Visa and MasterCard now charge a cross border transaction fee even when no currency conversion occurs. This relatively new fee - “cross border transaction fee” (MC) or “International Service Assessment (ISA) fee” (Visa) – was initiated by Visa and MC to ‘fight’ usage of the international credit card processing network when no currency conversion occurs.
Many on-line merchants make their best effort to enhance the shopping experience. By Geolocation they identify the shopper’s location and offer a local shopping experience, including local currency pricing. This is now supported by acquirers enabling multi-currency processing.
In such international transactions, no conversion occurs and the merchant receives the foreign currency paid by the shopper. The merchant can either manage the FX in-house, use third parties which specialize in this field and can guarantee the USD amount, such as E4X or FXmicropay or use direct cross currency processing offered by acquirers, such as ChasePaymentech.
One way or another, due to these many bypass solutions, Visa and MasterCard added the new cross border transaction fee. The fee applies when a shopper makes a single-currency purchase at a foreign country merchant, or in other words, when the issuing bank of the shopper is located at a different region than the merchant account of the seller.
Many travelers and on-line shoppers are already familiar with this fee, yet only few merchants are aware of the higher discount rates associated with such transactions, as well.
The workaround is relatively simple and should be applied when possible. Merchants may open local merchant accounts once establishing a local presence. Many of the merchants operating internationally already have international presence and those who do not can easily obtain one. Now that Europe is one big region, researches show that most US merchants can cover over 80% of their international sales by opening one Canadian entity and one EU entity only.
As shoppers origin is already identified (Geolocation – remember?), any international transaction is automatically routed to the relevant local merchant account. Issuer and Acquirer are now in the same region and no cross border transaction fee applies.
Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com
Tags: Credit Card Processing, Credit Card Processing Fees, International Merchant Account, Merchant Account
Great advice for international merchants. If all merchants would have followed this advice the life of on-line shoppers would have been much easier.
Until such happy days, shoppers should purchase on local platforms when such are available, i.e. if you live in the UK and buy on Amazon, use amazon.co.uk for your local purchases…
WOW – though I’m familliar with the ISA fee from my personal Visa credit card statements, I never realized it costs us more to process those transactions through our merchant account.
Had to run and check – I now confirm that as a merchant we pay additional 0.4% on any Canadian cross border transaction and additional 0.8% on any European or Asia Pacific cross border transaction – Amazing! Already working on implementing your suggestions – thanks!
Good post – thanks!
One paragraph is not clear-
“Many travelers and on-line shoppers are already familiar with this fee, yet only few merchants are aware of the higher discount rates associated with such transactions, as well.”
I also think the fact that in Europe one does not pay the fee –is worth emphasizing and not left to the understanding of the reader.
Dan, shoppers traveling abroad or shopping at foreign online websites, see the fee as a separate line item and are (becoming) aware of this new fee.
Merchants, on the other hand, who already have a hard time following the endless transaction types and different discount rates per transaction/card/debit/credit/time of authorization/etc. do not necessarily catch up with these fees in specific.
Not sure I’m with you on Europe. As long as issuer and acquirer are located at the same region (regardless if this region is in Europe, the US or Asia Pacific) the fee does not apply.
Gidi.
Took me time to realize that the associations apply the cross border transaction fee on issuers and acquirers both. Now I get it. Thanks!
Was posted on: http://debitcardcreditcard.net/2009/10/how-to-avoid-cross-border-transaction-fees-%c2%ab-credit-card/. Thanks! The DebitCardCreditCardTeam.
Was posted on: http://harley.athlonnews.com/2009/10/accepting-credit-card-payments-international-merchant-accounts-for-your-online-business/. Thanks! Harley.athlonnews Blog manager.
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The fees that are at the centre of the issue are known as multilateral interchange fees, and charged to retailers when international transactions are conducted. However, it is usually the consumers that ends up footing the bills due to prices that are then inflated by the retailers.
You may find “Pick an international merchant account provider” interesting. Physical good merchants may outsource the global activity all together and choose a partner who’s already walked the extra mile…
I don’t quite agree. But basically you’re right.
Great information! Thanks!
Thank you – this one sounds like it could actually work!!!
I’m gonna give this interesting idea a chance, and tell you how it works.
Keep on posting – Already waiting for your next article…
I always thought that “cross border” = “cross currency”
Learning that the associations charge this fee even when no currency exchange occurs is unbelievable!
What on earth can justify such a fee, and why is it legal?
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