What Is a Cross-Border Fee (& Why Are You Being Charged One)?
By Dan Farrell
The internet changed commerce forever.
With the click of a button, consumers in Asia can buy goods from merchants in America. Gourmands in Russia can buy the highest-quality chocolate straight from Switzerland. Fashionistas in Canada can buy world-renowned leather products direct from Italy.
And yet, in the business world, increased accessibility often leads to increased fees.
That’s especially true in our global economy.
Despite the convenience of e-commerce, countless costs creep into every sale.
As a merchant, you’ve probably been both frustrated and shocked by the range of fees that accompany international payment transactions. Perhaps there’s one charge in particular that grabbed your attention — “cross-border fee.”
In this blog post, we’ll explain cross-border fees, discuss why they’re being charged to you, and reveal how you might be able to avoid them (or at least reduce their financial sting).
Cross-Border Fees: Explained
Cross-border fees were nonexistent.
That all changed in 2005 when cardmember associations like MasterCard and Visa realized that e-commerce was here to stay. As assessment fees increased, so did the annoyance of MasterCard and Visa.
Before long, the card networks shifted the burden of international fees to the issuing bank or processor, which ultimately fell to the merchant. The merchant can access international payments and opportunities in exchange for this fee.
And what exactly is a cross-border fee? In short, it’s an assessment charged to a merchant when a customer pays with a credit card issued by an international bank.
Put more simply, it’s a fee instituted when a merchant in one country (e.g., the United States) accepts payment from a customer whose card originates from another country (e.g., China).
While these fees are sometimes referred to as “international service assessments” they will typically be listed on your statements as either a “cross-border fee” or as a “foreign transaction fee.”
Note: Cross-border fees are entirely distinct from currency exchange fees, and both charges are usually billed separately.
The Determining Criteria of Cross-Border Fees
There are two factors that credit card companies analyze when deciding if they’ll charge cross-border fees to your account:
Criteria 1: Where the Merchant’s Business Is Registered
For example, if your business were located and registered in the United States, all sales from within the country would qualify as domestic — and no cross-border fees would be applied.
Any purchases made by consumers living outside of the U.S. would automatically incur cross-border fees.
Criteria 2: Where the Card Issuer Is Located
Once the credit card companies know where the merchant’s account is based, they’ll then seek to determine the origin of the customer’s card-issuing bank.
If the bank is located in a country other than the merchant’s, the credit card companies will issue a cross-border fee.
Though the credit card companies have slightly different rates for cross-border fees, they share the same fundamental criteria for levying them.
Why You’re Being Charged a Cross-Border Fee
Let’s say your business is based in Atlanta, Georgia.
A shopper in Spain buys items from your online store with a credit card issued by a bank in Madrid.
To facilitate the purchase, multiple digital transactions need to take place. For starters, the currency needs to get converted from the Euro to the United States dollar (USD). That will automatically incur one fee.
Then, cross-border fees will apply because the business transaction involves more than one country. Connecting customers and merchants from different countries that use different currencies and banking networks, requires considerable work from the many financial institutions involved and sometimes means taking on the risk involved with the currency. That work is why cross-border fees are charged.
What You’ll Be Charged for a Cross-Border Fee
What will your business get charged? As of October 2021, MasterCard applies one of two distinct fees:
– A 0.6% fee on transactions settled in USD from cardholders in countries outside the United States
– Or, if the same transaction was settled in a foreign currency, the merchant would pay a 1.0% fee
While Visa issues international service fees with similar criteria to MasterCard, their rates are slightly more punitive at 1.0% and 1.40%, respectively.
As consolidated by Wells Fargo, here’s a full breakdown of payment networks and their rates for merchants:
| Card Network | Rate | Fee Definition |
|---|---|---|
| Visa International Service Fee – Base | 1.00% | Applies to any transaction in which the merchant’s country of domicile differs from the country where the card was issued and the transaction was settled in USD. |
| Visa International Service Fee – Enhanced | 1.40% | Applies to any transaction in which the merchant’s country of domicile differs from the country where the card was issued and the transaction was not settled in USD. |
| Mastercard U.S. Cross-Border USD | 0.60% | Applies to any transaction in which the merchant’s country of domicile differs from the country where the card was issued and the transaction was settled in USD. |
| Mastercard U.S. Cross-Border non-USD | 1.00% | Applies to any transaction in which the merchant’s country of domicile differs from the country where the card was issued and the transaction was not settled in USD |
| Discover International Service Fee | 0.80% | Applies to the dollar amount of card sales (excluding cash over) conducted at a merchant location in the U.S. where the domicile of the card issuer used in the card sale is a country other than the U.S. |
| Discover International Service Fee | 0.80% | Applies to the dollar amount of card sales (excluding cash over) conducted at a merchant location in the U.S. where the domicile of the card issuer used in the card sale is a country other than the U.S. |
| American Express Cross-Border Fee | 0.40% | Though this is a flat rate, American Express may bundle this fee with others. Be sure to contact AmEx to learn exactly how their cross-border fees will be presented on your statement. |
Why Some Cross-Border Fees Can’t Be Avoided
Unfortunately, credit card cross-border fees are non-negotiable. Though the individual rates may change, the assessments are simply an unavoidable part of doing business on a global scale. These fees will be incurred as long as your company completes card-based transactions with international patrons.
But here’s the good news: while cross-border fees are a permanent fixture for card networks, there are a few avenues for you to consider if you are determined to avoid paying them.
How to Reduce and Avoid Cross-Border Fees
Though cross-border fees can’t be negotiated, they can be avoided by implementing the same business strategies corporations often employ to avoid currency exchange fees.
For instance, providing localized payment methods, such as mobile wallet options, can help merchants lower the overall cost of cross-border fees. Offering globally popular wallets allows you to bypass card networks while providing preferred payment options at check out. You can learn more about how accepting mobile wallets and other local payment schemes helps lower merchant fees here.
If your company does a large volume of business in a particular country or region, you may want to consider registering a branch of your company in that area.
For example, if your business is headquartered in Chicago and attracts considerable business from London, you could apply for a merchant account in the United Kingdom.
That would enable you to process locally issued credit cards for payment without incurring any cross-border fees.
On the other hand, you could also establish or partner with distributors in the United Kingdom to sell products on your behalf (rather than through your parent company). This would also help deflect cross-border fees.
How Citcon Enables Competitive Cross-Border Merchant Fees
At Citcon, we help merchants achieve low cross-border fees by implementing popular mobile wallets and other local payment schemes through one integration. Not only does accepting popular local payment methods improve merchant fee costs, but it also helps improve the user experience, increase acceptance rates, improve shopping cart abandonment rates, and so much more.
Explore the benefits of Citcon today!
