The True Cost of Processing Cross-border

The True Cost of Processing Cross-border

As domestic sales slump, businesses are looking more than ever at expanding their footprints outside of their primary markets. Consumer spending and overall transaction volume are down, and one of the most attractive options to stabilize revenue and protect bottom lines is by expanding into new markets. But going cross-border requires more than launching an online storefront. You must consider how you're going to manage your cross-border payments. 

The two major strategies for structuring international payments are to either simply process transactions cross-border or to process locally. Local processing is considered the best approach to international payments by many. Read more on this in our blog processing locally vs. cross-border. However, the barriers to achieving this type of processing can often be too significant of a commitment for small businesses. This has forced the vast majority of companies to process cross-border transactions without considering the implications and costs of doing so. 

Like many, you may be thinking that the impacts of cross-border processing can't be that bad and that maybe they're even just a necessary evil of conducting international business. The truth is, these costs and impacts are much more than you might perceive. From lost conversions to a multitude of fees, your bottom line is taking a bigger hit than you might realize. 

First, you must understand that traditional cross-border payments are processed in the merchant's jurisdiction. This results in the transaction being processed through an issuing bank and an acquiring bank in two countries. But that isn't the only multiplier these transactions experience. As this isn't a streamlined process, you also have to consider additional parties involved in the movement of funds. These include payment gateways, corresponding banks & acquirers, and card networks. All these touchpoints impact the fees and barriers of your cross-border payments.  

For instance, as banks and card networks view cross-border transactions as higher risk, your cross-border transactions are likely to experience a lower approval rate than domestic. Even though a transaction may be 100% legitimate, these parties may not be willing to take on that risk and might decline that payment. These false declines mean that you not only lose out on that transaction, you’ll probably lose that consumer, too, as they’re likely to take their business elsewhere. 

False declines aren’t your only worry. You will also have to deal with the effects of FX. Besides having to guess the actual cost of a transaction due to the flux of foreign currency, your buyers will get hit with additional cross-border fees. Banks will apply an FX assessment fee on every cross-border transaction, ranging between 2% and 5%. These surprise fees are a key ingredient to what is known in the industry as “cart abandonment,” which is an action your buyers might take when they experience added sticker shock.

You also can’t forget about card networks. They will also impact the fees associated with your cross-border payments. Due to the additional touch points involved in processing funds internationally and ever-evolving regulation & compliance controls, card networks will apply further assessment & interchange fees to your international transactions. Assessment fees typically range between 1.45% - 2% and are tacked on to every transaction. Interchange fees are different as they vary widely based on card type, how the card is processed, where it was issued, and more. Due to the wide range of variables, interchange fees can add up quickly and steadily eat away at your international profits. Explore how these fees add up in the example below. 

Below is a breakdown of the interchange and assessment fees charged by Visa/MC on cross-border transactions. If you are currently charged IC+ by your current payment provider, all of these fees will be passed on to you. If you are on fixed pricing with your payment provider, ex. 2.9% + $0.30, they will tack on an additional 1% cross-border fee to cover the additional fees they are charged by Visa/MC. 

Example: Cross-border passthrough interchange & assessments based on a standard credit card issued outside of the USA, processed through a US acquiring bank

 

Interchange Fees

Visa

Mastercard

Credit assessment

 0.14%

0.14%

Cross-border/ international assessment fee

1.40%

1.00%

International Acquire Fee/ Acquire Support Fee

0.45%

0.85%

Qualification Rate

1.60%

1.60%

PSP/ Acquire Fee

0.20%

0.20%

Total Fees

3.59%

3.59%

 

So, now you may be wondering how you can avoid these fees and negative implications, especially when the alternative to cross-border processing has its own list of costs, which you can explore here.

Well, this complex problem is precisely what we at Reach have solved.

By optimizing with our Merchant of Record network you can unlock the benefits of local processing at a fraction of the cost and without the hassle. This means you gain higher approval rates and the ability to accept local payment methods without establishing a local entity in your foreign markets. By integrating with us, you also eliminate foreign transaction fees and lower your processing fees by up to 50%. You and your consumer also win with our wholesale FX rates that protect both parties from currency flux, all at a better cost. Explore the previous example of cross-border fees, but this time with our advantage to discover the difference our platform makes.


Example: Cross-border passthrough interchange & assessments based on a standard credit card Issued in Australia, processed through a US acquiring bank, and the transaction is in AUD

Interchange Fees

Visa

Mastercard

Reach

Credit assessment

0.14%

0.14%

0.00%

Cross-border/ international assessment fee

1.40%

1.00%

0.00%

International Acquire Fee/ Acquire Support Fee

0.45%

0.85%

0.00%

Qualification Rate

1.60%

1.60%

0.00%

PSP/ Acquire Fee

0.20%

0.20%

0.00%

Total Fees

3.59%

3.59%

2.75%


So what are you waiting for? Go global with our empowering platform and capture more revenue in your desired markets. Integrate today. Your bottom line will thank you.

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