Explainer: understanding cross-border fees for cards

Sam Crawford, Business Analyst at Edgar, Dunn & Company (EDC), breaks down how cross-border card fees work, explaining their components, regulatory context, merchant impact, and the end-to-end process of a cross-border transaction.

What are cross-border card fees?

Cross-border card fees are additional costs incurred when a payment card issued in one country is used for a transaction in another. These charges cover foreign exchange (FX) risk, different regulatory requirements, and operational expenses, and are typically imposed by card networks (e.g., Visa and Mastercard), issuing banks, acquiring banks, or payment processors.

Main components of a cross-border card fee

A fee for a merchant to accept a card payment typically comprises the following components: interchange fees, processing fees, card network assessment fees, and a currency conversion markup.

Interchange fee: a transaction fee paid by the merchant’s bank (acquirer) to the cardholder’s bank (issuer) for each customer transaction. Interchange fees are set by card schemes such as Visa and Mastercard and vary by country, transaction type, and card type. For example, interchange fees are capped at 0.2% for debit cards and 0.3% for credit cards in the European Economic Area (EEA)^[1].

Payment gateway/processing fees: levied by payment processors for securely transmitting and settling transactions. Fee structures vary by provider and by the nature of the transaction. Card-not-present (CNP) transactions bear more risk than card-present (CP) transactions; hence, the average processing cost is typically higher.

Card network assessment fees: charged by card networks for every transaction. They typically range from 0.6% to 1.4%^[2], to cover processing infrastructure, regulatory compliance costs, and fraud risk.

Currency conversion markup: applied when a payment transaction is initiated in a currency different from the currency of the country where the card was issued. The markup is built into the exchange rate used to convert the transaction amount, with the spread distributed among the card issuer, payment processor or network, and occasionally intermediary banks involved in the cross-border payment chain if the transaction routes through them, as part of their profit margin. Consider a hypothetical example: you have a UK-issued card and purchase USD 1,000 worth of goods from a US retailer. The true market exchange rate is GBP 1 = USD 1.25. However, your bank or processor uses an adjusted rate reflecting a markup of 2%: GBP 1 = USD 1.225.

• Market rate: USD 1,000 / USD1.25 = GBP 800
• With 2% markup: USD 1,000 / USD 1.225 = GBP 816.33
• Markup paid: GBP 16.33 (2% above market rate)

End-to-end process of a cross-border transaction

1. Payment authorisation: the transaction begins when a customer makes a purchase using a card on an international merchant’s website or at a brick-and-mortar store abroad.
2. Merchant’s payment gateway: the payment gateway, typically provided by a payment processor, securely collects and transmits the transaction details to the card network during ecommerce and point-of-sale (POS) transactions. Integrated POS gateways process in-store card transactions, while online gateways enable secure app or web payments.
3. Card network: the card network processes the transaction and verifies whether the card is valid and not fraudulent. The network then requests the issuing bank to confirm whether there are sufficient funds or an appropriate credit limit associated with the customer’s account.
4. Currency conversion: transactions that involve a foreign currency conversion are typically handled by payment networks. The transaction amount is converted from the merchant’s local currency to the cardholder’s currency at the current exchange rate.
5. Authorisation response: the issuing bank, via the card network, sends an authorised response back to the merchant’s payment gateway, indicating whether the transaction has been approved or declined.
6. Customer verification: depending on the issuer’s security measures, the consumer may have to provide additional verification, such as biometric authentication or a one-time password (OTP).
7. Merchant’s response: the merchant receives the authorisation response and informs customers of the transaction status. If the transaction is approved, the merchant proceeds to fulfil the order.
8. Settlement process: the payment processor or the acquiring bank initiates the settlement process (after a successful transaction), where funds from the cardholder’s issuing bank account will be transferred to the merchant’s acquiring bank.
9. Payment to the merchant: the acquiring bank transfers the funds to the merchant’s bank account, typically in the merchant’s local currency. If the payment was made in a foreign currency, the statement will show the converted amount plus any applicable foreign exchange fees.
10. Foreign transaction fees: cardholders may be charged foreign transaction fees by their issuing bank for making cross-border purchases. These fees will vary among banks and credit card issuers; any fees are stated on the cardholder's statement.

The regulatory landscape – how the major card networks respond

For consumers, the key distinction is between intra-regional and inter-regional transactions. Intra-regional interchange caps, such as those enforced by the Interchange Fee Regulation (IFR), only apply when the card issuer and the merchant’s acquirer are in the same region. When a cardholder spends outside their home region (the card issuer and the merchant’s acquirer are in different regions), the payment is treated as inter-regional and falls outside these caps, so scheme-set interchange rates can be higher.

As mentioned before, card networks set interchange fees, meaning they vary by scheme and product. Due to the IFR, the EEA has a harmonised cap of 0.2% and 0.3% on debit and credit card transactions, respectively. Following Brexit, the UK retained this regulation, but only in situations where the acquirer, issuer, and merchant are all located within the UK. This implies that fees on cross-border transactions between the UK and the EEA are higher than before due to the discontinuation of the interchange fee caps. For UK-EEA card-not-present (CNP) transactions, some cross-border interchange fees have been raised to 1.15% and 1.5% for debit and credit cards, respectively^[3]. Amid competition concerns regarding cross-border fees penalising UK businesses, the Payment Systems Regulator (PSR) proposed an interim price cap until a longer-term cap could be established. The PSR scrapped its interim cap proposal in October 2025 after receiving stakeholder feedback from major card networks, payment processors, and banks. Key concerns included distortion of competition, disadvantages to EU issuers, and minimal benefits to UK merchants.

In the US, credit card interchange fees are not capped at the federal level, resulting in rates averaging ~2% per transaction^[4]. Caps on debit card interchange for large banks are enabled through the Durbin Amendment. There are no equivalent controls for credit cards or cross-border transactions, with cross-border card fees set by individual networks, often coming in much higher. Overall, US card fee regulation is less stringent than in Europe, leaving merchants and consumers exposed to varying expectations regarding costs and transparency. Interchange is also regulated in other markets, such as Australia.

It is important to note that this regulatory environment remains complex, with differing views among stakeholders across the value chain.

The impact on merchants

Merchants are typically subject to higher payment acceptance service fees when accepting foreign-issued cards, decreasing profit margins and competitiveness. Additional costs can erode the competitiveness of international ecommerce for smaller firms, potentially deterring such firms from accepting overseas cards. However, it should be noted that more than 95% of all card transactions in the EEA are actually of domestic nature.

Operational considerations for merchants in accepting cards from abroad

Dynamic Currency Conversion (DCC) and Multi-Currency Pricing (MCP) are two strategies merchants can employ when managing cross-border sales on ecommerce platforms or POS systems. DCC allows overseas customers to pay in their local currency, with exchange rates and fees disclosed at checkout. Merchants benefit from DCC by earning additional revenue through fees or commissions associated with the currency conversion process. Transparency comes at a price for the customer.

MCP is a strategy that allows merchants to display product or service prices in multiple currencies depending on customer location and preferences. MCP improves transparency, which builds customer trust, increases conversion efficiency, and reduces cart abandonment. MCP does not directly mitigate cross-border card fees; however, the promotion of a transparent customer journey through consistent pricing information increases sales, offsetting any hindrance cross-border fees may have.

The future of cross-border payments

8 June 2025 marked the 10th anniversary of the IFR, which introduced lower card acceptance costs for merchants. The IFR had a limited and temporary benefit for the overall cost of payments for merchants, especially for larger merchants who negotiated their acquiring contract shortly after the IFR was applied. As cross-border commerce continues to grow, pressure for transparency as well as affordable fees will grow too. There will continue to be innovation in cross-border payments from both the card issuers and payment processors, for example, multi-currency cards, DCC, and MCP. Stablecoin may also make an impact on the future of cross-border payments.

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