10 Best Practices to Optimize Cross-Border and Foreign Exchange FeesPayments 101

10 Best Practices to Optimize Cross-Border and Foreign Exchange Fees


Last Updated on March 22, 2024

Expanding your business across borders can provide countless opportunities for growth. However, international transactions come with their own set of challenges, especially when it comes to foreign exchange (FX) and cross-border fees.

This guide will delve into the world of international payment processing fees and offer best practices for optimizing these costs. We’ll take you step-by-step through the different types of fees involved, equipping you with the best practices to optimize your costs and maximize your profits. Say goodbye to costly surprises and hello to a global enterprise that thrives.

Understanding Cross-Border and FX Fees

Before diving into optimization strategies, it’s crucial to understand the different types of fees associated with international transactions. Cross-border and FX fees are the primary costs you will encounter when processing payments from customers in different countries.

Cross-Border Fees

Cross-border fees are charged by payment processors — such as banks or payment gateways — for transactions that involve parties in different countries. These fees can vary depending on several factors, including the countries involved, the currencies being exchanged, and the type of transaction. Some common components of cross-border fees include:

  • Interchange fees — Charged by the card-issuing bank for the processing of the transaction. These fees vary depending on the card network and the type of card used (debit or credit, personal or corporate).
  • Assessment fees — Charged by the card network (i.e. Visa, Mastercard, American Express, Discover) for facilitating the transaction. These fees are typically a percentage of the transaction amount.
  • Payment gateway fees — Charged by the payment gateway provider for securely transmitting transaction data between the merchant, the issuing bank, and the acquiring bank.

Foreign Exchange (FX) Fees

FX fees are incurred when converting funds from one currency to another. The actual cost is determined by the exchange rate, which fluctuates based on market forces. In addition to the market rate, banks and payment processors often charge a margin, which is added to the exchange rate to generate a profit.

Best Practices for Optimizing International Payment Processing Fees

Now that you understand the different fees associated with international payments, let’s discuss how you can optimize and reduce these costs.

1. Choose the Right Payment Processor

Selecting the right payment processor is crucial for minimizing fees. Compare different providers, considering factors such as their fee structure, FX rates, and the countries they support. Some processors specialize in international transactions and offer lower fees or more favorable exchange rates.

2. Localize Your Payment Processing

Establishing local acquiring relationships in the countries where you do business can help reduce cross-border fees. By processing transactions locally, you avoid international transaction fees and can benefit from lower domestic interchange rates.

3. Offer Multi-Currency Pricing

Allowing customers to pay in their local currency can help reduce FX fees and cart abandonment rates. Multi-currency pricing enables customers to view prices and complete transactions in their preferred currency, which eliminates the need for currency conversion and reduces associated fees.

4. Dynamic Currency Conversion

Dynamic currency conversion (DCC) allows customers to pay in their local currency while the transaction is processed in the merchant’s currency. This shifts the FX conversion cost to the customer, who often pays a higher margin than the merchant would.

While DCC can save merchants on FX fees, it may be less attractive to customers due to the increased cost. It’s important to carefully consider whether or not this option aligns with your specific business needs and priorities.

5. Optimize Interchange Rates

Interchange rates can vary depending on factors such as the type of card used, the location of the cardholder, and the transaction amount. Merchants can optimize interchange rates in the following ways:

  • Encourage the use of debit cards — Debit cards typically have lower interchange fees than credit cards.
  • Implement 3D Secure authentication — This can result in lower interchange rates for certain card networks.
  • Ensure accurate transaction data — Incomplete or incorrect information can lead to higher interchange fees.

6. Regularly Review and Negotiate Fees

It’s essential to regularly review your payment processing fees and negotiate with your payment processor for better rates. As your transaction volume grows, you may qualify for volume discounts or be in a better position to negotiate lower fees.

7. Utilize Forward Contracts

Merchants dealing with large international transaction volumes can hedge against FX fluctuations using forward contracts. A Forward contract is an agreement between parties to exchange a specified amount of currency at a predetermined exchange rate on a future date. By locking in an exchange rate for a future date, you can protect your business from adverse currency movements and better predict your costs.

8. Monitor FX Rates

Stay informed about currency fluctuations and look for opportunities to capitalize on favorable exchange rates. Some payment processors allow you to hold funds in multiple currencies and convert them when rates are advantageous.

9. Consider Alternative Payment Methods

Offering alternative payment methods (APMs) — such as digital wallets, bank transfers, or local payment options — can help reduce fees and increase conversion rates. APMs often have lower processing fees and can be more familiar and comfortable for international customers.

10. Educate Your Customers

Transparent communication with your customers about payment options and associated fees can help build trust and reduce disputes. Ensure that your payment policies and any associated costs are clearly explained on your website and during the checkout process.

Final Thoughts

Working with cross-border payments and foreign exchange fees can be complicated, time consuming and costly. However, by following the best practices outlined above, companies can save time and money by optimizing their FX fees while still providing customers with a great payment experience.

All in all, it’s essential that you select the right payment processor that suits your business needs and helps you manage fees effectively. Careful consideration of cross-border and FX fees can be one of the most successful strategies for controlling your bottom line.

If you’re looking for more guidance on optimizing your international payments, contact Nexio today. Our team of experts will be able to help you develop strategies tailored specifically to your needs and design custom solutions that fit both your business goals and customer experience requirements.

Back Back