Navigating International Payment Methods, for Ecommerce

Selling products across borders requires an understanding of the preferred payment methods of international consumers, many of whom do not use credit cards. Payment gateways can assist merchants in offering alternative, multi-currency payment options, as can specialized vendors, such as AlternativePayments.com

Many ecommerce retailers desire to expand internationally. Understanding the preferred payment methods in other countries is a key component.

In this post, I’ll explore some of the issues involved with accepting credit card and digital payments from international consumers.

Cross-border Fees

The major card brands — Visa, MasterCard, Discover, American Express — charge cross-border fees that trickle down to merchants. Those fees are determined by two criteria.

• Location of merchant. This is the location reported to the payment processor during merchant’s on-boarding process. This serves as the merchant’s “domestic” location; any sales originating outside of the domestic country will be subject to cross-border fees.

• Location of card-issuing institution. Card brands also look at where the cardholder’s issuing bank is located. If the bank is located outside of the merchant’s country, the issuing bank may also be subject to cross-border fees, which the merchant will ultimately pay.

Most online payment processing fees are governed by the credit card interchange, which are rates set by the major card brands. A merchant’s account provider pays the interchange rates and then assesses fees to the merchant to cover those rates, plus profit. Interchange rates vary by region and geographic location. The U.S. has two cross-border fees.

• Domestic cross border fee. This fee is incurred when a transaction occurs in the business’s registered country but the issuing bank is located in another country. These are sometimes referred to as International Service Assessment Fees (ISA). As of April 2017, this fee ranges from .60 percent for MasterCard to .80 percent for Visa. This is in addition to the typical interchange fees — .13 percent for Visa debit, credit, and prepaid transactions and 0.1275 percent for MasterCard transactions under $1,000.

• Foreign cross border fee. This fee is incurred when a transaction is processed in a currency other than U.S. dollars. This fee is 1.00 percent for MasterCard and 1.20 percent for Visa.

To give an example, consider the purchase of clothing from a U.S.-based ecommerce merchant using a Visa payment card issued in France but settled in U.S. dollars. The fees would be as follows.

• Fee: Assessment Fee
• Rate: .13 percent
• Description: Assessed to all Visa payment card transactions.

• Fee: Visa Intl Service Fee – Base
• Rate: .8 percent
• Description: Applicable to transactions settled in U.S. dollars where the merchant’s country differs from where the card was issued.

• Fee: Acquirer Processor Fee Credit
• Rate: $0.0195
• Description: Applies to all Visa credit authorizations acquired in the U.S. regardless of the issuer’s or cardholder’s location.

Using that same example, here are fees if the transaction were settled in euros.

• Fee: Assessment Fee
• Rate: .13 percent
• Description: Assessed to all Visa payment card transactions.

• Fee: Visa Intl Service Fee – Enhanced
• Rate: 1.20 percent
• Description: Applicable to transactions settled in U.S. dollars where the merchant’s country differs from where the card was issued.

• Fee: Acquirer Processor Fee Credit
• Rate: $0.0195
• Description: Applies to all Visa credit authorizations acquired in the U.S. regardless of the issuer’s or cardholder’s location.

Local Payment Platforms

Many merchants strive to make it seamless for cross-border customers by enabling transactions to occur in the local currency. But it’s important to understand the preferences of local consumers, who may have payment preference that differ from the U.S.

Here are some examples.

In Japan, while credit and debit cards are the preferred payment method, almost one-fifth of payments are made via Konbini, a service that enables shoppers to order goods online and pay for them in a convenience store.

In France, the most popular card brands are MasterCard, Visa, and Cartes Bancaires, with the latter accounting for roughly one-half of all transactions.

German shoppers prefer to pay via invoice — ordering online first and paying later. There are a handful of other popular payment methods in Germany, including PayPal and three bank-to-bank platforms: GiroPay, Sofort, and Überweisung.

In Spain, many consumers prefer to pay with Sistema 4B, a bank-to-bank transfer method owned by several Spanish banks.

In other words, while credit cards are a global form of payment, they are not necessarily the preferred form in many countries.

Implementing Cross-border Payments

Implementing localized, cross-border payment options requires a robust gateway that enables multi-currency and alternative payment options.

If your gateway provider does not offer payment options that are familiar to your international shoppers or if you cannot switch to a new provider, there are several companies — Alternative Payments and Digital River are examples — that offer à la carte local payments and do not require you to switch your merchant account. PayPal and Stripe, too, offer local payment and multi-currency options.