Banks Wary of Offshore Payment Providers

Google has backed down on its plan to launch its “digital wallet” in the Australian market, says Australian managing director Maile Carnegie.


Unveiled to much hype in the United States in 2011, Google Wallet sought to replace credit cards by allowing customers to pay for purchases with their smartphones.


But while some local start-ups are eyeing payments services, a market dominated by banks, Ms Carnegie on Thursday said this was not a high priority for the technology giant.


She said Australia rather was one of the world’s most innovative markets for digital financial services, leaving few obvious gaps for the company to fill.


Australians had been the most enthusiastic adopters of contactless payments in the world, she noted, whereas in the US, where Google Wallet was launched, many people still wrote cheques.


Despite Ms Carnegie’s comments Big banks view technology companies as threats to their lucrative businesses.


Australia’s largest Bank The Commonwealth Bank’s chief executive Ian Narev last year said the competitive threat from Apple or Google was as large as that posed by rival lenders.


The co-founder of technology firm Atlassian, Mike Cannon-Brookes last month described bank profitability as “insanity” and said companies including payments firm Tyro, where he is a director, were targeting the potentially lucrative market.


However, the chief executive of ANZ’s Australian operations, Phil Chronican, stressed that banks made most of their money in the highly regulated markets of lending money and taking deposits, rather than arranging payments.


“Many of the start-ups that are looking at the convenience of consumer payments are looking at a part that delivers a very small part of the profit pool of the banks,” said Mr Chronican, who was speaking alongside Ms Carnegie.


“Indeed one of the conundrums is that the banks are offering their consumers free payments today, and therefore it’s hard to know where the profit pool that can be attacked is.”


Mr Chronican added that many technology start-ups eyeing financial services were solving issues specific to the United States, rather than Australia.


“You hear about all these things happening in the US, and then you realise that 70 or 80 per cent of them just don’t transport,” he said.


It comes as the government’s financial system inquiry grapples with how to harness technology to encourage competition, without weakening regulations designed to protect consumers and promote financial stability.


Inquiry chairman David Murray told a separate conference on Thursday that financial services were a key target for leading technology entrepreneurs, and this presented an opportunity to lift competition.


“These technologies in our view will create substantial new competition in financial services and put pressure on existing players to make some significant investments in technology that, frankly, they might have made years ago if they had anticipated some of these developments,” Mr Murray said.



Amazon To Provide Offshore Merchant Account Facilities


Online retail behemoth Amazon will soon offer borderless card payment facilities enabling your business to accept customer payments by card regardless of where you might be located.


The new product, Amazon Local Register, is a black, compact rectangular card reader stamped with Amazon’s logo across the front. The $US10 device plugs into a merchant’s smartphone or tablet, and works in conjunction with a smartphone app to process and track all of a merchant’s business transactions.


It also comes with an enticing offer: lower processing fees.


The device is a new stomping ground for the Seattle-based web company, which has expanded its online storefront over the years to include goods of nearly all sorts – books, furniture and electronics, to name a few. While many of the products on are sold directly by Amazon, the site also lists products sold and shipped by smaller retailers.


And that, some analysts say, is why this move was not entirely unexpected.


“So much of this is about Amazon building platform lock-in,” said Heath Terry, an internet analyst with Goldman Sachs, who said the Local Register card reader was just one more component filling out an entire suite of offerings for the small businesses that sell goods on


“If you’re a third-party seller on Amazon’s site that’s using them for one thing, ultimately you’re using Amazon for everything,” Terry said.


This should all sound familiar. Square, the San Francisco payments startup valued at $US5 billion ($5.37 billion), has offered its sleek version of a mobile card reader since 2010.


PayPal, eBay’s payments division, which processed $US55 billion in transactions last quarter, offers a similar device.


And then there are the huge incumbents like Verifone, which has sold its own terminals to merchants of all sizes for decades.


So by most measures, Amazon is late to the game. And yet no company with a mobile card reader has emerged as a clear winner. Amazon could push its way into the market with its own set of attractive incentives for small businesses.


For instance, Amazon is offering early adopters an especially low processing fee on each credit card swipe processed. If a merchant signs up before the end of October, each swipe will cost 1.75 per cent of the total transaction, a deal which will last until the end of 2015.


That is a full percentage point below Square’s cut and less than PayPal’s 2.7 per cent charge as well. Even after the promotional deal expires, Amazon will charge merchants 2.5 per cent.


This is classic Amazon. With its low rate, the company is most likely losing money on transactions it processes, according to Colin Sebastian, an analyst with Baird Equity Research.


“In typical Amazon fashion, they’re using price as a motivator,” Sebastian said. “It’s pretty obvious in this case that they’re losing money on the swipes at least.”


That is similar to the company’s strategy with Kindle Fire tablets and smartphones; while Amazon makes little to no money on selling the Fire devices, each one acts as a portal to Amazon’s retail universe, where customers are encouraged to spend more money buying goods online.


But a better rate does not necessarily guarantee success. As competition has increased, payments companies have expanded the scope of their services, aiming to attract merchants with more than just a lower transaction cut on credit card swipes.


Both Square and PayPal, for instance, offer lending programs for merchants looking to expand their operations.


This week, Square started an appointment scheduling service for businesses. It has also acquired Caviar, a startup that provides food delivery service to small restaurants that do not otherwise offer it.


Some businesses may be reticent to sign up for Amazon’s new reader, lest they hand over scores of information to the online retailer. Packaged with its new card reader, Amazon’s Local Register software will manage detailed data on a merchant’s overall business operations, including sales trends and volume. That is the kind of data set that could help Amazon operate more successfully in the long run.


Every business needs a card payment facility, in particular online and Offshore incorporated businesses.


Whether you’re a fan of Amazon or not more competition in the often hard to access (and expensive) world of merchant account service providers can only be a good thing.



How To Secretly Control An Offshore Foundation


I’m sometimes asked how can I retain control of my tax free Offshore Foundation without anybody knowing?


The Seychelles model of Private Foundation provides an interesting option in this regard.




When you register an Offshore Foundation the name of the person authorising the registration of the Foundation (ie “the Founder”) appears in a publicly filed/accessible document called a/the Charter.


However Seychelles law allows the Founder’s rights to be privately/secretly assigned to a third party.


What this means is you can deploy a “Nominee” Founder to create the Foundation and reserve the Founder’s rights/powers to yourself without anybody apart from you and your Offshore Foundation Service Provider knowing.


The following powers can be reserved to the Founder of a Seychelles Foundation (which rights you would secretly inherit ie if/when the Founder’s rights are assigned to you post registration):


  • The right to appoint or remove Protectors
  • The power to direct the dissolution of the Foundation and to direct the amendment of the Charter
  • The Power to direct or approve the appointment or removal of a Councillor
  • The Power to direct or approve the addition or exclusion of a Beneficiary
  • The Power to direct or approve the continuation of the Foundation as a Foundation registered under the laws of a jurisdiction outside Seychelles
  • The Power to direct or approve the Council to effect the forfeiture by a Beneficiary of his/her benefit, right and interest under the Foundation if the Beneficiary challenges in writing: (i) the establishment of the Foundation; or (ii) the transfer of any assets to or by the Foundation; or (iii) the Charter or any provision of the Charter; or (iv) the Regulations or any provision of the Regulations; or (v) any decision of a Councillor, the Protector or the Founder
  • The Power to direct or approve the amendment of the Charter and/or the Regulations by the Council
  • The Power to direct or approve investment activities of the Foundation, including the acquisition and disposal of investments by the Foundation
  • The Power to direct or approve the rights, entitlements and restrictions relating to each Beneficiary, including the power to direct or approve the making of any distribution of Foundation Assets (or any part thereof) to a Beneficiary.


Note – The Offshore Foundation Council’s role is to manage the Foundation and carry out its objects. If a Founder is given very wide powers in respect of a Foundation (e.g. the power to direct or approve Foundation investment activities or distributions and the power to direct the dissolution of the Foundation or amendment of its constitutional documents) this may cause the Foundation to be viewed as a mere nominee of the Founder or may constitute ‘management or control’ so as to make the Foundation ‘tax resident’ where the Founder is resident or domiciled.


This could have adverse onshore tax consequences for the Offshore Foundation or Founder, especially if the Founder is resident or domiciled in a high tax country with a worldwide tax system. Hence if you’re looking to establish a tax free Offshore Foundation it would be wise to seek local legal and tax advice before deciding what powers might be reserved to the Founder (or to you as assignee Founder).