You may have heard about a cross border fee for credit card processing, or a cross border interchange rate. As indicated in the name these fees and rates are charged when you process a transaction with a customer from outside of your country. There is no such thing as an "international" payment because every country has its own currency and therefore there can never be "international" payment. The term international is used by payment providers because they want to make it sound like the burden of these fees are not on them, but rather on you for accepting payments from other countries.
But why do these fees exist? Why should you pay more when your customer lives in another country? Let's take a look at how credit card processing works.
When you swipe or key in a customers card, the system (card machine) on that computer or countertop communicates with our cloud platform. The payment provider who hosts that system is able to call off the transaction to your bank of choice and request an authorization code on your customer's credit card. These codes vary depending on the card type (Visa, MasterCard, Amex etc) but what is important to note here is that every country has its own unique set of numbers. For example in Canada our authorization codes are 4 digits long but in Australia they are 6 digits long.
When you process a transaction with your customer's credit card you are essentially creating an agreement with them that they will pay you for whatever amount was specified. Immediately after the authorization code is given by your bank there can be a hold of up to 120 days on that transaction depending on the credit card type, issuing country and whether or not it's a debit or credit card being used.
Most online payment providers do not tell you this, or they give you a vague answer about how their service works. This is because they want customers to think that the fees are being paid by them because their customer lives in another country. The reality is these are all separate agreements between your customer and their respective financial institution to get approval for that transaction.
Here is an example of a typical Cross Border Fee schedule from one of our competitors. Notice that your fee percentage goes up the more countries you process transactions from, which is contrary to their promise of flat rate pricing for all businesses.
If you process transactions from a lot of different countries, those percentages can add up quickly. However there is a much simpler way to do this, and that's with your own processor. Most online payment providers will not tell you that they are resellers of other processors, they will simply "white label" their service as if it's unique. This means that their system is powered by another network, using the same technology and infrastructure of a payment provider you would sign up with directly.
The reason that cross border fees exist is because most online providers buy their service from a reseller of different systems. They then load this into software that they can provide to their customers, who in turn pay them a percentage on any transaction they process. The bulk cross border fees are paid to the resellers, who are taking a portion of your transaction amount every time you sell to another country.
