If you accept payments from customers in other countries, you may pay a cross border fee. Understanding what it is, how it works, and how to avoid it is important to protect your company’s bottom line.
Here’s everything you must know.
What is a Cross Border Fee?
As the name suggests, a cross border fee occurs when you accept payment from someone ‘across the border.’ It’s also known as the International Service Assessment. It’s a charge for converting currency from another country to US currency.
All credit card networks charge cross border fees (Visa, Mastercard, Discover, AMEX), but they charge them to the credit card processors – the company you signed up with. Some credit card processors pass the fee along to the merchant (you).
When do you Pay Cross Border Fees?
You pay cross border fees anytime you accept payment from someone living in another country. But it’s not always clear when this is happening.
If you’re an online merchant, you probably accept the fact that you’ll get international orders. It’s a way to grow your business, so you accept them, but you’ll pay higher processing fees to process the transactions.
If you decide to accept international orders, it’s important to find out the cross border fee percentage. It’s charged on each international sale. If you do a large number of international sales, it could eat into your profits, so it’s worth looking into ahead of time.
But you may also run across this issue if you have a brick-and-mortar store. Even if you don’t operate online, you may unknowingly accept an international credit card if a visitor from another country comes to your store.
Why do you Pay the Fees?
You may wonder why credit card networks don’t just absorb the fee since they charge merchants so many other fees to be able to accept credit cards.
The cross border fee started in 2005 when international sales increased quite a bit. Credit card networks, issuers, and banks had to go through quite a bit of administrative work to handle the international sales.
Since the payment is made in a different currency than you accept (US dollars), the credit card companies must convert the currency. This costs money. Plus, they take on a large risk if the payment is from a country with unstable currency.
The costs involved and the risks credit card companies take force them to pass the costs along to merchants since you’re making the sale. Some credit card processing companies eat the fees themselves, but most pass them along to the merchant. Look for it among your assessment fees and ask questions if you aren’t sure.
Are Cross Border Fees Fair?
It may feel like you’re getting hit with yet another fee that makes it hard to accept credit card payments but look at it from the credit card issuer’s perspective.
You doing business in other countries is risky. Just because you can advertise there and get business from them doesn’t make it safe. The credit card issuer runs the risk of the funds not holding their value during conversion. Then they are stuck with the loss.
To make up for it, they charge the fee. Think of it like an insurance premium that you pay to your life insurance company. You hope you don’t die, but you pay the premiums just in case, right? The cross border fee is the same idea.
What Does it Cost?
Every credit card issuer charges a different amount for the cross border fee. Mastercard for example charges 0.6% of the transaction if the transaction is settled in US dollars and 1% of the transaction if settled in another currency. Discover charges 0.8% of the transaction in either situation and Visa charges 1.0% if the transaction is settled in US dollars and 1.4% if it’s settled in another currency.
Don’t just look for the name cross border fee. It can show up as other names too including foreign transaction fees and Global Acquirer Program Support Fee and Global Acquirer Program Support Fee.
Can you Avoid Cross Border Fees?
It would be nice if there were ways to avoid the cross border fees, but there aren’t. The fees are the credit card issuer’s way of protecting themselves. Processing funds from another country is risky. They need to protect themselves against that risk, just like an insurance company charges higher premiums or a mortgage company charges higher interest rates for risky borrowers.
But are there ways to avoid it? Maybe not avoid but negotiate can be a better word.
- Ask for details about the fees – Find out exactly what the credit card processor charges for international transactions. Some processors charge excessive fees, which you may be able to negotiate. While you can’t get around the Visa, Mastercard, or Discover fees, you can get around other miscellaneous fees by asking.
- Set up business in the country you do business – If after doing business for a while you find that a lot of your business comes from one country, you can set up a business in that country, registering it there so you don’t have to deal with the cross border fees.
Just like with any credit card fees, ask questions, see what you can negotiate, and don’t get taken advantage of. Most companies pass along cross border fees to merchants, but they may not stop there. Find out exactly what they charge so you know what you’re paying and if anything is negotiable. Just because you accept international payments doesn’t mean you should have to pay excessively. Do your research, ask questions, and get professional help if you aren’t sure what’s right or wrong.