How do Stripe and TransferWise work with Offshore Companies?

Can I set up a tax-efficient offshore company and open an account at Stripe? How about TransferWise? Those are some of the most frequent questions we hear these days. Our  clients wish to use our offshore company incorporation services but take advantage of modern fintech products such as Stripe and Wise (formerly known as TransferWise).

The answer is “yes and no.” We’ll explore in more detail in this article precisely how Stripe and Wise can interact with international or offshore entities of the type we create.

The answer is Yes –  because there is nothing to stop you applying to open a Stripe or Wise (formerly Transferwise) account. In many cases the two combine to produce a great solution for offshore e-commerce.

But in some cases, it’s No. Very often clients want us to help them open a Stripe account. We thought about it, but we don’t offer this service. Opening a Stripe account is more like creating an email address rather than opening a bank account. As intermediaries, we cannot do it for you. It is something you have to do for yourself. 

You should use a unique PC or mobile device, and IP address, after you have set up your tax-free company. Unfortunately there are no guarantees you will be accepted. Then again, if you do things right and your business is mainstream, it’s very likely you will be accepted.

Sometimes it is tempting for us to sell clients a much more expensive, complex solution. But we are in business for the log term, and we don’t want to do that if a simple Stripe account will do the job. We are happy just to set up a company, and clients can then open their own Stripe and Wise accounts for that company. As such, you the client – a startup – saves money and you have the confidence of having 100% control over your financial accounts.

But then again, we don’t want to disappoint clients if they get turned down or their account closed down by Stripe. If this happens, there is nothing we can do about it. For this reason we do not sell ready made companies with Stripe accounts, and it has to be clear we make no guarantees. However, of course once you have the company there is an almost limitless number of alternative providers you can also apply to, and we will touch on that later in this article.

The Uber of Credit Card Merchant Accounts

If you are in the e-commerce business and haven’t heard of Stripe… well that would be weird. It would be like running a taxi company and never having heard of Uber.

Stripe over recent years has revolutionized credit card processing. Originally from the US, Stripe is now also available to companies in Europe, Canada, and Asia. You can access Stripe’s current list of supported countries here:  https://stripe.com/global

From this, you can see that Stripe accounts are available in a number of countries where we provide tax-free incorporation or partnerships:  USA, Canada, UK, Singapore, Hong Kong, Gibraltar etc. There are many tax planning possibilities here.

Which Offshore Jurisdictions are Best for Stripe Accounts?

Out of the jurisdictions that Offshore Pro Group recommends, we would have to suggest that Canadian partnerships and US (Wyoming) LLCs are the best options, if you are incorporating a foreign to open a Stripe account. 

The reasons we recommend Canada and the USA are twofold. Firstly: both these entities are tax transparent if the partners (in the case of a Canadian partnership) or the members (in case of a Wyoming LLC) are non-residents. In other words, if your business is properly structured, you don’t have to pay any US or Canadian taxes.

The second reason is that when it comes to international credit card processing, USA and Canada are seen as low risk. You are likely to get higher approval rates (translating into more sales) on retail transactions if your merchant account is based in USA or Canada. THe exception to this rule is if you are selling to just one region: for example if you are selling in EU, you’ll get better approvals with an EU merchant account. In that case, we might recommend Gibraltar.

It is for this reason that large, sophisticated operations will have multiple merchant accounts around the world and will route and cascade transactions in order to get the best approvals and acceptance. However, this is a technical matter. Our job is to set up companies.

What about Hong Kong and Singapore? They could also be good alternatives if you want to incorporate a company handset up a Stripe account. The only issue is the costs in Singapore are very high, and Hong Kong is now distinctly under Chinese influence that has made it much less attractive as an offshore banking jurisdiction.

What is the difference between Stripe and a normal credit card merchant account?

How does Stripe differ from a traditional credit card merchant account? Principally in three ways:

• Great range of technology and easy integration. For example, you can easily program Stripe to do recurring billing in dozens of different currencies. This is revolutionary for a US merchant account and is at the cutting edge of merchant account technology for Europe. It integrates very easily with almost all popular e-commerce software, shopping carts and CRMs. When we say “very easily”  we mean it. If you can manage your Gmail or Facebook account, you can probably do a Stripe integration yourself. 

• Easy onboarding. Unlike traditional merchant accounts where you have to fill out and scan pdfs then potentially wait weeks for an approval, with Stripe you can be up and running in one day. The catch? Their model is something like “approve everything, then ask questions later.”  They wait until you process a few hundred or few thousand dollars before a human even looks at your account. This compliance model works for them, and works for the majority of mainstream merchants whom they target. However, it’s obviously annoying if you integrate everything, do a big launch and then suddenly when your big sales push comes through, they block your account. This is a big negative that we hope Stripe will fix very soon. In the meantime, the best thing you can do is set everything up and have a few friends or parters make initial purchases to “warm up” your Stripe account. Don’t make the mistake of doing so yourself with your own cards, because Stripe will immediately detect this as “suspicious activity” and close your account.

• Risk management via BIg Data. This is something the average user won’t notice. Big data is a very important part of Stripe’s business model, and it is why they can afford to take on certain “risky” business that smaller processors would decline. Stripe has become so big, that they have a risk database nobody else can compete with.

Most credit cards that have ever been used anywhere on the internet have probably been used on Stripe at least once. Therefore Stripe’s system already knows where a card has been used before, what IP address and device it was used from, what is the largest transaction it ever carried out, and dozens of other data points like this that are simply not available to a normal credit card merchant processor. 

This “big data” concept gives Stripe a lot of leeway. Let’s say you try to cheat the system and type in a customer’s card details directly: Stripe will instantly detect that the location and device doesn’t match what is expected for that card. It’s actually a lot more sophisticated than that, because there are literally hundreds of data points for the system to compare,

As such, Stripe has much better tools than most merchant accounts, to protect itself not just against stolen or cloned cards, but also “friendly fraud” by cardholders or merchants. This in turn gives them the confidence to take on a higher level of risk at the merchant level. You could say it’s the model pioneered by PayPal twenty years ago, taken to the next level.

Another important but less obvious side effect of this is also higher approval rates on transactions in many markets.  For example, if you are selling from Europe to US, you can and probably would pretty easily set up a USD merchant account at your European bank. But a substantial number of US card issuers block foreign transactions by default for security reasons. These sales, many of which would have been lost on a European merchant account, can be cascaded or processed to a US Stripe account resulting in a much lower decline rate.

And what about Wise a.k.a. TransferWise?

Wise, formerly known as TransferWise, is a money transfer start-up that originally hails from Estonia. It first obtained its licensing and regulation in the UK, and has more recently created its EU base in Belgium and its US base in New York City. 

Wise’s model is similar to Stripe’s in many ways – accept first, decline later, and mitigate compliance risk using big data. Again, the model is to let everybody open an account instantly online, then add in compliance reviews at various later stages once people actually start transacting business. You can love or hate this business model, but it helps companies grow fast

The main difference is that Wise focuses on bank transfers. It is not involved in credit card merchant processing.

Wise works by creating a series of “virtual accounts” for the user in different countries around the world. A user can open just one e-wallet and then receive virtual local account details in different markets like USA, EU, UK, Singapore, Australia etc. These virtual account details are indistinguishable from local account numbers. The idea is that clients can send money into one virtual account, exchange currencies and send the funds out again in another market instantly. Fast in and out is no problem, unlike traditional banks. Wise don’t want to sit on your money, as their main margin is on currency exchange.

Stripe and Wise: a Profitable Combo?

Here’s the secret of how to combine the two for your offshore e-commerce business. Stripe is good for the credit card processing element, while Wise removes the need for the hassle of opening a bank account. By allowing you to manage your assets 100% online in multiple currencies using different virtual bank accounts, it’s arguably better and easier than opening a bank account.

For example: a Russian, let’s call him Pavel, could have a Wyoming LLC and/or a Canadian partnership and open a Stripe account in the name of either entity. He sells goods online into the US and charges customers by credit card through his Stripe account. Then Pavel provides his Wise virtual US account in New York as the settlement details. Stripe settles the funds there after deducting their fees. The same day, Pavel can send a wire in HKD to his suppliers in China for new stock, a wire to top up his virtual card for advertising, and a Euro SEPA transfer to his private banking account in Switzerland where he collects his profits.

Does this work? Yes, sure it does. We have seen it work hundreds of times. Neither Stripe nor Wise are strict on where the beneficial owner is actually located. The key factor is the type of business should be mainstream. Selling software, business information, newsletter subscriptions etc is fine. Things like adult dating, firearms, marijuana etc will be rejected as they are way beyond the risk tolerance of Stripe. Gaming is somewhere in the middle ground and is reviewed case by case. Stripe’s prohibited activities list is here: https://stripe.com/gb/restricted-businesses

But, full disclosure: there is a risk. And this is why we refuse to try to work with these companies directly. There is no person you can talk to at these companies, as they are literally run by machines. If one day the machine decides you are a risk, that is the end: your accounts will  be closed and there is absolutely nothing you or us would be able to do about it. Any new accounts from the same IP address, same device or with other similar digital fingerprints will also be blocked immediately.

This is clearly a significant risk. Whether you take it or not this risk is purely your commercial decision. If you can push a few million of volume through a structure like this before it gets closed, then repeat the same ten times from different devices and IP addresses, it is probably worth it. 

But there is also the risk that you end up with a structure you cannot use, and in that case there will be no refunds from our side. Our business at Offshore Pro is setting up structures and opening accounts in proper financial institutions. We know a lot of our clients are willing to take the risk of working with Stripe and Wise because they are so… well… easy and convenient if and when they work.

By the way, people never lose money with these systems. They are big fintech companies and unlike some offshore merchant processors or dodgy EMIs, Stripe and Wise are not in business to steal your money. The worst that can happen is your account gets blocked and payouts are delayed, by a few weeks or a few months (six months in very extreme circumstances), but it’s 100% sure you will get your money eventually. Some merchants simply calculate in their business plan that a certain amount of funds will be blocked at Stripe at any given time.

We have never known Stripe to apply fines for high chargebacks either. With most merchant accounts, a chargeback results in a monetary fine… no matter whether it is justified or not. Stripe, however, let’s you fight the chargeback and they actually refund you the chargeback fee if you win the dispute. Not bad and very fair!

Good Alternatives to Stripe and Wise

A lot of clients also ask us about alternative options. Are there any good alternatives to Stripe or Wise? What if you’ve been thrown out of Stripe or Wise but still want to use the same company set-up?

As for Stripe, not really. There are niche players for different geographic markets or online markets. Ayden is one for example – and Square is trying to do something similar but its risk management and global reach is way behind Stripe’s. Square is known to block a lot of transactions arbitrarily.

Wise, however, has a lot more competition. Dozens of forex providers now offer networks of virtual accounts. Some of them are people you can actually have a serious sit-down with and make agreements, and they are more open to international businesses.

Revolut is another big alternative to Wise. Revolut doesn’t yet support Canada, and has a limited and incomplete  offering in the USA. However, they are likely to open in both markets over the coming months, so keep an eye on them.

Main Disadvantage of Stripe Accounts: the fees

Stripe, by the way, is not cheap. They have a different rate for each market, but it always consists of a percentage fee plus a fixed fee per transaction. You can check these on each site. There may be extra fees for cross-border transactions. They also force you to receive settlement in local currency – for example merchants in the EUR zone can only receive settlement in EUR, even if their sales are in USD. Stripe fix the exchange rate and you don’t have any say in the matter. This can easily add another 1%-3% to your processing costs.

Stripe is comfortable for start-ups, because there are no minimum volumes nor monthly fees. They may also be cheaper when compared to high risk merchant accounts. However, for mainstream business with reasonable volume and smaller ticket sizes, in our analysis we were able to save quite a lot of money for some clients by switching them from Stripe to more traditional merchant accounts. Something to keep in mind.

How to Get Started

Have you decided to create a foreign company, in order to minimise your taxes and gain access to Stripe, Wise and similar international payment or merchant processors?

The first step is to consider your options. For example, would a Canadian partnership or a Wyoming LLC be the most suitable entity for you? Or maybe both?

If you need any help with this, or you have decided and would like to move forward, feel free to make contact with our expert consultants who are standing by to assist you with all your international company formation and banking needs. You can contact us via Live Chat, WhatsApp or e-mail at info@offshore-pro.info.

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