $30k), and you don’t want to find a local director, then aggregators are for you. These providers are not typical processors, so using them won’t give you your own merchant account. Rather, you operate under their merchant account. For example, Stripe has its own merchant account. When businesses want to use their service, Stripe opens a sub-merchant account. This allows that new company to operate underneath them. Because you’re not applying for your own US merchant account, you don’t have to sign a liability clause or run a credit check. Again, there’s a catch.
It sounds like a great solution: you get run your business locally without all the paperwork, accepting debit and credit cards payments. But you don’t get your own merchant account. That means terms are fixed. On top of those terms are Stripe’s terms (or whoever you’ve chosen—there are a lot of 3rd-party credit card processors out there). They need to keep things under tight control because they don’t want to risk their own merchant account from falling apart. That means high-risk businesses are prohibited and there are invisible sales caps you don’t want to breach.
Aggregators are a great solution for low-risk businesses who want to remain abroad and don’t mind the operator’s strict terms.
Open a Multi-Currency Account or Incorporate
Multi-currency accounts allow you to remain abroad while accepting other currencies in your payment gateway. It’s not the same as having a local merchant account, but it’s the closest you might get without incorporating. To get one, ask your current merchant services provider about opening one up for USD. It’s not limited to just one currency, so getting the most out of it means accepting multiple currencies from all over. The trick is that you need a bank account in the country from where you want to accept payments.
Incorporation is the next step, and it’s the biggest one. If you’ve decided against using a resident director, then this likely isn’t for you. Also, it doesn’t make sense to incorporate in a foreign country if your sales figures don’t support the cost of doing so. If you’re interested, your merchant account provider or we at DirectPayNet can assist you with offshore business formation.
A third option is to allow Dynamic Currency Conversion (DCC) on your current shopping cart. It’s not a very elegant solution, and conversion fees are usually pretty bad, but it’s great as a last resort for accepting international payments. Plus, it’s easy to “install”. Again, ask your service provider to allow it on your gateway.
There’s on exception that your business just might make the cut for. If you are operating successfully in Europe or Canada or somewhere outside the US and you manage something like a steady 7 figures per month in sales, then some credit card processing companies might ignore the credit check.
This exception is incredibly hard to reach (makes sense, otherwise it wouldn’t be an exception). But it is very possible. The only thing is that you’ll have a load more paperwork to fill out BUT you’ll definitely get a US merchant account.
However, if you’re managing that much in sales per month then it’s probably a better idea to just incorporate in the US.
Need US Merchant Services or Assistance with Offshore Payment Processing? Contact Us
DirectPayNet works closely with overseas business owners, payment processors, and acquiring banks to get businesses the high-risk merchant account needed to continue their trend in rising sales.
If you need assistance operating in the US, contact us. Our team of customer service reps is knowledgeable across the board and can direct you properly, helping you meet your business needs. Get in touch today.