Bermuda may be losing out to other offshore locations due to insufficient e-business banking services on the Island, according to other e-business companies.

According to Government's Green Paper on E-business, the rate of incorporations in Bermuda in the Internet field may have been curtailed due to limited merchant account facilities.

Local companies who handle online credit card payments or "ePayments" are lobbying for more local banks to handle demand.

The Bank of Bermuda no longer offers the service to merchants without a physical presence in Bermuda. So while they might act as the bank for a purchase made on a Trimingham's website, for example, they have taken a commercial decision not to offer the service to an "offshore" dot.com, even if it is domiciled in Bermuda.

Bank of Butterfield is currently the only retail bank which offers so-called "merchant accounts" to exempt company retailers.

At last week's Forum on the Green Paper, one stakeholder, Cable & Wireless claimed that the Bank of Butterfield has an exclusive position with its wholly owned subsidiary Promisant (Technology) Ltd, which essentially locks out the opportunity for other local companies.

Yesterday, the Bank of Butterfield denied this was the case. Chief financial officer Richard Ferrett clarified that, naturally, the bank uses its wholly owned subsidiary Promisant (Technology) Ltd. as their payment processing department.

However, they also use FDR, a US payment processor and Mr. Ferrett said that applications referred by local gateway companies who were not using Promisant would still be considered, subject to normal business criteria.

All applications for merchant accounts, would be subject to the bank's stringent credit policies, as well as adherence to association regulations for an e-commerce merchant.

Such external regulations would include, but not be limited to, security aspects of the website and shopping cart privacy policy and published return policy.

Mr. Ferrett added that Bank of Butterfield were not interested in certain sectors of ebusiness, such as on-line gambling or porn companies.

Processing credit card transactions through an offshore bank has its advantages.

When the Visa or MasterCard systems sees that the transaction is based in Bermuda, it permits settlement on the Island so the retailer can take advantage of the benefits of confidentiality, security and tax-neutral status.

Recently two major payment processors, worldpay and planetpayment had to withdraw their services from some e-commerce merchants based outside the US due to tightening of Credit Card Association regulations.

FAC, chief executive officer, Andrea Wilson explained that according to VISA and Mastercard regulations, businesses based offshore have to have a merchant account in the same region.

"You can't be a Bermuda company and have your merchant account in the US."

This led to FAC being inundated with requests for help.

Ms Wilson says she has been receiving up to 100-150 requests for merchant accounts, per month from US companies.

"I don't have anywhere to refer them in Bermuda so I have been referring them to Scotiabank and FirstCaribbean Bank and our banking partners in Central America and the Netherlands Antilles. We've got a lot of leads coming and all that business is being referred down to the Caribbean."

According to Ms Wilson, the Caymans have up to 30 acquiring banks while the Bahamas have 10 - 12 banks offering this service while Bermuda has only one. She contends that Bank of Butterfield alone cannot handle the volume of business being generated by this area of ebusiness.

First Atlantic Commerce, which acts as an ePayment gateway company based in Bermuda has supported the proposal in the Green Paper that more banking licences should be issued to offer this service.

Until recently, the Bank of Bermuda and First Atlantic Commerce worked together offering merchants accounts.

In 1999, they fell victim to online merchants making fraudulent use of certain credit card numbers resulting in customer charge-backs and losses to FAC.

According to Andrea Wilson at FAC, criminal fraud charges were successfully brought against the online merchants and a significant recovery was made. However this episode is understood to have contributed to Bank of Bermuda's decision to exit the business.

A spokesperson for the Bank of Bermuda said: "Following a review of its global corporate strategy, the bank felt this international merchant acquiring activity was inconsistent with its goal to excel in specialised global financial services, where its small size, international expertise and client-focused approach provides real value to its clients."