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What Is a Cross Border Fee for Credit Card Processing? Everything you need to know!

In today's global economy cross border fee for credit card processing is a growing concern for business merchants across the United States and Europe. Businesses as diverse as airlines, medical clinics, web designers, digital content providers and many more are finding themselves subject to these fees each time they accept a foreign transaction from a customer or client who lives in another country.
This post is designed to assist business owners with the information they need to understand these fees and how they can be avoided. It also provides information about what companies are most likely to be affected, and it points out some common pitfalls that result in cross border fees being charged against businesses that may not even realize there is a problem until they receive their credit card processing statement.
What is a Cross Border Fee?
A cross border fee or cross border surcharge as it is sometimes referred to, is a fee assessed against a business because the customer's issuing financial institution and/or payment card network (Visa/MasterCard/American Express etc.) are not located where the business is located.
How do Cross Border Fees Work?
When a customer from another country makes a purchase using their Visa card, MasterCard, or any other payment method that uses a foreign credit card network, the transaction passes through the processing networks and then to the issuing bank of that customer.
The issuer reviews all transactions for potential fraud, monitors for signs of identity theft, and makes sure the transaction is in compliance with all applicable rules and regulations. From there the issuer checks their rate schedule to determine how much they will charge the acquirer (the merchant bank, or more simply put, your business) to allow that transaction.
When an issuer charges a fee against a foreign transaction it is usually a percentage of the overall transaction value, though there are other methods being used as well. For example, some issuers charge a flat rate for any international transactions regardless of the amount.
These rates can range from less than 1% to 3% or more depending on which type of issuer you have and how they do business. For many smaller merchants, especially merchants in the United States where rates are much lower when compared to other parts of the world, these fees can be quite significant.
Issuers that Charge Cross Border Fees
Almost all major credit card issuers have policies that allow them to assess fees for foreign transactions. However not all providers assess these types of fees in the same way. Some issuers have a single per transaction rate for international transactions that is lower than their domestic rates, while others have a different fee structure in place for foreign transactions. If you are an international business owner who processes transactions in the United States, it's important to learn how your issuer assesses fees against the types of payment cards you accept, and how those rates compare to the rates they charge across other regions.
Merchant Service Providers Who Charge a Cross Border Fee
If you look at a credit card processing statement for a business that processes cross border sales, you will likely see that your service provider has assessed a fee against those transactions. In almost every case, this fee is passed along to the merchant, and it's important that you understand how this works.
Processing statements show a reduction in processing volume for international transactions as compared to domestic transactions. However if you look closely at those rates (especially if they are lower than your normal charges), you may notice that they do not actually match the fee being charged by the issuer. The reason for this is that service providers have business agreements with issuers to provide them access to the market through their processing platforms.
In exchange, the issuer agrees to pay a certain fee per transaction to the provider based upon how many transactions are processed through that platform. That fee is usually passed back to the merchant through the discount rate used to calculate the service fee. Some service providers offer incentives for merchants whose processing volume is mostly international transactions with reduced rates or other perks, however they usually offset this by increasing their overall rates (service fees) for any merchant with less than 10% international transactions.
The majority of card accepting businesses in most countries process US dollar transactions. This is the currency most commonly used in international trade, and therefore it supports the largest number of issuers with the lowest cost to merchants around the world.
The first thing you should do if your business does a significant amount of international sales is to find out how much your credit card service provider charges for foreign transactions as compared to domestic sales. You can request this information by emailing the provider's customer service department, or looking through your most recent statement which should clearly show these fees.
Use that number as a baseline to compare to the issuer's fee for foreign transactions of the types you accept. You will need this information if you plan on negotiating with an issuer who has higher fees for international transactions.
For business that process a large number of international sales, it may be worth the extra effort to negotiate a more favorable rate with your issuer, or switch providers if what you are currently paying is too high. It's not always easy to do this however, and requires knowledge of credit card processing industry rates.