As a business selling to consumers in multiple regions, you should be aware that the costs associated with processing card payments outside of your base country can vary dramatically. These costs can be minimized by ensuring that your international payment processor has the ability to classify international payments as ‘domestic’ in each country where your business is selling - a capability which is determined by the type of licenses held by your international payment processor. In our latest blog, we’ve taken a deep-dive into cross-border payment processing to give you a better understanding into how your transactions are classified and to help you minimise cross-border fees - and even optimise your transaction success rates internationally.
There are two types of licenses that a payment processor can hold to process international payments. The most common (but not the most cost-effective), is a cross-border license. Here, international payments are processed as a ‘cross-border’ payment This means it will attract a much higher, cross-border rate of interchange from the card schemes which is, in turn, passed on to merchants.
The second, more cost-effective license, is the domestic license, which allows the payment processor to classify payments as ‘domestic’ rather than ‘cross-border’. This not only means lower interchange rates, but it can also deliver a better approval rate from the local issuing banks.
Crucially, not all international payment processors have domestic licenses. While most payment processors can help you sell globally, not all can help you to sell globally with a domestic license.
Why is there a cost difference between processing international payments and domestic payments?
When your business sells to a consumer located in your base country, a chain of events takes place within the financial ecosystem, which essentially involves your end customer being charged and your business being paid For every payment, this relies upon a network of efficient communication and trusted relationships between financial institutions - and businesses pay a domestic charge for each transaction.
International payments differ in that they are paid by an end consumer living in one jurisdiction - while your business may be operating in another. The charge per transaction is typically higher, with a more complex charging basis, while funds often take longer to reach your account. This is because international payments require fina>What impact does this have on your business in accepting international payments?
The network of efficient communication and trusted relationships between financial institutions is vital for high authorisation rates and availing of the lowest fee structure per transaction. Cross-border payments are simply not part of this pre-existing trusted domestic network, so there is a two-fold impact for businesses:
- Payments that are classified as ‘cross-border transactions’ involve higher interchange rates, scheme fees, issuer fees - and even non-authorization rates than transactions classified as ‘domestic transactions’.
- Lower Authorisation Rates: When a payment gateway sends a transaction for approval to an acquiring bank, this request then gets sent to the issuing bank (the end consumer’s bank) to request approval to process the transaction. As the acquiring bank and your customer’s bank will be in two different jurisdictions for cross-border transactions, they will likely have no prior relationship. This means there is a higher chance that this cross-border transaction could be flagged as potentially fraudulent or declined.
How can your business protect against the risk of higher costs for cross-border payments?
The most effective way to reduce the higher fees and higher decline rates associated with international payments is to quite simply minimise the number of transactions you classify as cross-border transactions. To do this, you need to source a payment service provider that can offer you a local acquiring solution (also known as a domestic payment solution). A domestic acquiring solution means a payment provider has multiple acquiring licenses globally, which allows them to receive and clear transactions for debit and credit card processing in multiple regions.
This is especially relevant for multinational businesses that have domestically registered businesses in multiple countries worldwide. In these countries, businesses can set up domestic merchant accounts in the local currency of each market, so that their acquirer is able to operate in the same jurisdiction as their end consumers’ issuing bank.
What are the benefits of a domestic acquiring payments solution?
A domestic acquiring payments solution helps you to increase your authorization rates and helps you to reduce your cost base. Here’s how:
- In the first instance, because your payment processor uses a domestic license, it is essentially operating in the same jurisdiction as your customers’ card-issuing bank. This means the perceived risk of fraud is lower which translates to more transactions receiving approval - which in turn can lead to higher conversion and higher sales.
- Secondly, as the local license classifies transactions as domestic, you will be charged significantly-reduced interchange fees, scheme fees, issuer fees and non-authorization rates for your business - reducing your overall cost base for international sales.
- Finally, remember that a domestic license essentially delivers a local merchant account to your business.This means you can receive payments in the local currency of that market and change to your base currency at the right level and the right time, which may reduce FX fees, further reducing your cost base.
Do all payments providers operate a domestic acquiring solution?
Many payments providers will help you sell cross-border, but not all payments providers will help you sell through a domestic acquiring solution. Global Payments provides domestic acquiring solutions in 58 countries worldwide, throughout Asia, Europe and the Americas - more than any other payment provider.
This means that you beneﬁt from higher acceptance rates and reduced interchange costs in any of these countries where you have a domestically registered business. So, when you’re ready to expand into new territories, our global payment network can support and optimise payment success in these key markets.
Get in touch for more details and join some of the world’s largest brands that work with Global Payments to reduce costs and optimize acceptance rates globally.
 Acquiring licenses compared to other payments providers as of September 2018.