Last editedSep 20223 min read
The rise in ecommerce opens new doors for international revenue and growth potential. At the same time, merchants need to be aware of the credit card processing fees involved with international payments. If you accept card payments from customers based in a different country, you may notice something called a cross-border fee on your transaction statements. So, what is a cross-border assessment fee, and how much will it cost your business? Here’s what you need to know.
What is a cross border assessment fee?
A cross-border fee is a type of assessment fee paid by the merchant. Cross-border fees apply to transactions involving a card issued by an international bank. For example, imagine that a visitor from the UK wants to purchase a swimsuit from a Miami boutique. The visitor uses their credit card, which has been issued in the UK, to make this purchase. Because the Miami-based vendor has a merchant account based in the United States, they’ll be charged a cross-border fee. This is separate to the currency exchange fee, which may also increase the cost of doing business.
Cross-border fees were first introduced in 2005. Until this point, cardholder networks like Visa and Mastercard footed the cost of overseas transactions on behalf of merchants. With the rise of the online economy, these costs were growing increasingly significant – and cross-border assessment fees were charged to merchants accordingly.
Why was I charged a cross border fee?
You’ll only be charged a cross-border fee if you’ve accepted payment from a cardholder with a foreign issuing bank. When you look at your merchant account statement, you might see cross-border assessment fees included under the general “foreign transaction fees” label. It’s important to note that currency exchange fees aren’t included in this general category; they’ll be charged separately depending on the currency rate according to the latest market conditions.
How are cross-border fees determined?
A cross-border fee will depend on the answers to these two questions:
Where was the credit card issued?
Where is the merchant account located?
For U.S. registered businesses, this means that a cross-border fee applies to any transaction involving an issuing bank located outside of the United States. The specific amount will depend on the customer’s country and the type of card that they’re using. Visa, MasterCard, Discover, and American Express all charge different fees.
Another factor that determines how much you pay is whether you bill your international customer in your own currency or in their local currency. The fee will often be higher for transactions charged in foreign currency.
How much is a cross-border fee?
There are several factors that go into this equation, all outlined above. The customer’s location, card network, and transaction currency will have an impact on the total fee. Generally, this hovers around 1% of the total transaction cost, with an additional charge for transactions not settled in USD. Cross-border fees vary according to the credit card processor you choose, which is something to consider when determining which payment methods you’ll accept.
How to cut down on cross-border fees
Credit card processors charge flat fees for cross-border transactions, so is there a way to reduce your transaction fees? Yes, here are a few ways to reduce charges for international transactions:
Set up your merchant account with a bank that supports multi-currency processing to cut down on some of the exchange fees.
Open new branches of your parent company in each regional market. This is a more in-depth approach to consider, requiring research into each country’s accounting and tax requirements.
Sell your merchandise using local distributors, fulfilling orders through a middleman rather than selling directly to overseas customers.
Another way to reduce these fees is to focus on alternatives to credit card payments. For example, direct debit orACH transactions are taken directly from bank accounts – putting the merchant in control over the transaction and cutting out the cross-border fee.
GoCardless offers a streamlined way to take international payments from over 30 countries at real exchange rates. Setting up separate bank accounts and sourcing regional distributors takes a lot of administrative work. With GoCardless, businesses can offer the local bank debit option in each supported country. Customers and businesses complete the transaction in their own currency – with no foreign bank accounts needed.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off orrecurring payments.