We ONLY work with merchants that are based in the United States. Many merchants don’t realize that a contract exists between the merchant and the processor. This contract has a duration which is referred to as the term of contract. All the major processors within both the U.S. and Canada use them. Because non-American merchants live in jurisdictions where the laws may differ, it is too costly to service them.
Why Contracts Exist
There are a number of reasons why contracts are so important when it comes to credit card processing. One of the most important reasons is cost. It is important to realize that processors take a great deal of risk whenever they open a merchant account. They also incur expenses, which is why they pass on the costs to the merchant in the form of various fees. The processor must complete a background check on each applicant, a process that is very difficult to perform with foreign merchants.
How Contracts Work
The processor must also perform due diligence to ensure that the merchant does not have a fraudulent history, and will provide an honest and reliable service. This requires the processor to pay for things such as credit reporting and fees for the credit card associations themselves. Many processors consider foreign businesses to be high risk, unless they are extremely large or well established. Because the credit card processing industry is highly competitive, some merchants will operate with a loss when bringing in a new merchant, even if they charge them a setup fee.
What this means is that the merchant needs to remain with the processor for a set period of time before they can receive positive income through the account. It is for this reason that processors prefer to work with merchants in the U.S., because they can get them to sign contract terms which will last for a specific period of time. In the United States, contract terms will last from three to five years. Compare this to Europe, where contract terms will only remain for 12 months. The difference in contract terms makes working with foreign merchants undesirable for most payment processors.
A contract is not a contract if there is no way to enforce it. This is why most contracts come with a cancellation penalty, for merchants who choose to leave early. The cancellation fee will typically be determined by the monthly fee. For example, a merchant that signs a 36 month contract, who decides to cancel after 12 months will still have 24 months remaining. If the monthly fee is $50, this means that you would multiply it by the number of months remaining (24), which means the cancellation fee would be $1,200.
Cancellation fees are the primary method processors use to protect themselves. While these fees are simple to enforce in the United States, it can become a problem when dealing with foreign merchants, due to differing regulations and laws. In order to accept foreign merchants processors would have to adjust to their laws, which is a tedious and undesirable process.