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The internet has made the world a much smaller place. From anywhere, you can easily sell to customers across the globe. While this is exciting, you've probably noticed a "cross-border fee" line item on your billing statements from credit card companies.
Credit card associations like Mastercard and Visa charge these fees to cover extra costs of international transactions. As a business owner, you must understand these charges and manage them to benefit from selling globally.
With knowledge and the right solutions, it's easy to minimize the impact and maximize the gains of global commerce. By the end of this article, you'll understand what cross-border fees are, how they're calculated, and most importantly, how to manage and reduce them—creating benefits for yourself and your customers.
What Are Cross-Border Fees and When Are They Charged?
A cross-border fee (also called "international service assessment" or "foreign transaction fee") is a fixed, non-negotiable processing fee that credit card companies charge whenever a business in one country receives payment from a customer using a card issued in another country.
For example: an American customer buys chocolates from a Swiss online shop. While this seems simple, a complex behind-the-scenes process involves different currencies and banking networks. The extra digital steps increase risk for credit card companies, so they charge a cross-border fee to cover extra costs and effort.
When do these charges apply? It's less about buyer or seller geography, and more about where your business is registered and the buyer's bank location.
If your business is registered in the same country as the buyer's card issuer, the transaction is domestic with no cross-border fee. If the card was issued elsewhere, you pay the fee.
In our chocolate example: if the American customer uses a Swiss card, no cross-border fee applies. If they use an American card, the Swiss company pays the fee.
Who Has To Pay Cross-Border Fees?
While international sales create extra work, who pays? Cross-border fees are determined by card associations and charged to card processors who pass them to the business owner.
Bottom line: as the business owner, cross-border fees fall on you. Consider it the cost of opening your digital doors to global customers and conducting business in any currency.
These costs can be managed and minimized (as explained below), especially with the right payment service provider.
How Are Cross-Border Fees Calculated?
The exact cross-border fee depends on the card association's fee structure and transaction currency. It's actually straightforward to calculate.
Each card association sets its own fee structure, but all charge cross-border fees as a percentage of the sale. Visa and Mastercard, for example, charge one "base rate" for US dollar transactions and a higher "enhanced rate" for other currencies. The enhanced rate always exceeds the base rate.
Always read the fine print and understand fees for each card type you accept. For example, Mastercard charges 0.6% cross-border fee for US dollar transactions, but 1% for other currencies.
Remember these fees are in addition to regular transaction fees. However, these percentages remain relatively small, especially with high international transaction volumes.
How Can You Minimize Cross-Border Fees?
Though credit card companies won't negotiate cross-border fees and you can't completely avoid them if you sell internationally, you can minimize and manage them.
If you have many customers in a specific country, use a provider that accepts common local and alternative payment methods to reduce cross-border fees. For example, Pay.com enables businesses to accept diverse payment methods, with new options regularly added. Digital wallets, A2A (Account-to-Account) payments, and local payment methods all reduce cross-border exposure.
Consider opening a business branch in a country with many customers. Transactions using cards issued there become domestic with no cross-border fees. This only makes financial sense if business volume generates revenue exceeding the fees.
An easier option: establish relationships with local banks allowing you to route payments through their networks, making purchases appear local. Alternatively, partner with local distributors banking locally. They sell your products using their local financial infrastructure, deflecting cross-border fees. You may need to share profits, so factor that in.
Scrutinizing cross-border and other fees identifies cost-reduction opportunities. Use Pay.com's user-friendly Pay Dashboard to track all transactions and view reports and analytics informing your cost-reducing strategies. Click here to get started now.
The Bottom Line: Cross-Border Fees
While globalization and new technologies create great opportunities for online businesses, these benefits come at a cost. Cross-border fees are one cost you can't avoid.
However, you must monitor and manage these fees carefully, deciding on strategies—including establishing local branches or partnerships—to minimize their impact on your business.
Choose a provider that facilitates your business strategy. Pay.com is a secure provider offering a user-friendly dashboard to track and analyze sales and payment information. This allows you to minimize cross-border fee impact and leverage exciting international commerce opportunities. Find out how you can get started.
FAQs
Why am I being charged a cross-border fee?
When a customer makes a purchase with a credit card issued in a foreign country (different from where the business is registered), credit card companies and banks face greater risk and handle more complicated transactions. They charge a cross-border fee to cover extra costs.
How can you avoid cross-border fees?
Cross-border fees can't be avoided, but you can minimize and manage them. Registering branches or merchant accounts where you do significant business or creating distribution partnerships with local businesses are effective ways to lower cross-border fee costs. Ensure you use a provider like Pay.com offering a wide variety of payment options.
How much are cross-border fees?
Cross-border fees are calculated as a percentage of the sale. The exact percentage is determined by the card association and affected by the currency used. Generally, transactions in US dollars incur lower fees than those in other currencies.
What's the best way for my business to accept payments?
You'll need an online payment infrastructure. Pay.com is an easy and convenient option allowing you to set up quickly and accept a wide variety of payment methods, online or over the phone.
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