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Offshore Payment Processing and Certification
by Jason Gorringe, Offshore-e-com.com, London

Introduction

Of the 33 offshore jurisdictions fully described in lowtax.net, which includes virtually all those with pretensions to be e-commerce hubs, no fewer than 15 have announced plans to 'become the world leader in offshore e-commerce' or words to that effect.

How can this be? Well, it can't, of course. One could lead the way in offshore e-commerce through regional leadership (in the Caribbean, say, or in Europe), or one could lead by dominating a sector (offshore gaming, say), or one could become the preferred gateway into a particular market-place (Hong Kong in relation to China, for instance).

 

But the problem is more complex yet, because on the Internet everything can be outsourced. Thus, a location might hoover up ISP and hosting business by having superb connectivity and IT facilities, but it has not gained much unless it can provide the functionality needed by the sites it hosts.

For many types of application, that functionality includes payment processing and digital certification, and this survey will examine whether such facilities are in reality part of the 'usp' of particular jurisdictions, or whether they are going to be universal services which are automatically available to any provider or user of e-commerce in a way comparable to, for instance, the international cheque clearing system.

There isn't a definite answer to this question yet, but there are some clear trends, and they're not necessarily very helpful to the cause of offshore e-commerce.

BACK TO CONTENTS

A Potted History Of E-Commerce Payment Processing

The most curious aspect of the development of payment processing on the Internet has been the failure of non-bank payment systems to mount any serious challenge to the banks. This is odd, because the banks are relatively inefficient, very costly, and have been extremely slow to exploit the possibilities of the Internet.

Many people thought that Internet payment networks would quickly evolve which would wholly by-pass existing payments systems, possibly involving the creation of new, electronic currencies. Attempts have been made: Beanz, Q-Pass and some features of WorldPay are examples of systems which in different ways exist independently of the banking system, although liquidity always comes in the first place from use of a credit card or other transfer to take money from an existing bank account. But to date there has been no large-scale creation of liquidity on the Internet to rival the existing banking system. It may yet happen, but the evidence is that it won't.

Almost all payment processing on the Internet has been driven by the structure of the credit card industry, and the concept of a 'merchant', copied over from the pre-existing payments sector. Thus, an e-commerce trader has to set up a 'merchant account' with a bank or other credit-card issuer, or has to deal with an intermediary such as WorldPay, which in turn has 'merchant' relationships with credit card issuers.

The direct merchant account relationship is quite comparable to its off-line equivalent, although the banks have often charged a considerably higher commission, for some valid and some invalid reasons. Evidently, software is needed to intermediate between the typical 'shopping-cart' e-commerce site and the banks' systems, and this can be obtained in a number of ways, either by purchasing an integrated e-commerce package which includes it (now being offered by majors such as Microsoft and Sun), by going to an independent supplier of payment-processing systems such as CyberCash, or by choosing a bank which has itself developed or bought in the 'middle-ware' needed for it to offer a comprehensive payment processing solution. Some banks have launched joint ventures with suppliers of payment processing software.

Apart from being expensive, the banks (credit card issuers) sometimes require a merchant to run a deposit balance equal to a percentage (up to 100%) of outstanding credit transactions, pending settlement of approved transactions through their networks. For many merchants, it's therefore preferable to deal through an intermediary, although they charge even higher commissions than the banks for offering simplicity and liquidity. It's not unusual to pay in excess of 10% on transaction charges to the intermediary (the credit card issuer may get only 2.5% of this); or there can be substantial monthly fixed or minimum charges.

Clearly, from the merchant's perspective, neither direct merchant accounts nor merchanting intermediaries offer a very satisfactory payment processing solution. Recently a new generation of intermediaries has evolved which in effect offer merchant accounts to traders as if they were credit card issuers, but in fact have close relationships with the underlying card issuers. Thus the trader needs only one merchant account to be able to offer a range of credit cards. The charges tend to be more than for a direct merchant account, but less than for an intermediary relationship.

The key to understanding the evolution of trader-friendly payment-processing services is the regional nature of credit card issuance. In the most basic model, a given trader, in a particular geographical location, will necessarily have his merchant account with a local branch of the bank or other credit card issuer. A transaction with a customer on the other side of the world (and whose credit card was issued on the other wide of the world) requires that settlement of the approved transaction will take place through the bank's or issuer's network, which is often slow, inefficient and costly. The provider of payment processing services on the net, who wants to offer a seamless, global service with adequate liquidity and at reasonable cost must necessarily form relationships with card-issuing banks or other institutions in different geographical regions before being able to substitute rapid, cost-effective electronic settlement for the existing horse-and-buggy card-issuer systems.

This is why it has taken so long for adequate payment-processing services to evolve on the Internet - and the process is continuing.

BACK TO CONTENTS

Security Considerations

For every type of payment transaction taking place on the Internet there is of course a matching security requirement, especially because responsibility for the slow take-up of e-commerce by customers and the high charges levied by banks on e-commerce transactions is frequently laid at the door of security concerns. Statistics don't bear out these concerns; but the perception is there.

User-generated encryption, using PKI (Public Key Infrastructure) or otherwise, is secure, but not completely helpful for payment processing systems in which the risk of data-loss or interception is overshadowed by the risk of fraud via impersonation or misrepresentation. The solution has turned out to be through the development of third party accreditation using digital signatures, which have been given legal status in most jurisdictions which have passed e-commerce laws.

In some cases, Governments have themselves developed accreditation services on their own or in association with private firms and have given them statutory force; in other cases development has taken place privately, using applicable legislation.

Recently, VeriSign, a digital signature provider, acquired CyberCash, a payment processing provider; together, of course, they can offer a unified package to traders and to banks. This type of consolidation is likely to continue; in fact, if it doesn't then the smaller providers will easily be squashed by the likes of IBM, Microsoft and Sun, who can roll out services with the global element that is so crucial for Internet traders.

BACK TO CONTENTS

Developments In The Offshore Jurisdictions

Jurisdictions are listed in alphabetical order; in each case, a star rating between one and five indicates the level of development of local payment processing and certification services. Of course, traders in lowly-rated jurisdictions will still be able to obtain payment processing solutions through intermediary providers, but may find it difficult or expensive or both to have merchant accounts directly with local banks.


Barbados

In August, 2000, the Barbadian Government won approval from the Cabinet to pass a final draft of the Electronics Transactions Bill. The main aim of the new policy is to prepare a legal framework for the recognition of digital transactions and to put them on a legal footing equivalent to that of paper-based transactions. Key areas to be addressed by the Act will be record-keeping, security, and contracts.

The final Bill, once passed, will make Barbados the third Caribbean country (after Bermuda and the Cayman Islands) to possess digital signature legislation. It will enable customers to securely enter into digital signature agreements and to accept electronic records and documents.

No information is available regarding payment processing or certification services available from Barbados.

Bermuda  

First Atlantic Commerce (FAC), a Bermuda-based payment solutions provider, was established in 1998 to create secure card-based payment solutions for e-businesses.

The company provides powerful technology designed to work with most merchant platforms, including Microsoft®, UNIX, and LINUX. FAC’s processing platform -- a feature-rich payment system called cGate® -- offers service, flexibility and security to adapt to many business and bank acquirer requirements.

Designed for merchants with medium to high capacity transaction processing, cGate® is a high-speed and secure, platform-independent Internet payment gateway.

FAC provides a variety of processing methods including real-time, batch and MOTO. All methods can process sales, authorizations only, captures and refund or reversal transaction types.

Business solutions such as 3-D Secure™ Payer Authentication (Verified by VISA and MasterCard SecureCode™) for chargeback liability shift, Virtual Corporations and multi-currency, multi-jurisdictional, payment solutions are also available.

FAC offers international payment solutions in many jurisdictions across the Latin American Caribbean Region, Europe and Pan Asian Region.

Uniquely positioned to provide MasterCard® and Visa credit card processing across a wide-range of industries ranging from legal online pharmacies to VoIP companies, leading retailers, stored value card providers and travel-related businesses, all FAC solutions are for direct merchant accounts only with various partner banks around the world.

QuoVadis is focusing its operation on digital certification which will support the use of e-signatures, for offshore-based companies. QuoVadis' digital certification will act in much the same way as a passport does to verify identification. QuoVadis' technology - called Public Key Infrastructure (PKI) -- is the leading solution to address the security, authentication, and non-repudiation issues associated with e-commerce. PKI operates through the provision of digital certificates that act as 'digital passports' and uniquely identify the parties to any on-line transaction.

Bermuda's Minister for Telecommunications and E-Commerce, The Hon. Renee Webb, stated "In 1999, Bermuda was one of the first jurisdictions worldwide to enact legislation dealing with the formation of electronic contracts and the validity of digital signatures. The Bermuda Government is pleased to work with QuoVadis to continue to establish Bermuda as the premiere international platform for electronic transactions."

QuoVadis is developing a secure network facility in Bermuda to host its Bermuda operations, and the company already has initiatives underway to enter other offshore jurisdictions. QuoVadis is backed by investment from eVentureCentre, an e-commerce incubator formed by a Bermuda-based member of the Centre Group (part of the Zurich Financial Services Group) and Paragon Bermuda Limited (an IT consultancy).

QuoVadis has contracted with Baltimore Technologies - a Dublin-based computer security firm and member of the FTSE 100 - to develop its certificate authority. Baltimore Technologies has over 700 employees in more than 20 cities worldwide and supplies the technology behind more than 400 CAs globally.

Steve Bradshaw, Global Strategic Development Director at Baltimore Technologies comments "Baltimore Technologies believes that offshore financial centres such as Bermuda will be important focal points for international electronic business. Bermuda, with its solid public/private partnership between government and business, had great foresight in its early adoption of enabling legislation for e-commerce. QuoVadis will be a strong force for e-commerce companies looking to build trust into their international transactions."

In February 2000, The Bank of Butterfield and local e-commerce payment provider Coral Capital announced that they would team up to offer e-commerce payment solutions for local and international merchants through a new company called Promisant. The new venture will allow companies wishing to establish an offshore presence to process electronic transactions via the Internet, with Bank of Butterfield providing merchant accounts for businesses to receive on-line payments processed through Promisant’s integrated payment solution.

Coral Capital was formed in 1999 and has established the first internationally certified payment gateway to First Data Corporation, the world’s largest third party payment processor. The Coral Capital Ltd. Electronic Commerce Act of 1999 was passed by the Bermuda Parliament in August last year.

In October, 2000 Cable and Wireless announced plans to invest $50 million in E-business solutions in the Caribbean and Atlantic region. Bermuda will play a leading role with the establishment of the company’s first E-business Solutions Centre in the region. The 3,000 square foot facility will provide “world class Web hosting and online payment processing solution,” said Cable and Wireless in a press release. “But if the market for offshore E-business grows as quickly as we believe it will, we expect to expand our operations elsewhere in the region.”
The investment will be spread over the next five years and builds on plans to develop a network of web hosting centres in America, Europe and Asia.

However, also in 2000, EBS Ltd, which traded under the name EOCnet.com, pulled the plug after failing to live up to the hype generated over its launch. EBS Ltd began in March, 1999 as an electronic brokering service, and appeared to have carved out a unique market niche after its EBS Limited Act (private bill) was passed by the Bermuda Parliament allowing it to set up an internet payment processing service in Bermuda for non-resident businesses.

This comprehensive Act formed a model for much of the e-commerce legislation that was later passed in Bermuda. The hype over EBS Ltd began in October, 1999 when as EOCnet.com it began offering virtual 'e-suites' - a 'turnkey' offshore e-commerce solution that allowed web merchants to set-up a virtual holding company based in Bermuda over the internet.

Dubai

In 2001 homegrown B2B portal Businessdubai.com became the first in the Middle East and Africa to become fully integrated with the world's online vendor rating service offered by Societe Generale de Surveillance SA (SGS). The portal was the first B2B e-marketplace to set up shop in the region when it began operations a year ago. "Our integration with SGS is aimed at providing more confidence and trust to both buyer and seller alike, using our portal to conduct e-commerce," General Manager Animesh Basu said.

SGS, involved in verification, testing and certification, offers SGSonSite vendor rating, to raise the level of trust in the international online trade environment in the Middle East. Basu said the portal has to date attracted a positive response, and expected to achieve break-even by year-end. "We have a membership of 5,583 companies from 113 countries, and daily record 12-15 transactions. Hitherto, 53 deals have been concluded, representing turnover of $3.3 million."

He added that a survey with existing users found that of over 300 respondents, 46 per cent said they would be willing to pay for the service.

He expected advertising to constitute 20-30 per cent of its revenues, but added that the company is focussed on tackling the marketing of the portal and building transactional volumes up to critical mass. Businessdubai.com is located in Dubai Internet City and has been trading online in a variety of different product lines and commodities.

Richard Jeffrey, managing director, SGS Gulf Ltd., explained that its online facilities would provide such services as a vendor rating programme, product specifications verification, sample and inspection, and other tradition services.

"SGSonSite was launched at the end of third-quarter 2000 as a worldwide project," he said. "Trading platforms in the U.S., Europe and the Far East have already been integrated with this service."

He pointed out that the coming aboard of the Mideast region so quickly demonstrates the advanced level of e-business development here, as also the recognition of the need for the "trust factor" in online trade.

 
Gibraltar  

Gibraltar's labour/liberal opposition say that Gibraltar needs "action, not words" on e-commerce, and has accused the government of "gimmicks and empty media sound-bites." It describes the latest (May, 2001) government announcement on e-commerce as having consisted "almost entirely of meaningless jargon and a repetition of things that have been said before."

The opposition says it is "totally committed" to the development of e-commerce and notes it voted in favour of the e-commerce bill when it went through the House of Assembly in March. "However, we did so with a number of reservations. The ordinance was the transposition into Gibraltar law of the EU electronic commerce directive and electronic signatures directive," said a statement.

The government has told the House that no applications have been received for certification service providers. Access to high speed bandwidth at a competitive cost is also a basic problem that needs to be addressed. The opposition says that not long ago there were complaints that someone quoted £17,000 a month for a 1 meg connection in Gibraltar found that the same link from Spain cost £450.

As regards a cable link to Morocco, the opposition say it is worth noting that the advert calling for the expression of interest in this project appeared last August, when six parties came forward. "The government took eight months until April 2001 to meet with four of them, and at the time of being questioned in the last House, still had two more to meet," says the statement, adding that it is possible to do things quickly and efficiently and to do them well.

It is clear to the opposition that an e-commerce law alone does not necessarily mean that there will be more e-business. "We fully support the development of e-commerce in Gibraltar but believe that the government's approach needs to centre more on moving with the times than in making exaggerated claims," says the opposition.

 
Hong Kong  

Hong Kong and Bermuda-based First Ecom.com, a global provider of electronic payment processing systems, announced in 2000 the addition of Wireless Transport Layer Security (WTLS) protocol to its range of payment processing solutions.

The addition of this new protocol means that First Ecom-enabled merchants can support credit card transactions from Wireless Application Protocol (WAP) enabled devices such as mobile phones.

WTLS is the wireless equivalent to the widely used Secure Sockets Layer (SSL) protocol found between browsers and servers. WTLS provides the key security elements of confidentiality, integrity and authentication. This technology creates new business opportunities for merchants by providing consumers a means to transact e-commerce securely using WAP enabled devices.

The use of WAP technology empowers users of wireless devices to easily and directly access live interactive information services and applications such as email, weather and traffic alerts, news, sports and information services and electronic commerce. This new technology is now extended to merchants, who can create web pages that detect requests coming from a WAP browser handset and respond by converting standard Hyper-Text Markup Language (HTML) pages to Wireless Markup Language (WML) pages, which can be read by the consumer. Numerous WAP applications are currently available, including solutions from various First Ecom.com partners such as Sybase, Intershop Communications and Jade Pacific Corporation.

As a global provider of electronic payment processing, First Ecom.com provides secure, easy-to-implement and low-cost online payment processing services to merchants and banks worldwide. Through strategic partnerships with banks, ISPs, e-commerce product suppliers, system integrators and storefront solution providers, First Ecom.com will process credit card transactions made over the Internet in multiple currencies, either domestically or offshore in a tax-neutral jurisdiction.

First Ecom.com is a member of Digital Island's Global Partner Program, and promotes Digital Island's interactive network and content delivery services, which allow companies competing in global markets to quickly implement e-Business initiatives. Digital Island customers can also have access to First Ecom.com's multi-currency Internet Payment Gateway, which has been designed to enable banks to offer payment processing services to businesses worldwide.

In 2000, First Ecom.com formed many partnerships in the Asian region to help implement its low cost, real-time multi-currency payment processing solution. Partnering with leading web developers and systems integrators allows First Ecom.com to quickly deploy its electronic payment processing solution to banks and their merchants at very low cost.
First Ecom.com Inc., which is listed on NASDAQ reported a net loss of $17.81 million for the year to the end of December 2000. During the year, First Ecom had both bought and closed down the same Internet firm. The company reported cash reserves of $31 million as of December 31, 2000.

First Ecom's main products consist of payment processing services for Asian Web merchants and a payment gateway sold to Asian banks.

The Hong Kong Government has established a recognised public certification authority (CA) through the Hongkong Post to enable an early implementation of a public key infrastructure (PKI) in Hong Kong. In 2000 Hong Kong enacted the Electronic Transactions Ordinance which paved the way for its drive to implement the new infrastructure including the creation of the public certification authority and a local public key infrastructure (PKI).

In 2001, Hong Kong's certification authority, the Hongkong Post, signed a Memorandum of Understanding (MOU) with the Korea Information Certificate Authority to establish a framework of cross-border cooperation for issuing digital certificates. The MOU enables both organisations to create policies concerning digital certificates, promote an open and seamless infrastructure, and develop open PKI based applications to facilitate secure cross-border transactions over the Internet.

Since January of 2000 the Hongkong Post has operated as the first territory's first publicly recognised Certificate Authority as a 'digital certificate repository to allow the public to verify the validity of the digital certificates.' The digital certificate issued by Hongkong Post, officially known as the e-Cert, provides a secure and trusted e-commerce environment in which Internet users can authenticate the identity of the digital certificate holders online.

Hongkong Post and Irish-based company Baltimore Technologies have joined forces to supply businesses and individuals in Hong Kong with the first wireless transport layer security mobile certification authority service in Asia. Both companies announced earlier this year that they have signed a Memorandum of Understanding (MOU) which will secure mobile commerce, enabling customers in Hong Kong to conduct online transactions such as bill payments securely via mobile devices.

Hongkong Post's Certificate Authority will be the only officially recogised organisation in Hong Kong providing services for all areas of the public and private areas. In addition to the company's recently launched e-Cert services, Hongkong Post says it is seeking to provide additional certificate types to address the unique commercial and organisational needs of institutions such as banks and mobile operators. Baltimore Technologies will assist the Hongkong Post in developing a Public Key Infrastructure (PKI) framework for trusted mobile commerce.

The Hong Kong Society of Accountants (HKSA) has launched a new audit service helping companies to test the security of their online systems. HKSA introduced the new service, called WebTrust, to act as a certification service for e-commerce firms and to meet the increasing demand of Hong Kong-based companies that are conducting business over the Internet and who wish to satisfy existing and potential clients of a high standard of online security safety measures.

WebTrust works by reviewing areas such as system security, steps taken to protect confidential customer details and their privacy, and the integrity of business practices. To show that the e-companies have met the WebTrust seal of quality, an icon will be displayed on their web site.

The WebTrust service is an international e-commerce trust programme jointly developed by the American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants, who state: 'The WebTrust seal of assurance combines high standards for e-commerce activities with the requirement for independent verification.

Early in 2001 the Hong Kong government launched the Internet version of the Electronic Service Delivery (ESD) scheme, which will provide a wide range of public services online. Hong Kong citizens are able to access various public services, such as payment of government fees, submission of tax returns, voter registration, renewal of driving and vehicle licences, change of personal address and so forth via the Internet. The service is available 24 hours a day, seven days a week.

ESD services are also be available through public information kiosks installed at various locations, including railway stations, supermarkets and shopping centres. An official said: 'Some ESD applications require digital signatures using digital certificates issued by a recognised certification authority to authenticate the identity of users. The public may apply for digital certificates from the post offices.'

The ESD scheme is a key initiative under the Hong Kong government's Digital 21 Information Technology Strategy and provides an open and common platform for carrying out electronic transactions with the government in a safe and secure environment.

 
Ireland  

In December, 2000, First Data Corporation (FDC), a US giant in the field of electronic commerce and payment services, announced this week that it was to acquire a 25 per cent stake in Fexco, one of Ireland's largest financial services companies which employs over 800 people at its corporate headquarters in Ireland and in offices in London, Edinburgh, Madrid, Malta and Dubai. Terms of the deal were not disclosed, although the Irish Times reported that estimates put the purchase price at around I£50m.
Fexco provides a range of business-to-business and consumer financial services, including multi-currency credit card processing, tax reclaim, international payments, tourism services, prize bond management and stockbroking. In addition to its Bureau de Change business, the company also operates the Western Union franchises in Ireland, the UK, Spain, Malta and Gibraltar and has been a partner of FDC since 1994. Fexco’s investments in the financial services sector internationally include Global Refund, the world leader in VAT refunding services.

A statement from Fexco said: 'The alliance with First Data will enable Fexco to access new merchant and bank customers through First Data’s global distribution system, which includes 1,400 financial institution clients and 2 million merchant locations globally. In addition Fexco will provide a range of processing services to First Data and its customers in foreign exchange and e-commerce payments.'

Brian McCarthy, chairman of Fexco, commented on the deal: 'We very much welcome this milestone investment by First Data in Fexco, which will provide us with tremendous new opportunities to accelerate the growth of our payment processing services globally. We have been working with First Data in Europe for several years and we have developed an excellent relationship with the company and identified many areas of synergy in our operations internationally. Through the commitment of its employees in Ireland and around the world, Fexco has built a very successful transaction processing business in a highly competitive marketplace. This investment by First Data means a huge leap forward to the further globalization of Fexco’s business. We look forward to the exciting opportunities that lie ahead.'

Charlie Fote, FDC president and chief operating officer, said: 'This investment is yet another step in our journey to build a truly international franchise for First Data. We have given ourselves a considerable edge by investing in companies that have complementary competencies, strong operating track records and a depth of local knowledge and relationships. Clearly, Fexco's strong experience in providing multi-currency payment services will complement First Data’s delivery of payment processing services in Europe, but also in the US and beyond.'

Clikpay is Ireland's first indigenous system for processing credit card transactions over the internet. Clikpay consists of software that can be housed on the merchant's own site or by their Internet Service Provider (ISP). The exiting order form on the merchant's web site is then linked through the Clikpay payment software to the Bank's server. Once an online purchase is initiated, the payment information is encrypted and secured through a link to the Bank's server. Confirmation of the approved transaction is then sent from the Bank to the merchant, enabling the merchant to proceed with shipping the purchase. All transaction processing is centered at the Bank so that the merchant can rely on a highly managed IT infrastructure.

Clikpay has been designed so that minimal software is maintained at the merchant's site. This facilitates ease of integration with the merchant's shopping mall software. The Clikpay software resides on the merchant's web-server and will service requests to provide order information to the Bank's system. It is the function of the shopping mall software to generate order files for every purchase made and also to update the status of each order to reflect when the actual goods have been shipped.

Providing a secure mechanism for the transmission of sensitive data has been a prime consideration in the design of Clikpay. It uses the Secure Sockets Layer (SSL) protocol to ensure that all credit card details are subject to 128-bit encryption during transmission from the customer to the Bank's server. Information which is transmitted between the merchant and customer is encrypted using 40-bit SSL. In addition, a customer's credit card details are only transmitted to the Bank and are never sent to the merchant. Bank of Ireland will always provide site verification information (signed certificate) to the customer to ensure that he/she can validate that they are using secure communications directly to the Bank.

Clikpay provides complete functionality for merchant payment processing, including authorization, capture and clearance. Clearing is done on a batch basis. The initial release provides support for VISA and Mastercard credit cards and support for Dollar, Irish Pound, Sterling and Euro currencies.

Isle of Man  

Last November WISekey, a worldwide leader in certification authority and public key infrastructure, announced that it had created WISeOffshore, an internet initiative to provide specialized services and applications for offshore jurisdictions and their financial institutions. But the Manx-based service has now been put on hold much to the disappointment of the Island's e-commerce sector.

WISeOffshore was viewed as a major opportunity for the island and described by Treasury Minister, Richard Corkhill, as 'excellent news for the future of the Isle of Man as a centre of excellence for e-commerce.' Director of E-Commerce, Tim Craine, also enthused at the prospect of the WISeOffshore initiative, saying: 'I was delighted to hear of the decision by WISeKey to locate their new venture on the Isle of Man, especially as they had carried out such a detailed evaluation of other jurisdictions before arriving at their final decision.'

The aim of the website was to enable offshore financial institutions to improve their transaction efficiency and comply with "Know Your Client" requirements. WISekey said it had received 'unprecedented immediate support' in achieving its objectives through take up by financial institutions such as the Royal Bank of Scotland International, FsharpBank (Bank of Ireland), Abbey National Offshore, Isle of Man Assurance, Bank of Bermuda, Isle of Man Business School, Skanco and Cains Advocates. All the institutions, via WISeOffshore's services, would be given the opportunity to issue digital certificates and use Mail Secure to secure transactions.

Cains advocate and director of WISeoffshore, David Sherlock explained that the Financial Action Task Force (FATF) has not yet given the go-ahead for electronic know your customer services (e-KYC). But he estimated the website could be operational within the next three months. A philosophical Tim Craine said: 'I can understand the reasons for the delay. There have been changes in the market environment since the launch that no-one could have predicted, particularly dot com failures.' But there is some speculation in the Isle of Man media that it could take up to a year before the site is fully operational.

However, WISekey's president, Carlos Moreira, told the Isle of Man Business News that the project will be 'operational in different stages' and plans for the project are still underway, adding services such as the TrustEportal application (which involves the WISeOffshore certification and know your customer services) are currently undergoing tests.

He stated: 'The e-KYC component of WISeOffshore is only one aspect of the company and is not a requirement for full operations. It will only apply once digital certificates are used for financial transactions, but before that WISeOffshore will certify individuals and companies and will be used on technologies such as third-generation mobile phones.'

He added: 'The company is now fully registered in the Isle of Man with 100 per cent ownership from WISekey. We are now inviting other groups in the Isle of Man to join the project.'

The Isle of Man's Financial Supervision Commission (FSC) has released its 1999/2000 annual report, in which it highlights the government's strategy for promoting the island as a centre of excellence for e-commerce, but it also urges caution with regards to the security of electronic transactions at such a crucial stage of the island's e-commerce development.

The FSC supported the government's commitment to cement the Isle of Man's reputation as an e-commerce hub with particular regard to electronic security in the form of the new Electronic Transactions legislation, which it believes is vital in attracting e-businesses to the island.

In the report, the FSC recognises that the 'principles of its regulations and much of its supervisory guidance are set at a relatively high level' but the FSC continues on a cautious note: 'Nevertheless the ability to transact business electronically and in a paperless manner presents many new risks, some of which management may not have recognised or even fully understood. At this evolutionary stage of e-business there is scope for errors or losses to occur well before they become apparent, and licence holders must be watchful for this.'

FSC chief executive John Aspden says the infrastructure required to develop the island as an innovative centre for offshore e-financial services is now in place. In the introduction to the report he states: 'The Commission has worked closely with licence holders as their plans in this area have developed, and responds positively to soundly based proposals.'

 
Luxembourg  

There are three options for payment processing in Luxembourg. Some ISPs can accept an e-commerce company's payments through their own accounts, or those partnered with WorldPay, for example, can set up acounts for an e-commerce company. Finally, there is a DIY option for e-commerce businesses: Luxembourg-registered companies can use the online processing system launched in June 2000 by the Centre de Transferts Electroniques (Cetres).

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The Future For Offshore E-Commerce Payment Processing

The big problem for any offshore jurisdiction wanting to set up in payment processing, and to a lesser extent in certification, is that these services don't need to be provided from offshore. During an e-commerce transaction, there comes a moment at which payment needs to be effected, and that usually means that a credit card transaction has to take place. As much as there are tax advantages in making sure that the server on which the contract is made is in a low- or no-tax area, it's not likely that the location in which payment happens will have a tax implication.

This is not a totally confident statement, because the OECD TAG (Technical Action Group) which is considering the taxability of e-commerce transactions has yet to issue its final report. But interim reports have gone in the direction of saying that substantial activity has to take place on a server before it can constitute a 'permanent establishment', ie before it would become liable for corporate taxation in that jurisdiction. Some countries, including the UK, say that the location of a server is completely irrelevant. For the UK, it is the location of management and control that determines taxability; but most European countries will probably remain true to their bureaucratic 'civil code' mentalities and will want precise rules to define when a server is taxable.

Neither 'management and control' nor 'substantial activity' is likely to trap the mere effectuation of payment, when the contract has been entered into elsewhere - so few people think that it matters where payment processing takes place.

That being the case, it will probably be allowed to take place vaguely 'in cyberspace' according to whatever widely available set of programmes is used on the Internet, and the location of the company providing it will be of interest only to its own shareholders. They may choose to locate it offshore, for the same reasons that any company providing virtual services would want to be offshore - but that's only one dimension of the location decision, and access to pools of skilled labour is probably more important. A small software company may be able to locate in Bermuda, or at a stretch in Mauritius (where there are some techies at any rate) but Microsoft won't.

So it's not surprising that offshore payment processing and certification has developed only in those countries which have substantial existing business infrastructure, as well as appropriate legislation and good connectivity, being Ireland, Hong Kong and Bermuda. The Isle of Man is unexpectedly missing from the list - but that is perhaps more because Bermuda is unexpectedly on it, and that is due to its proximity to America. And it can be predicted, if this analysis is right, that Bermuda's e-commerce providers will first make alliances with global firms, and then be bought by them. It is inherently improbable that a substantial e-commerce support sector (other than the physical business of hosting servers) will develop in any offshore jurisdiction, unless it is completely open to immigration, has a low cost profile, and is very well connected. Few, if any, fit that specification.

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