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What are Cross-Border Fees? (And How to Avoid Them)

Alexis Damen | July 15, 2022
What are Cross-Border Fees? (And How to Avoid Them)

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Selling cross-border means you’ll encounter cross-border fees. It’s long been possible to buy something from abroad. A British tourist might buy a souvenir from Portugal with a local credit card or a businessperson might take advantage of lower taxes to import stock from a neighboring country. That being said, cross-border e-commerce is on the rise. With the click of a mouse, a consumer in Germany can buy a product from your business in Spain using Giropay — a popular local payment method among German consumers. If they pay with a local card issuer, you’ll likely have to pay a cross-border fee.

Selling cross-border is gaining popularity as the global e-commerce market continues to make it easier to do so. In this article, you’ll learn what a cross-border fee is, when and why they’ll be charged, how much they’ll cost, and how you can avoid or at least reduce the amount you have to pay.

Table of contents

What is a cross-border fee?

A cross-border fee is implemented when a customer pays for your products or services using a card connected to an issuing bank that’s not located in the same country as your acquiring bank

Cross-border fees are also referred to as international service assessments or foreign translation fees, but they’re different from currency conversion fees. Exchange rate conversions and any connected fees can be charged alongside cross-border fees. They are tied to the value of currencies, rather than the transaction itself.

📚Further reading: Acquiring Bank vs Issuing Bank: 3 Minute Guide

When and why are you charged cross-border fees?

International payments create more work for financial institutions. Before 2005, card networks (also known as card issuers) like Visa and Mastercard charged a currency conversion fee. Merchants got around this by using acquiring banks that accepted multiple currencies. Since the card networks still had to do extra work for international payments, they decided to implement fees whenever an acquiring bank and an issuing bank were located in different countries — also known as cross-border fees. 

There are two key points to think about when it comes to cross-border fees. Where your business is registered and where the card issuer is located. If these two locations are different, you’ll be charged a cross-border fee. Let’s look at this in more detail.

Where is your business registered?

Let’s say you’ve started a business selling musical instruments online. Your business is registered in Spain but you want to sell your products across the EU. Any products sold in Spain will count as domestic, anything else will incur a fee that gets passed onto you instead of your customers. 

You’ve probably considered currency exchange already, but you may not realize that the card network will also charge an interchange fee for cross-border payments. Depending on your card payment processor, you may see this as a line item on your invoice or it will be built into the transaction fees. 

Where is the card issuer located?

Let’s stick with the musical instrument business registered in Spain. A customer who lives in Portugal wants to buy a keyboard from you with their Multibanco card (Portugal’s most used local payment method). Even though the transaction will be started and finished in Spain, the card issuer is located in Portugal. This means a cross-border fee will apply.

How much will a cross-border fee cost you?

Mastercard and Visa apply different cross-border fees, depending on the type of transaction and the currency used. At the time of writing, Mastercard’s cross-border fee ranges from 0.6% to 1% of the purchase, and Visa’s cross-border fee is 1% to 1.4% of the purchase.

Although we haven’t seen any changes to these fees in a few years, it’s worth speaking to your bank to find the most up-to-date information. They could change at any time. 

📚Further reading: MONEI is the First Spanish Fintech to Offer Instant Payments Across Europe with SEPA Request-to-Pay

Cross-border fee example

Let’s take a look at Mastercard based on the information we have at the time of writing for a business based in Spain that sells products cross-border — including to Japan. 

You sell five hats costing a total of €50 to a customer based in Japan. The purchase is made in Euros from a Japanese card issuer. This transaction will incur a 0.6% cross-border fee, which works out as €0,30.

Or let's say you sell five hats costing a total of €50 to a customer based in Japan. The purchase is made in Japanese Yen from a Japanese card issuer. This transaction will incur a 1% cross-border fee (because they’re in a different county and using a different currency), which works out as €0,50. In this case, depending on the card issuer and payment gateways, you’ll likely also have to pay a currency exchange fee.

To be clear, the customer's physical location isn’t what matters here. If they were based in Japan and using a credit card with a Spanish card issuer to buy from your business in Spain, no fee would be incurred as it would mean the acquirer and issuer are in the same country.

For example, you sell five hats costing a total of €50 to a customer based in Japan. The purchase is made in Euros from a Spanish card issuer. This transaction will not incur a cross-border fee. 

How can you avoid or reduce cross-border fees?

It’s possible to avoid some cross-border fees but as with any kind of transaction, it’s always worth assessing the pros and cons of every option. 

Fees that can’t be avoided

Some fees, such as card payment cross-border fees are simply unavoidable. If a customer pays using a card issuer located in a different country than your acquiring bank, a cross-border fee will apply.

Use a payment service provider to accept local payment methods

Many countries have payment methods that are more popular locally or that are completely unique to them. If you’re doing a lot of business in a particular country, it’s worth using a payment service provider (PSP) that lets you accept popular local and alternative payment methods. And depending on the PSP, you may be able to avoid or reduce cross-border fees. 

For example, if your business is based in Spain and your payment gateway supports Multibanco payments and has local acquiring in Portugal, you likely won’t have to pay a cross-border fee as the card issuer and the acquirer are based in the same country. 

But if the same payment gateway that supports Multibanco payments doesn’t have local acquiring in Portugal and only has an acquiring partner in Spain, you’ll have to pay a cross-border fee on each Multibanco transaction because the card issuer and acquiring bank are not located in the same country. 

Register a local business branch

There may come a point when you’re selling as many or more products to an international market. When this happens, you may want to register a business branch in a different location. This will allow you to partner with a merchant acquiring bank that is based in the same country as your customers’ card issuer.

For example, if your business is registered in Spain, but you sell many products to the Netherlands, you may decide to register a local business branch in the Netherlands to avoid cross-border fees. This means you’ll have acquiring services in Spain as well as in the Netherlands. 

But having said that, registering a business abroad comes with a lot of challenges. Be careful about doing this. There are other taxes to consider, as well as administrative costs and governing laws. There are possible savings, but there are potential pitfalls too.

Partner with distributors

If setting up a local branch doesn’t seem viable, a slightly less risky option could be partnering with local distributors. There’s still a lot to consider, including compatibility but they would have a local acquiring bank and therefore avoid cross-border fees.

For example, if your business is based in Spain and a high percentage of your customers order from the Netherlands, you could look for a distributor to partner with in the country. Their business would be registered in the Netherlands (with acquiring in the country), and distributing your products to Dutch consumers would help you avoid cross-border fees.

Cross-border fees, be prepared

You’re now aware of what cross-border fees are, why they exist, how much they cost, and how you can avoid them, which means you have enough information at hand to prepare your business for international expansion. Choose a payment gateway that lets you accept a variety of local payment methods so you can reach more people, improve the checkout experience, and increase your conversion rate. 

Alexis Damen

Alexis Damen is the Head of Content at MONEI. She loves breaking down complex topics about payments, e-commerce, and retail to help merchants succeed (with MONEI as their payments partner, of course).

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