Cross border fees can become expensive for merchants who process a large volume of transactions from foreign consumers. However, it is necessary for many business owners to continue accepting these payments because the global economy has become a way of life. If you run an online business, your customers could be all over the world, which can be a help and a hindrance.

Here, we’ve assembled a guide to help you understand cross border fees and how they impact your business.

What are Cross Border Fees?

Cross border fees are charges that a merchant pays to the bank for processing international transactions. The fee is usually in the form of a percentage of the transaction amount and is paid by the merchant.

Cross border fees are one of the many costs that merchants incur when they process an international transaction. These fees depend on various factors such as:

1. The type of card used for payment
2. The type of currency in which the purchase is made
3. The country where the purchase is made
4. Whether or not there are any other charges involved in making this purchase (such as shipping).

Many consumers may also be charged cross border fees for such transactions. If you’ve ever used your credit card while traveling abroad, you might’ve noticed these fees on your billing statement the following month.

What are the Criteria for International Transactions?

International transactions are those that involve at least one party in a country other than the United States (assuming your business is in the US). Transactions can be broadly classified into two categories: cross-border and domestic.

Cross-border transactions are those where the parties to the transaction are in different countries. Domestic transactions are those where the parties to the transaction are in the same country. Visa and Mastercard generally consider three main criteria when assessing cross border fees:

Where is the Business Registered?

The first criterion is where the business is officially registered. When merchants obtain payment processing services, they must provide documentation for the location of their business. If your business is in the United States, all transactions within the United States will be considered domestic. Those from merchants or consumers who are from another country will be considered foreign transactions, and therefore be assessed a cross border fee.

What is the Location of the Card-Issuing Bank?

The location of the card-issuing institution can also affect the domestic or foreign status of a transaction. If your consumer lives in the United States but acquired a credit card from an institution outside of the US, you will still be subject to cross border fees for those transactions.

What Currency is Being Used in the Transaction?

In many cases, a cross border fee is also assessed if the transaction is being made in a currency that is different from that of the merchant’s home country. This usually goes hand-in-hand with criterion number 2, but it’s important to note.

Are Cross Border Fees the Same as Foreign Transaction Fees?

Cross border fees are the same as foreign transaction fees. Sometimes the terms are used interchangeably. They are usually a percentage of the total amount that you spend or process and are included in your credit card statement as a separate line item or as part of the total transaction.

Are Cross Border Fees the Same as Currency Exchange Fees?

Cross border fees are not the same as currency exchange fees. Cross border fees are assessed to card transactions between issuing and acquiring banks in different countries. Currency exchange fees are charged when a customer converts currency from one country into currency from another country.

For example, if you’re planning a trip to Europe, you can take US dollars to a currency exchange place and trade them for Euros to take on your trip. Making that exchange will cost you a currency exchange fee.

How Much Are Cross Border Fees?

Cross border fees are expressed as a percentage of the transaction amount. This makes them simple to calculate on a per-transaction basis. However, not all credit card companies charge the same rate. Here is a guide to each of the card networks and their cross border fee percentages.

• Visa International Service Fee – Base (1%): The Visa International Service Fee applies to any transaction in which the card-issuing bank is from another country, but the payment was settled in the United States, in USD (US dollars).
• Visa International Service Fee – Enhanced (1.4%): This fee applies to transactions in which the issuing and acquiring banks are not the same, and the payment was settled outside of the US, in a currency other than USD.
• Mastercard US Cross Border USD (0.6%): When an international transaction is settled in the US, and also in USD.
• Mastercard US Cross Border Non-USD (1%): As you might’ve guessed, this fee is incurred when a foreign transaction is settled in a currency other than USD.
• Discover International Service Fee (0.8%): The Discover fee is incurred when a purchase on a foreign card is processed with a merchant whose business is in the US.
• American Express Cross Border Fees: As always, AMEX is different than the rest of the card networks. The cross border fee for an AMEX card is a flat rate of 0.4%. However, on your billing statement, it may be bundled with other fees. If you want clarity on them, contact your card issuer.

How to Reduce the Cost of Cross Border Fees

There are a few ways in which merchants can reduce the cost of cross border fees. Consider the options listed below and which ones may be a fit for your business.

Use a Multi-Currency Payment Processor

Check to see if your current payment processor supports multi-currency processing. If so, be sure that it’s included in your agreement with them. If not, you may want to consider finding a new processor who offers this service. It depends on your volume of international transactions.

Require Payments in Your Currency

Another option is to require your customers to make their purchases in your currency. They will pay an additional fee on their end, but it could decrease the fees you pay on your end.

Register Your Business in Another Country

If you do a high volume of transactions in a particular country, consider registering a satellite office in that country. Going through this process can be time-consuming and costly but could be worth it in the end.

Partner With Local Distributors

If your overseas transaction volume is high, you may also consider selling through local distributors in specific countries.

Final Thoughts

Understanding cross border fees is the first step to making decisions about processing them. If your foreign transaction volume is high enough, it might make sense to employ some of the suggestions in this guide. If not, you might be fine as you are. Compare the costs of continue as-is vs employing some of the fee-reducing tactics we’ve discussed. From there, you can make an informed decision for your business.