How a US-Owned Israeli Company Won Card Acquiring and Halved Its Reserve

Result: Card acquiring approved and the rolling reserve cut from 10% held 180 days to 5% held 90 days · Timeline: 11 weeks · Challenge: Every officer and shareholder sat in Texas · Authority: Licensed acquirer supervised under the Regulation of Payment Services and Payment Initiation Law 5783-2023 · Financial Impact: roughly NIS 440,000 of working capital released

Background

An Austin software company sold a subscription wellness product and decided to open an Israeli market properly rather than through its US checkout. It incorporated an Israeli subsidiary, appointed a local marketing head, and built a Hebrew site priced in shekels. The company was registered in nine days. The bank account took nine weeks. Then the founders discovered that neither of those things lets an Israeli website charge a card, and that the acquirer would ask sharper questions than the bank had. Two merchant applications came back declined with no reason given. A third came back with an offer: a rolling reserve of 10 per cent of turnover, held for 180 days. On projected first-year sales of NIS 12 million, that meant close to NIS 600,000 sitting with the acquirer at any moment, in a company whose entire Israeli operating budget for the year was smaller than that.

Nobody in the group held an Israeli passport. The chief executive had visited Israel twice, both times for four days. What the acquirer's compliance officer saw was a shekel-billing Israeli company whose controlling minds were all 10,000 kilometres away, in a subscription business with a card-not-present risk profile, and whose file did not answer a single question about who ultimately owned it.

The Challenge

Acquiring, slika in Hebrew, is a licensed financial activity in Israel. The Regulation of Payment Services and Payment Initiation Law 5783-2023 was published in June 2023 and took effect in June 2024, and it pulled acquiring, payment initiation and the issuing of payment instruments into one regime, with licence applications for non-bank providers running through the Israel Securities Authority while the card companies stay under Bank of Israel supervision. The practical consequence for a merchant is that the counterparty on the other side of the application is a supervised financial institution keeping a compliance file on you, not a payments vendor selling a service.

That is where an American-owned company runs into trouble, and it is worth being precise about why. The obstacle is almost never the product. It is that the acquirer owes identification duties in respect of the individuals who ultimately control the merchant, under the Prohibition on Money Laundering Law 5760-2000, and a Delaware holding company with a Texas operating address, two venture investors and an option pool does not identify anybody on its face. Our clients had sent the acquirer a certificate of incorporation and a bank statement. The compliance officer needed the chain from the Israeli subsidiary up to named human beings, with passports and proof of address, each foreign document carrying an apostille, and in the United States that means the Secretary of State of the issuing state, so a Delaware certificate and a Texas notarisation travel to two different offices.

There was a second problem, and it is the one non-residents least expect. An Israeli bank that refuses to open an ordinary account faces a duty under Section 2 of the Banking (Service to Customer) Law 5741-1981 not to refuse unreasonably, which gives a rejected applicant something to argue about and somewhere to complain. An acquirer's decision to decline a merchant carries no equivalent statutory duty to serve. There was no appeal, no supervisor to escalate to, and no reasoned refusal to attack. The only lever was the file itself.

In Practice: Acquiring is licensed activity under the Regulation of Payment Services and Payment Initiation Law 5783-2023, in force since June 2024, with non-bank licences processed through the Israel Securities Authority. Underwriting turns on beneficial-owner identification under the Prohibition on Money Laundering Law 5760-2000. A foreign-owned Israeli e-commerce company is typically quoted a merchant discount of 1.5% to 3% on card-not-present volume with a rolling reserve of 5% to 10% of turnover held 90 to 180 days, and onboarding runs two to four weeks once the Israeli settlement account exists.

What We Did

We treated the reserve as the negotiating point rather than the approval, because a reserve is a commercial security term and an approval is a compliance decision. The two move for different reasons.

Weeks one to three. We rebuilt the ownership chain on paper: the Israeli subsidiary, its US parent, the two individual founders holding 31 per cent and 24 per cent, and the venture fund holding 28 per cent, with the fund's own general partner identified so the trail ended at named people rather than another entity. Passports, utility bills, and the parent's corporate documents were apostilled at the relevant Secretary of State and couriered, and we had the Hebrew translations prepared in Israel rather than in Texas, which is the cheaper and faster order of operations for anything an Israeli institution must read.

Weeks two to five. The company had no VAT file. It had been invoicing its first Israeli pilot customers on US invoices, which no Israeli acquirer will settle against. We registered it as an osek murshe with the Israel Tax Authority so it could issue Israeli tax invoices at the 18 per cent rate, and opened the shekel settlement account in the subsidiary's own name. Israeli acquirers settle to Israeli accounts. They will not wire proceeds to a bank in the United States, and asking them to is read as a reason to look harder at the file.

Weeks four to seven. We wrote the underwriting memorandum the acquirer had never received: what the product is, when the customer is charged, when the service is delivered, what the refund policy says, what the cancellation flow looks like, how 3-D Secure is applied, what the historical chargeback rate had been on the US book, and what the company would do if it rose. Fourteen pages. In our experience this document does more to move a reserve than any amount of argument about the founders' track record, because the reserve exists to cover chargebacks and refunds after a merchant fails, and a merchant that can describe its own failure modes credibly is a smaller risk than one that cannot.

Weeks six to nine. We appointed an Israeli-resident authorised signatory on the settlement account, the company's Israeli finance manager, with defined and limited authority. This is the single change that most often unlocks a foreign-owned file, and it is not a formality. It gives the acquirer somebody inside the jurisdiction who can be reached, verified and, if it ever came to it, sued.

Weeks nine to eleven. We offered to substitute security. Rather than argue the reserve percentage down in the abstract, we proposed a bank deposit pledged in the acquirer's favour against the first tranche of exposure, with the rolling reserve reduced correspondingly and a written step-down: 5 per cent held 90 days from go-live, reviewed after six months of clean chargeback performance. The acquirer accepted, with the merchant discount set at 2.4 per cent on card-not-present volume.

In Practice: Registration as an osek murshe under the Value Added Tax Law 5736-1975 must exist before the acquiring application, not after it, because the acquirer settles against Israeli tax invoices issued at the 18% rate. Registration with the Israel Tax Authority took 11 days here. On the American side, the Israeli settlement account brought the US officers with signature authority inside the FBAR net, reportable on FinCEN Form 114 where the aggregate of foreign accounts passes USD 10,000, due 15 April with an automatic extension to 15 October.

The Outcome

The company went live 11 weeks after we were engaged, at a 5 per cent reserve held for 90 days instead of 10 per cent held for 180. At the projected NIS 12 million of annual turnover, the steady-state reserve fell from roughly NIS 590,000 to roughly NIS 148,000, which released about NIS 440,000 of working capital that the founders had already written off as the cost of selling in Israel. The merchant discount of 2.4 per cent was mid-market for the risk profile rather than a concession, and we did not pretend otherwise to the client.

Six months later the review clause did what it was drafted to do. Chargebacks ran at 0.29 per cent, the pledged deposit was released, and the reserve period shortened again. The founders' own summary, delivered on a call at seven in the morning Austin time, was that they had spent four months treating a compliance problem as a sales problem. That is the ordinary shape of this matter. The acquirer was never going to be persuaded; it was going to be satisfied.

Key Takeaways

What this case illustrates for non-residents in similar situations:

1. An acquirer is not a bank, and the remedies are not the same. Section 2 of the Banking (Service to Customer) Law 5741-1981 constrains a bank that refuses an ordinary account. Nothing equivalent constrains an acquirer's decision on a merchant, so the file has to persuade on its own and there is no supervisor to appeal to.
2. Build the beneficial-owner chain before the first application, not after the first decline. Under the Prohibition on Money Laundering Law 5760-2000 the acquirer must reach named individuals, and a declined file is harder to revive than a slow one is to complete.
3. Get the osek murshe file and the Israeli shekel settlement account in place first. An Israeli acquirer settles to an Israeli account against Israeli tax invoices, and a request to sweep proceeds to a US bank invites exactly the scrutiny you are trying to avoid.
4. Negotiate the reserve with substituted security rather than with argument. A pledged deposit, a written step-down and a clean chargeback record move the number. Assertions about the founders' experience do not.
5. Appoint an authorised signatory who lives in Israel. It changes how the whole file reads, and it costs nothing.

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Facing a Similar Situation?

If your Israeli company is selling to Israeli customers and the merchant application has stalled, the problem is usually a document chain rather than a business model, and the same is true when the settlement account is the thing holding everything else up. Our answer on credit card acquiring for a foreign-owned Israeli company sets out the underlying requirements, and the account itself is covered in our guide to opening an Israeli business bank account.

Contact us for a confidential consultation about your Israeli legal matter.