Payment processing is frequently one of the best areas to take advantage of residency arbitrage. Potentially lower costs, better technology, more currencies, laxer regulations, more banking options not to mention it can be critical to tax planning.
Yes, the card schemes (mainly Visa and Mastercard) have systems to try to prevent such arbitrage and they are getting a bit better but mostly they aren’t very good at it and when you combine differences in their rules with the tax laws it creates many wonderful international structuring opportunities.
So how does international payment processing work?
The card schemes (this is what we call Visa and Mastercard, who are far from the only players but they are the biggest global players by far and the most international players) have divided the world up into regions. In order to obtain processing in a region you need to have a legal entity registered in that region (in most cases). In some cases they try to demand an actual presence but even so there are fairly simple ways around this.
Various regions have their own interchange tables. Interchange tables are the most basic rates charged by the card schemes to process transactions. Don’t get distracted you’ll essentially never pay the interchange rates because an ISO (independent sales organization) or MSP (Member Service Provider) will mark up those rates to obtain their share and it might get marked up a few times depending on how many intermediaries are involved in delivering the end result. Generally speaking these organizations will charge somewhere between what’s called interchange +0.15% and 1+% more when it is high risk business and less when it is lower risk, more when it is lower volume business and less when it is higher volume business. The rationale is obvious, the providers need to make money and the greater the processing volume the less they need to mark it up in order to be profitable.
This is the first potential arbitrage, interchange rates vary around the world so you can take advantage of lower rates by setting up your high risk payment processing offshore processing through one region or another. There are usually cross border fees for foreign transactions to help prevent this (in some cases it means setting up separate processing in multiple regions is advantageous) but in some parts of the world the cross border fees still don’t make up for the differences in rates.
You can check regional interchange rates for many parts of the world on the Visa and Mastercard websites (some people will tell you this information is private and cannot be disclosed that’s nonsense, it is public).
Keep something in mind very often processors aren’t passing the savings on to the end client. Europe is quite famous for this, interchange rates dropped April 1st to new lows, incredibly low levels but by and large processors didn’t lower the rates merchants pay. It helps to know this because it helps to know how much negotiating leverage you’ve got.
This is another thing to know about payment processing, rates are typically negotiable in fact in shopping business around I’ve seen as much as a 2% spread in gross processing fees, which is unbelievable! You should definitely shop around to multiple processors, leverage them against each other, and negotiate with them to get the rates as low as you can. Particularly if you’re low risk high volume you can negotiate a long way because it’s better for them to have the business than not have the business.