Voice of the Industry

To be (domestic) or not to be (domestic), that is the cross-border question

Tuesday 23 February 2021 10:34 CET | Editor: Alin Popa | Voice of the industry

Julie Fergerson from MRC discusses the details of why merchants should measure cross-border transaction activity in order to avoid the risk of missing out on potential revenue

Over the past few years, merchants have focused on acceptance rates and digging into why good orders get declined. One of the trends observed is the disparity in payment acceptance rates between domestic and cross-border transactions. Cross-border transactions are those that take place when the card issuing bank (the cardholder’s bank) is in a different country than the acquiring bank (the merchant’s bank). Domestic transactions are initiated using a payment card issued by a bank located in the same country as the merchant’s bank.

Acceptance rates can differ based on several variables, many of which make cross-border transactions far more challenging in comparison to domestic transactions. These rates are calculated by comparing the number of approved (accepted) payments with the number of those declined. Most ecommerce merchants have a 90%+ acceptance rate. Subscription merchant acceptance rates are typically lower.

While this concept seems to be straightforward and simple to understand, evaluating the impact of cross-border acceptance rates is actually quite complex. Merchants must categorise all their sales, identify debit card versus credit card transactions, and detect the country in which the cardholder’s bank is located (card issuing bank).

As a security measure, some card issuing banks provide a facility to their customers to set country/ merchant location restrictions on their account (e.g. to decline all cross-border transactions). However, consumers are not necessarily aware of how many of their regular purchases might actually be cross-border transactions. Typically, consumers do not think they are transacting across borders when shopping online. They can forget that online shopping can frequently involve ordering from an ecommerce merchant located in a different country.

For all these reasons and more, calculating acceptance rates for cross-border transactions is complicated. It must go beyond simply comparing the number of successful and attempted payments for measures to be accurate and meaningful. The big picture will emerge when the following steps are taken:

  • Step One: review historical orders, using at least one quarter of order history data. We recommend that merchants examine their order history and identify the card issuing bank country and if the card used is debit or credit. Merchants can determine the country and card type by using a Bank Identification Number (BIN) table, which is available on request from the acquiring bank/processor.
  • Step Two: calculate and compare the acceptance rates by country and payment type. After reviewing and sorting historical transactions, merchants should calculate the acceptance rates by issuing country and card type. Unusual variations might indicate issues with cross-border orders and uncover opportunities to increase revenue by processing domestically.

Many merchants see acceptance rates as low as 50% in some countries. The two-step process is vital for an accurate analysis of the acceptance rate’s impact on revenue. So many factors influence it. Calculating acceptance rates is a challenge – and as such, an entire disruptive industry was created focusing on payment optimisation and decreasing declines and failed payments. Solution providers emerging in this space offer valuable services, enabling merchants to process transactions domestically, increase their acceptance rates, and boost revenue. A few solution providers in this space are dLocal, PPRO, and EBANX.

When a merchant is considering whether to continue with cross-border payments or use only a domestic payment provider, the figures are fairly straightforward. They need to calculate what the acceptance rate would be if all the orders were processed domestically. If using a third-party service provider, the calculation should include the cost of that provider and the expected revenue. Merchants should also consider the soft benefit of increased payment acceptance, leading to better consumer experience and customer retention, because when a transaction fails, a merchant not only loses revenue from the sale, but also risks losing all future purchases from that consumer (often referred to as the lifetime value of the consumer).

Moreover, consumer experience is difficult to quantify, but must remain top of mind. Customer loyalty is hard to gain and easy to lose, especially when selling online, where competitors are just a click away. That is why, when evaluating options, merchants need to take into account that new customer acquisition is always more expensive than customer retention.

It is important to also consider alternative forms of payment. In some countries, card payments are not readily available to consumers, so alternatives need to be made available if you are to reach those customers. For our recent global virtual conference, MRC accepted card payments for registrations, aiming to keep payment processing costs low. Our goal was to automate as much as possible. However, several customers based in Europe advised us that they were not in a position to use payment cards for company-related sales, and they requested an invoice, so that the payment could be made by bank transfer instead. Therefore, we were compelled to offer invoicing as a payment option, so that our customers could attend the conference, and we were able to avoid the potential loss in revenue.

As merchants expand geographically, it is important for them to examine how consumers typically like to pay in different countries. Some of our larger solutions providers offer global payments reports, which provide good insight into what payment methods ecommerce merchants should accept in each of the different countries.

Many solution providers that offer domestic payments will also act as the Merchant of Record for alternative payments. When accepting different payment types, the costs, refunds, disputes (chargebacks), and all the associated fees can quickly become an accounting nightmare if your volumes are small. For that reason, when getting started, many merchants choose to outsource the alternative payment offerings until they are ready to bring those in-house.

In conclusion, it is important for all ecommerce merchants to measure cross-border transaction activity and ensure the volume and trends are similar to those for domestic orders – or they run the risk of missing out on a lot of potential revenue.

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2020–2021, which assesses the change of pace that occurred in 2020 and provides a comprehensive overview of the major trends driving growth in this space, being the ultimate source of information for players interested in selling across borders.

About Julie Fergerson

Julie Fergerson, the CEO of MRC, has 25+ years of experience in developing, delivering, and promoting Internet-based technologies. She generates collaborations around industry problems and is enthusiastic about new technologies. Julie has a proven track record of bringing key stakeholders together to solve major problems and positioning existing technology to meet the needs of the audience, without changing fundamental value, proving to be a resourceful problem solver.


About MRC

The MRC is a global membership organisation connecting ecommerce fraud and payments professionals through educational programmes, online forums, career development, conferences, and networking events. The MRC encompasses a membership network of over 500 companies including 350+ merchants, all focused on fraud prevention, payments optimisation, and risk management. Hear our members share the value of MRC collaboration.

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

Keywords: MRC, Julie Fergerson, cross-border payments, payment acceptance rate, domestic transactions, cross-border transactions, domestic payment, payment options
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce