Navigating card processing fees and transactions cross-border

What are cross-border fees?

Cross-border fees are charges applied to transactions where buyers and sellers are in different countries. These fees, which include currency conversion costs and additional processing charges, reflect the complexities and increased risk of international payments, making them typically higher than fees for domestic transactions.

For merchants eyeing global expansion, understanding these fees may be important for profitability. By incorporating additional costs into your pricing strategy, you can maintain competitive pricing without sacrificing profit margins.

With these things in mind, check out our guide on how to start selling internationally.

Understanding card processing fees

Card processing fees represent a broader category of expenses incurred during electronic payment processing, including:

• Interchange fees. Paid to the card-issuing bank, varying by card type and transaction details.
• Assessment fees. Charged by the card networks (e.g., Visa, Mastercard) based on transaction volume.
• Markup fees. Applied by the merchant's acquiring bank or payment processor.

While all transactions – domestic and international – incur card processing fees, cross-border transaction fees are additional charges that specifically apply to international transactions.

Factors affecting cross-border transaction fees

The cost of cross-border transactions is influenced by factors such as:

• Currency conversion fees. Charges for converting transactions from one currency to another.
• Regulatory compliance costs. Fees associated with adhering to international banking and financial regulations, which can vary among countries.
• Network fees. Additional charges levied by payment networks (e.g., Visa, Mastercard) for cross-border transactions.
• Transaction volume and frequency. Higher volumes often lead to lower per-transaction costs.
• Risk and security measures. Costs added to cover security measures and fraud prevention strategies.

Navigating cross-border transaction costs

Managing the complexities of cross-border transaction fees is crucial for businesses aiming to master cross-border commerce.

To minimize currency conversion fees, consider offering customers the option to pay in their local currency. This not only enhances customer experience but also can lower the costs associated with currency fluctuations and conversion.

Establishing strong relationships with payment processors also allows businesses to negotiate better terms. By leveraging your transaction volume and history, you may potentially secure lower markup fees and more favorable conditions.

Lastly, the integration of modern technology solutions can help minimize fees. Digital wallets or blockchain-based payments often offer lower transaction fees than traditional banking systems. They also streamline the payment process, making it faster and more secure for international transactions.

How to avoid excess cross-border fees

Want to avoid excess fees? Keep these tips in mind:

• Choose the right payment gateway. Those specializing in global transactions may provide more competitive currency conversion rates.
• Understand your fee structure. Awareness of hidden fees and the specifics of how international transaction charges are applied can help you make informed decisions.
• Regularly review your arrangements. Markets and fees change. Periodically reviewing your payment processing arrangements can help you stay on top of any shifts in fees or available services, ensuring you always have the most cost-effective solution.

Price transparency in cross-border transactions

A transparent pricing strategy is paramount in cross-border transactions. According to Baymard Institute research, 48% of respondents said they've abandoned a cart due to extra fees like taxes and shipping they perceived as too high.² Transparency around product prices, shipping fees based on various shipping methods, and taxes can help build trust while simplifying the decision-making process – making it easier for them to hit that final checkout button.

This not only reduces cart abandonment rates but may also positively impact the business's bottom line by encouraging more completed transactions.

Managing cross-border transactions to reach new markets

Expanding your business’s operations globally can feel daunting, especially when you start adding tasks to your to-do list: navigating currency fluctuations, ensuring compliance with local regulations, and monitoring increased fraud risk.

Partnering with an experienced payments provider like PayPal can be a game-changer. Our expertise in global e-commerce means you can start accepting foreign currency with PayPal without worrying about the details and, instead, focus on other crucial aspects of business growth.