Cross-border fees refer to the charges incurred when a cardholder's bank and the merchant's bank operate in different nations. These fees account for the extra expenses associated with currency conversion and the processing of international transactions, which can increase the overall cost of a purchase. In the travel sector, such fees are prevalent, as customers often reserve flights, accommodation, and services abroad. For travel companies, effectively managing these fees is crucial to ensure a seamless payment experience and provide clear pricing to customers.
Cross-border fees are determined by the fee structures established by individual card networks and the currency involved in the transaction. While it may appear complicated, the underlying principles are quite simple once grasped. Card associations such as Visa and Mastercard set their own fee rates, generally charging a percentage of the transaction amount as a cross-border fee. This percentage can differ based on whether the transaction is conducted in US dollars or another currency, with fees for transactions in currencies other than USD typically being somewhat higher.
For instance, Mastercard charges a 0.6% cross-border fee for transactions in US dollars, but this rate rises to 1% for transactions in any other currency. These fees are in addition to standard processing charges, making it crucial for businesses to examine the specifics for each card type they accept to fully understand the total cost of international transactions.
While cross-border fees do contribute to transaction expenses, they are generally minor compared to the revenue generated from substantial volumes of international sales, particularly for businesses engaged in regular cross-border operations.
Visa and Mastercard evaluate two primary criteria to determine the applicability of cross-border fees on a transaction: the country where the business is registered and the location of the bank that issued the card.
When a business establishes a payment processing account, it must indicate its country of registration. Transactions that occur within that country are usually deemed domestic and are not subject to cross-border fees. Conversely, any sales made to customers located outside the registered country will incur cross-border fees.
Once the merchant's registration country is verified, card networks assess the location of the bank that issued the card being utilised. If the issuing bank is situated in a different country than where the merchant is registered, cross-border fees are generally applied to accommodate the processing of international transactions.
The travel industry operates on a global scale, making cross-border fees a common aspect of payment processing. When a customers reserves a hotel, flight, or package in another country, these transactions can attract cross-border fees, primarily due to currency conversion and international processing requirements. Such fees impact both the travel provider and the customer, frequently raising the overall booking cost. To mitigate these charges, many travel companies partner with payment gateways that utilise local acquiring banks, thereby simplifying the process and making international transactions more affordable for customers.
Cross-border fees can significantly raise the expenses associated with travel bookings, which may result in customer dissatisfaction if these charges are not communicated effectively. For travel companies, it is essential to manage these fees with strategic planning and a commitment to transparency, particularly when competing against international pricing benchmarks. Businesses must ensure that customers are aware of any extra fees related to cross-border transactions, as unforeseen charges can lead to abandoned bookings and negative experiences. Providing alternative payment options that minimise or eliminate cross-border fees can be advantageous, helping to maintain competitive pricing and improve customer satisfaction.
Additionally, cross-border fees can adversely affect profitability, especially for travel businesses that handle a large volume of international transactions. To address this issue, travel companies should seek ways to optimise currency conversion processes and manage these extra costs while maintaining high service quality and pricing clarity.
Felloh delivers an all-encompassing solution designed to assist travel companies in mitigating the effects of cross-border fees, thereby making international bookings more cost-effective for their clients. By collaborating with local acquiring banks and implementing efficient currency conversion solutions, Felloh’s platform significantly reduces these fees, enabling businesses to offer competitive pricing for global transactions. Additionally, Felloh equips companies with tools to communicate any outstanding fees clearly, ensuring customers are well-informed about the costs tied to cross-border transactions. This level of transparency fosters customer trust and satisfaction, empowering travel companies to cultivate loyalty while effectively managing the complexities of international payment processing.
.png)
