A cross border fee is a charge added to credit card processing fees by the merchant services provider. This fee can be significant, usually in excess of $60 per month, and it may be charged when your business conducts transactions in currencies other than US dollars (USD).
Types of Credit Card Processors That May Charge A Cross Border Fee
Unfortunately, most payment gateways likely add a cross border fee because they are looking for ways to undercut their competition. This means that almost all of the credit card processors in the marketplace may add this fee, including First Data Corp., Elavon, TSYS Merchant Solutions, Global Payments, Cayan and many others.
The best way to determine if your merchant services provider adds a cross border fee is to talk to them when you are originally signing up for their service. Ask, “Does your service have a cross border fee?” If the answer is, “This has never come up before. I will get back to you after checking with my manager or finance department” then it’s likely that this fee is added.
Fees That Make Up the Cross Border Fee
The easiest way to understand what types of fees make up a cross border fee is to look at an example. For the sake of simplicity, let’s assume that you sign up for a credit card processing account with Global Payments. Let’s also assume that your base rate is 1.9%. This means that when a customer swipes their credit card through your credit card swipe machine and enters their PIN, 0.95% of the total is charged to your customer and 0.75% goes to Global Payments as a processing fee.
Global Payments adds a cross border fee that consumes half of the .75% that they charge you cross border fee for credit card processing. This means that when a customer from Germany swipes their credit card through your swipe machine, you will pay 1.45% for that transaction instead of the normal 1.9%.
Why Is This Bad?
This is bad because customers are not told in advance about the cross border fee. The merchant services provider does not tell them this when they sign up for service or even after they start using their credit card machine.
More importantly, most customers do not even realize that they are simply making a transaction in their local currency. In the most simplified example, a US based business is conducting a transaction with a European customer who is using their credit card machine to swipe German Euros (EUR). The merchant services provider will convert this at the current exchange rate and add a cross border fee.
This means that nearly 1% of the transaction is being converted twice and both conversions will include a fee for this service. In addition, if you use a processor that adds an additional 1%-2% to your published rate, then there are two fees being added on all of your transactions in currencies other than USD.
Who Should Consider A Cross Border Fee?
The only reason to consider a cross border fee is if you are selling internationally and you know that all of your customers will be using currencies other than USD. In this case, it’s best to select a credit card processor that guarantees no additional fees for doing business with your customers in their native currency.
In addition, you should avoid a cross border fee if your business is processing transactions with US customers in any currency other than USD. This means that if you accept credit cards for a business based in the UK and all of your payments are coming from US cardholders, then there’s likely no reason for this fee to be applied.
If you know that your business is going to be conducting transactions in currencies other than USD, then it’s best to ensure that the credit card processing company handles these conversions and fees for you. If they do not do this automatically, then find a different credit card processor because all of your competitors will likely have a much lower advertised rate than the credit card processor that you are using.
Best Practices to Minimize the Effect of a Cross Border Fee
If your credit card processing company charges a cross border fee, it’s best to let your customers know about this before they make their purchase. When you are doing business with non US consumers, remind them that there will be an additional fee that is simply the cost of doing business in US dollars.
If you are conducting transactions with a company in another country, determine if they charge a cross border fee on their side. If not, then you can request for them to make an exception and waive these fees when processing your transactions. Most companies will do this because it means increased sales with your company.