Lisa James sits in her South Florida condo and surfs the net. She finds Playcentric.com, a site that sells books and music, and the latest bestseller she has been looking for. With a click of the button, she has bought the book, paid for it and will expect it to land on her doorstep in the following days. Mission accomplished.
And without another thought, she goes on with her daily routine. Lisa has no idea about the long-distance trail her money and order have taken, out of the US, under the Atlantic Ocean through fiberoptic cables to land some 560 miles off North Carolina on the sandy pink beaches of a tiny paradise island called Bermuda.
Playcentric operates out of a hurricane-proof command center in a former US naval base in Bermuda. The company uses another Bermuda company to process its credit card payments, First Atlantic Commerce. Playcentric’s computer servers are located in Bermuda; its operating unit is in Barbados, which has a distribution deal with a big record store chain in Toronto.
This is the new wave of dot com, able to domicile itself anywhere in the world and always looking for ways to cut costs to increase profits.
The information Lisa punched into her computer and the money she paid has traveled to this 22 mile-long speck in the ocean because this little offshore British crown colony has become something of an e-commerce phenomenon. Companies around the world have figured out they can save millions of dollars a year by carrying out transactions offshore, where they are not subject to the same taxes as in the US, Latin America or Europe.
And while Bermuda does not see itself as a tax haven, it has worked itself into pole position because of its stable government, British common law legal system, special e-commerce laws that help companies set up easily, and strong but not invasive regulatory measures. Plus the always welcome no-tax on transactions.
“Bermuda domiciled companies are not subject to income, withholding, capital gains or profit taxes, with the assurance of no change until 2016,” says Warren Cabral in an official Bermuda International Business Guide published by Appleby Spurling&Kempe, where he is a partner.
He adds,”The deregulation of the telecommunications industry has opened the door to competition, allowing for added fiberoptic capacity linking Bermuda with the rest of the world, decreased long distance rates and increased bandwidth.” Bermuda has been wiping other jurisdictions off the board for some time, with Cayman Islands, Bahamas, Guernsey, Jersey and Isle of Man all fighting to keep up. Bermuda has its own Ministry of E-Commerce – the first jurisdiction in the world to have a dedicated ministry, and in 1999 put into force the Electronic Transactions Act, which sets out a flexible framework on security issues on the Internet and legislates on electronic signatures, electronic signature products, signature verification devices and electronic records.
Bermuda has been creating a competitive professional, technical and management e-commerce backbone from which to grow. The island has enough bandwidth to cover 15 million simultaneous voice and data connections, with two digital fiber optic cables and two satellite earth stations. 360networks, before filing for bankruptcy earlier this year, linked the island to both North and South America with state-of-the-art cables, making Bermuda the hub of future connections between continents.
In the same way that it has succeeded in attracting a whole host of top-notch insurance companies, Bermuda is drawing in the e-businesses of the future. In 2000, an estimated 60 e-commerce companies incorporated in Bermuda.
Pat Phillip-Bassett, chief executive officer of the Bermuda International Business Association says, “Bermuda is a genuine one-stop shop for e-business, where you can incorporate, list on a recognized stock exchange, secure venture capital and get support from the island’s sophisticated service providers, including technological, legal and payment processing, while enjoying superior bandwidth and accessibility. Our infrastructure fosters innovation and high standards of conduct, reinforced by world-class banking, accounting and consulting resources.”
Nigel Hickson, the e-commerce advisor to the Bermuda Minister of Telecommunications and E-commerce, says “BIBA works alongside government to provide information for e-businesses, but we are hoping to have a national plan up and running by next year. This is a way of making sure that there is a government plan to take e-business to the next level. If we want to be as good at e-business as we say we do, we have to look at what type of e-business we are good at – the sophisticated high-end market.”
But for now BIBA, a publicly funded organization, is pointing interested parties towards the right companies and government ministries to set up shop. And dot coms have been taking advantage of the frameworks and popping up all over the island. ISI Publications Ltd sells hard-to-find business books on the Internet under the domain name Booksonbiz.com. There is also Etrade Group Inc, a fledgling online stockbroker.
Virtual Companies
And an e-company can set up virtually in Bermuda, without ever having to make a trip there. One of the most recent to do just this is a company called Drawn&Quartered.com Ltd. This company has incorporated in Bermuda so that visitors to its web site can view, and buy from, its bank of cartoons by international artists.
A legal advisor on the island incorporated the firm online, the web site was set up by a local IT business and the site is hosted by a local Internet service provider, without anyone from the company ever setting foot in Bermuda. The first visit will be when the chief executive officer visits to address an e-commerce conference this October.
To do business in Bermuda, companies first have to incorporate on the island. Local law firms have been pursuing this business aggressively, with the largest, Appleby Spurling&Kempe, setting up an online incorporation system.
One of the big draws to the island is its provision of payment processing solutions the e-merchants need. The island has two main operators, First Atlantic Commerce and First E-com.com, although poor financial performance has recently driven the latter to diversify away from e-commerce.
According to Melanie Burns, vice president at First Atlantic Commerce, which has been touting for business with companies in Latin America for the past year, Bermuda offers more than just somewhere to settle your bills and is confident of her company’s success. “There is a lot of scope in international e-business payment needs,” says Burns. “To sell goods competitively online, merchants need the real-time capability to authorize and process transactions. Credit card processing requires a complex set of technology investments and business relationships that include payment gateway – that is, the conversion and decryption of digital order information into credit card network format, third-party processing, bank acquiring and settlement.
“Existing Internet merchants and multi-channel retailers looking to sell over the Internet are faced with challenges such as speed to market, a focus on core competencies in customer acquisition and merchandising, and a low investment technical solution that is robust and scalable,” continues Burns. “And in addition to needing standard payment processing capabilities, non-US and international merchants face a set of challenges that directly impact their ability to compete globally.”
In the majority of Caribbean, Central and South American markets, payment gateway and acquiring services for Internet banks have not yet been developed. Start-up merchants in these regions are often forced either to forego real-time processing or to seek that capability in foreign markets instead.
The core of the problem lies with VISA and MasterCard regulations that allow Internet merchants to accept payments only in the home currency of the merchants’ acquiring bank. The exception is when that bank possesses multi-currency capabilities via their processor: most do not. Consequently, merchants that use non-domestic acquiring banks cannot bill in domestic currencies, and merchants that sell internationally cannot bill in global currencies.
And the ability to use multiple currencies, especially those different from the processing agents, is the most critical payment need facing many global merchants.
The Bermuda contingent believes it can solve this problem by offering high-quality, secure transaction processing at competitive pricing for mid-tier merchants.
Multinationals Joining In
But it is not just the Davids in Bermuda that are taking on the US and UK Goliaths. International giants are also getting in on the act, using not only Bermuda’s stability, but also its geographical position.
In the 1980s, Cable&Wireless (C&W) laid its fifth undersea fiberoptic cable to Bermuda and, earlier this year, the company launched a subsidiary that could take advantage of this capacity. Cable&Wireless eBusiness Ltd is a web hosting company set up in Bermuda at a cost of $10 million. It is now trying to convince global corporations that conduct transactions online to move their heavily visited web sites to Bermuda to save on taxes and to avoid the ever-present, overbearing regulators.
C&W eBusiness officially began operations in July 2001 and within a month the company had won three major contracts, including a three-year, $700,000 agreement to host and monitor Internet servers for Sea Supplier, a company that sells marine supplies and services online to ship operators.
TeleBermuda International is another player in this market and has carved out a niche for itself, despite being owned by 360networks. This profitable division of the beleaguered 360networks has been inundated with take-over offers, which 360 has been fighting off as it needs the links the Bermuda subsidiary offers its parent’s communications business.
TeleBermuda opened a $1 million hosting facility at Southside in 1999, capable of handing small and large web sites. It also has access to the cables laid by 360networks that come out of the Atlantic and into a secure center in the west end of the island.
C&W eBusiness’s payment processing service, can also settle credit card transactions for its clients. All of the products are customized to clients, and none costs less than $10,000 a month. According to Clausen, the cost of hosting offshore is about 15 to 20% higher than in the US and Europe, although some services cost the same because C&W pays duty on the equipment it brings to the island. But he added that companies can over-recover that cost through tax savings and reduced administrative costs.
Depending on what kinds of websites C&W hosts, the capacity from the island might soon be exceeded as data-intensive web sites like digital music vendors or image archives will quickly use up the bandwidth.
Phillip-Bassett, of the Bermuda International Business Association, says C&W eBusiness provides many of the services – web hosting, web site management and payment processing – that are offered individually by other companies in Bermuda. First Atlantic Commerce, for instance, provides payment processing to mid-sized and large websites, while Bermuda Computer Services, through Transact-e-biz.com, offers payment processing and offshore web hosting for small and large clients. Both keep their equipment at the C&W facility.
Clausen says that the facility would attract high-end business to Bermuda that would not otherwise go there. The hosting center is one of several initiatives by C&W to reposition itself globally. Except in the Caribbean, the company has divested its telephone businesses to concentrate on providing data services, with plans to quadruple its hosting facilities around the world to one million square feet. Eventually, C&W hopes to go from third largest to largest Internet hosting company in the world.
Most of the corporations with websites hosted in Bermuda will want to incorporate there, requiring the services of lawyers, accountants and other professionals. This is how Bermuda makes money out of the whole virtual hosting business, while merchants save money on taxes.
Hickson says: “Merchants can virtually locate here, and can make use of the payment processors on the island. They can locate in a stable jurisdiction with a good infrastructure. Clearly there are fiscal reasons for locating offshore too. In a global world companies are looking more and more to locate different parts of their business in different parts of the world.”
And unknown to Lisa in Florida, and most other Internet users, Bermuda is at the forefront of facilitating and benefiting from this new global economy.