What is a cross border fee? Why you're charged, and how to avoid

International transactions open your business to the global market. But they’re not without additional costs. Cross border fees are one of these costs to consider.

When accepting large volumes of international card payments, the cross border fee can quickly add up - affecting your bottom line.

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📝 This article will cover
What is a cross border fee? How much are cross border fees? Why was I charged a cross border fee? How to avoid cross border fees

What is a cross border fee?

Every time you accept a payment from a credit card issued by a foreign bank, you’re charged a cross border fee.

Cross border fees were introduced in 2005. The rise of e-commerce and international transactions increased assessment fees.

Card networks shifted these increased fees on to issuing banks, who in turn shifted them on to merchants.

How much are cross border fees?

Here’s an overview of the fees charged by popular card issuers:

Issuer	US Cross Border fee	US Cross Border fee, Non-USD¹
Mastercard (MC)	0.60%	1.00%
Visa	1.00%	1.40%
Discover International	0.80%	0.80%

Why was I charged a cross border fee?

Cross border transactions involve significant work. They also carry a risk for the financial institutions involved.

The process of bringing together merchants and international customers, across different banking networks with different currencies is complex.

This risk and work are passed on to merchants in the form of cross border fees.

When deciding whether or not to apply cross border fees, credit card companies are interested in two things:

1. The issuing country of the customer’s card
2. The country where the merchant’s account is

🔍 Example:
Let’s say a customer from Germany buys a product from your business in the US. They pay with their credit card, issued by a German bank. When you accept their payment, you’ll be charged a cross border fee as the issuing bank is German and your business is American.

On top of this, you may be charged a different rate depending on whether the transaction was completed in USD or another currency.

For example, the Mastercard cross border fee for USD transactions is 0.60% and for non-USD transactions is 1.00%.¹

Let’s go back to our German customer.

If your German customer decides to complete the transaction in USD, then you’ll be charged the Mastercard cross border fee of 0.60%. If, however, they decide to pay in Euro, then you’ll be charged the MC cross border fee of 1.00%.

That said, if your German customer had a separate US bank account and credit card, and paid using it, then no cross border fee would be applied.

The credit card company cares only about the location of your merchant account relative to the location of the card issuing bank.

How to avoid cross border fees

Cross border fees are fixed fees. Unfortunately, they’re simply a part of international business. So long as your business accepts international credit card payments, it will continue to pay cross border fees.

That said, there are ways to avoid cross border fees.

Open a Wise Business account

💡 If you’re looking for an easy, stress-free way to avoid cross border fees, then the Wise Business account is here to help you.

With Wise Business, you can access local account details for up to 10 major currencies. You can accept payments like a local, saving you on cross border fees while making life easier for your customers.

This means you only need to open one account to receive account details and payments in GBP, EUR and more. Even as a US citizen. You can then hold, spend, or exchange currencies, at the real mid-market rate all in one place.

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Open a local account

For example, if you have a large customer base in Madrid, then you could open a merchant account in Spain. With a local account, you’d then be able to accept Spanish credit cards without having to pay a cross border fee - just as if it was a US customer.

It can be difficult to open a local account without a local business address, however. Most traditional banks also require you to be present in person to open the account. Using a banking alternative, such as Wise, can save a lot of hassle.

Partner with local distributors

If there is high demand for your product in the Philippines, for example, then you could partner with a local distributor there.

Your international customers can buy your products from the distributor located in their home country. This means that the card issuing bank and the merchant account are in the same country - avoiding cross border fees.

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Sources:

1. Payment Network Pass-Through Fee Schedule

Source checked September 8, 2022.