What Is A Cross Border Fee For Credit Card Processing?

If you decided to read this post, you’ve probably already have been introduced to the cross border fee on your credit card processing statement, and you want to know a little bit more about it.

Read on to learn what the cross-border fee is and what could trigger it. Then we get into the nitty-gritty of the cross border fee itself — why it’s passed to you and how much it may impact your business.

What Is A Cross Border Fee?

A cross border fee is a credit card processing fee charged whenever a merchant in one country (e.g., the US) accepts payment from a customer whose card originates from another country (e.g., Mexico). Cross-border fees are fixed, non-negotiable fees set by card networks.

When Might A Cross-Border Fee Apply?

Here are two scenarios where the cross-border fee might apply.

Cross Border Fee Scenario #1

In this first scenario, imagine you are an owner of a textiles company in the western part of United States and have an eCommerce storefront. You decide to begin selling your fine fabric offerings in Canada, so you develop a campaign that successfully targets your prospects to the north; your online sales take off in the Toronto area.

In this case, you intentionally decided to reach out and market to prospects who live outside of your country, so you are likely well aware of the fact that you will need to consider the conversion rate. What you may not know is that your credit card processing company is also taking on additional fees when it comes to converting from Canadian currency to USD — and those fees are passed to you.

In this scenario, you can expect a cross border fee to be applied to the sale. This cost represents a tiny percentage of your total sale but still may become an important factor when it comes to deciding if you ever want to expand or set up a part of your business over the Canadian border to save fees.

Cross-Border Fee Scenario #2

With eCommerce, you should be aware that you’re opening your business up to international sales and accept that you’ll end up paying a bit more in fees as a consequence. But there are some cases where you may not be aware of the international nature of a sale, especially for card-present transactions! In these cases, a random “cross border fee” appearing on your statement can be a cause for alarm.

If you have a brick-and-mortar shop, for instance, you could potentially accept payment from someone traveling to the US (as a tourist or even on business) who walks into your shop and pays you with a card from an overseas bank. The final conversion will be in US dollars from that overseas bank, and therefore, the cross-border fee applies.

Why The Cross Border Fee Is Passed To You

Selling across borders means more work for the financial institutions involved, which is why cross-border fees are passed on to the merchants.

Any time a transaction involves two currencies, there are a few more administrative steps required to convert money from one country’s currency to another’s. Depending on the countries involved, there are also some risks for the issuing banks, particularly when it comes to the stability of another country’s currency.

The two biggest players in the credit card industry — Mastercard and Visa — both assess cross border fees to credit card processing companies. The credit card processing company then typically passes these charges on to the merchant in the sale.

It’s important to know that even though both companies charge the fee, they call it by different names. Visa refers to its fee as the International Service Assessment, whereas Mastercard is more direct and simply calls it the Cross Border Fee.

How Much Are Cross Border Fees?

Just how pricey are these cross border fees?

Part of that depends on where in the world you, the merchant, are based. Mastercard, for instance, issues a 0.6% fee for “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 charges a bit more for non-US merchants: “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,” will cost you a flat 1.0% in addition to interchange fees.

Keep in mind that you could also be responsible for other types of assessment fees, including the Global Acquirer Program Support Fee, which applies to transactions accepted by US merchants involving credit cards that are issued outside of the U.S.

Note that each of these fees is 1% or less of your total sales from the credit card companies. And while that likely won’t break the bank, each fee still takes a little something away from your bottom line.

How Third-Party Processors Deal With International Processing

We generally recommend merchant account providers that offer interchange-plus pricing for transparency’s sake. You know how much the processor will charge in addition to interchange fees and assessments, and it’s all clearly laid out in the statement. However, third-party processors typically offer flat-rate pricing instead of interchange-plus. (Think Square or Stripe, both of which charge 2.9% + $0.30 for most US-based online transactions.)

Third-party processors don’t break down all of their fees for you, and that’s largely because they play a numbers games — with their flat-fee pricing, they make a profit on some transactions but lose money on others (usually American Express transactions, which tend to have higher interchange rates). This sort of pricing model means that the processors usually set their own pricing for cross-border transactions and other special fees rather than simply passing on the card networks’ interchange fees for the sake of keeping pricing predictable.

Some third-party processors don’t support international transactions at all. Square falls into this category. Others, such as PayPal and Stripe, do accept international transactions, but assess their own fees.

Is There A Way To Avoid The Cross Border Fee Charge?

The answer to that question is generally a hard no — not if you want to continue making sales from your international patrons. The cross border fee charge is a non-negotiable assessment fee that is collected and maintained by the card networks. Your credit card processor doesn’t make any profits off of the base fees set by the credit card companies. That said, you will want to make sure your processor isn’t charging you extra fees for the transaction — these may be negotiable.

And there are a few exceptions that some business owners might want to explore. While it isn’t possible to get the cross border fee removed when you deal in international business, you may decide that you do enough business in one area of the world to necessitate registering your company in that country and opening a bank account there. There may be a plethora of reasons why that decision would work for your business, and one of those could be to avoid extra processing fees. It all depends on where you see your business growing and if expanding your business in a specific region is worth it for you.

Keeping The Cross Border Fee in Perspective

For most business owners, accepting orders across borders — despite some extra costs — represents more potential for revenue growth. Balancing all the costs of doing business with your customers (no matter where they are) with your profit potential will help you make the best decisions while you keep your goals intact.

If you are worried about the woes of overpaying for credit card processing and feel you need some more guidance on making the best choice, our cost analysis workbook may be able to help.