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What Is A Cross Border Fee

GoCardless
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Last editedAug 20222 min read

Before the rise of online shopping, a cross-border fee was something which only the largest organisations had to face. Thanks to digital technology and the ease of payment platforms like GoCardless facilitating payments through a vast range of methods, now a business of any size can operate globally.

Despite the many advantages in terms of revenue, cash flow and business growth, it also comes with its own issues. These issues include the complications of invoicing internationally, and having to deal with a cross-border fee. 

How much is a cross-border fee?

This varies depending on the details of the case. Generally, the cross-border fee is an amount charged by card associations such as VISA and Mastercard. The more complex the transaction, the more that you, as a merchant, face a range of fees and charges, as well as details such as the exchange rate between the currency in which you deal and the currency the customer uses to make the payment. The extra complexity of cross-border transactions – including increased compliance – means that payment card associations cover the extra costs by charging a cross-border fee. 

Cross-border processing fee

Enabling customers to make payments using international banks means that your business is genuinely global, but it comes at a price. The emergence of genuinely global purchasing patterns which coincided with the rise of digital technology meant that card associations suddenly found themselves dealing with many more such transactions.

The rise of eCommerce meant that payment card associations introduced the cross-border fee in 2005. Mastercard and Visa had to absorb the cost of rising global purchasing and decided to pass this cost along to the merchant using the global marketplace. 

Cross-border fee and foreign transaction fee

If you look at the statement of your transactions, you may see the term ‘foreign transaction fee’ in relation to certain charges. This includes the cross-border fee charged by the card provider, as well as any other charges associated with selling in other territories. 

Cross-border fee and currency exchange fee

A cross-border fee is not the same as a currency conversion fee, and can be charged in addition to it at the same time. An exchange rate fee is charged with reference to the value of the currency involved at the time of the purchase, whereas a cross-border fee is set at a specific rate per transaction. Generally this rate is a percentage of the overall cost of the transaction. 

Can you avoid a cross-border fee?

Most merchants are happy to be trading globally, but the more transactions you deal with in other territories, the higher your cross-border fees. In simple terms, it’s hard to avoid cross-border fees, and the steps to do so can be significant. They include the following:

Make use of local distributors to sell your products 

If a substantial percentage of your trade takes place in international territories, consider setting up or liaising with distributors in those countries. They would handle the transactions and fulfil the orders, eliminating your cross-border fees.  

Open an overseas branch

Similarly, set up a branch in that country. All of the transactions and accounting pertaining to business there would therefore take place within the border, eliminating your cross-border fees. 

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