International Transaction Fees: A Guide for Merchants and Consumers

When planning your business strategy or your next purchase, the cost of international transactions is probably not the first thing on your mind. Yet, whether you’re a merchant expanding globally or a shopper buying from abroad, these charges can accumulate rapidly, impacting your financial outcomes and shopping expenses. International transaction fees, ranging from small percentages to fixed charges, can surprise you with their impact on overall costs.

This guide cuts through the complexity, providing merchants and consumers with clear insights on managing and minimizing these fees. You’ll learn about the factors that influence cross-border payment costs and discover practical tips to help reduce expenses and make more informed decisions. Whether selling or buying internationally, understanding these fees is crucial for anyone looking to optimize their financial strategies in a global marketplace.

Transaction Fee Definition

A transaction fee is either a small part of the total processing cost or a fixed amount that financial institutions charge to process international transactions. It is important to note that the charges may differ depending on the card issuer, the type of card used, and the specific terms and conditions of the cardholder’s agreement.

What is a foreign transaction fee?

International processing costs, often called foreign transaction fees, are costs that banks and credit card companies apply to transactions made across international borders. 

These charges typically apply when cardholders make purchases in a foreign currency or conduct transactions with merchants located outside their home country.

This charge affects consumers and merchants by increasing costs and influencing decision-making processes. Awareness of these levies allows individuals and businesses to make informed choices and adopt strategies to mitigate their impact.

Sample Scenarios:

Individual Purchases

Imagine you’re traveling abroad and decide to buy a souvenir for 50 euros. With a 3% fee, the total credit card foreign transaction fee amount charged to your account becomes 51.50 euros.


Suppose you own “Gleaming Gems,” a small artisanal jewelry shop in New York City. With unique designs gaining popularity globally, you start receiving online orders from European and Asian customers. However, each international transaction incurs additional fees, impacting her profit margins.

Impact on Merchants

Cross-border processing fees can indeed substantially impact merchants, especially those operating in the global marketplace. These expenses can reduce profit margins and complicate businesses’ ability to stay competitive.

One of the primary concerns about merchants is the accumulation of various costs associated with accepting payments from customers in different countries. These fees may include:

Foreign Exchange (FX) Fees: Charges levied on transactions to convert the payment amount from the consumer’s currency to the merchant’s currency. These charges are common when merchants receive payments in a currency different from their primary operating currency. These fees are usually determined as either a percentage of the transaction amount or a fixed charge based on the rules set by the payment processor or financial institution involved.

Cross-Border Fees: Applied when remittance involves parties located in different countries. These fees are intended to cover the additional risks and processing costs associated with international transactions. The specific amount of cross-border fees can vary significantly between different payment processors and card networks.

Interchange Fees: Merchants pay these costs to card-issuing banks for accepting credit or debit card payments. These fees can be higher for international transactions compared to domestic ones due to cross-border considerations. Interchange fees are typically set by card networks such as Visa, Mastercard, or American Express.

Dynamic Currency Conversion (DCC) Fees: Dynamic Currency Conversion (DCC) allows consumers to view the payment amount in their home currency at the point of sale rather than the merchant’s local currency. Compared to the consumer’s bank, Merchants who offer DCC services may offer less favorable exchange rates or have additional fees. It is essential for merchants to disclose DCC fees and provide consumers with the option to choose between local currency and their home currency.

Processing Fees: In addition to standard fees, payment processors charge cross-border processing fees for overseas transactions. These fees cover various costs associated with processing payments across borders, including currency conversion, compliance, and fraud prevention. Merchants should carefully review processing agreements to understand the structure and extent of these fees.

Impact on Consumers

Consumers are also affected by international charges when making purchases abroad. Credit card foreign transaction fees can add anywhere from 1% to 3% to the total cost of a transaction, making overseas purchases more expensive. Some of the fees are:

Foreign Transaction Fees: Fees charged by credit card issuers for transactions in foreign currencies or with overseas merchants usually range from 1% to 3% of the purchase amount. These charges are often determined as a percentage of the total spent. Consumers should review the terms and conditions of their credit cards to understand foreign transaction fees before making cross-border purchases.

Currency Conversion Fees: Charges applied when consumers make purchases in a currency different from their credit card’s billing currency. Credit card networks or issuing banks often impose these charges in addition to foreign transaction fees. Consumers should be aware of currency conversion fees and compare the rates offered by their credit card issuer with alternative payment methods like dynamic currency conversion.

ATM Withdrawal Fees: Commonly incurred when consumers use ATMs abroad and are charged by both their home bank and the foreign bank. These fees can include flat-rate fees per transaction and currency conversion fees. To minimize ATM withdrawal fees, consumers should use ATMs affiliated with their home bank or consider obtaining a travel-friendly debit card with reduced fees.

DCC (Dynamic Currency Conversion): Consumers should exercise caution when DCC is offered at the point of sale. While it may offer convenience, it often comes with unfavorable exchange rates and additional fees. Opting out of DCC and choosing to be charged in the local currency whenever possible can help consumers avoid unnecessary costs.

Do Debit Cards Have Foreign Transaction Fees?

One common question is, “Will I also see International transaction fees if I use a Debit Card?”. While debit cards are generally considered a convenient way to access funds while traveling, they may also come with foreign transaction fees. Consumers should check with their bank or card issuer to understand the terms and conditions associated with using their debit card internationally.

How to Avoid Foreign Transaction Fees

Fortunately, there are several strategies that both merchants and consumers can employ to minimize international transaction fees and reduce overall costs.

Use a Currency Conversion Service: Some credit card issuers offer currency conversion services that allow cardholders to pay in their home currency, avoiding foreign exchange rate adjustment fees.

Choose the Right Card: Look for credit cards that offer no foreign transaction fees as part of their benefits package. These cards are ideal for frequent travelers or individuals who make international purchases regularly.

Consider Alternative Payment Methods: Different payment options like digital wallets or prepaid travel cards often have lower fees in favor of international transactions.

Plan Ahead: If traveling abroad, plan your spending and currency needs in advance to minimize the number of transactions and associated fees.

Negotiate with Suppliers: Merchants can negotiate with suppliers to reduce cross-border processing fees or explore alternative payment solutions that offer lower transaction costs.

By taking proactive steps to understand and mitigate international transaction fees, both merchants and consumers can enjoy the benefits of global commerce without incurring unnecessary expenses.

In conclusion

International transaction fees are a big deal in global trade, affecting both sellers and buyers. Learning about these fees and finding ways to lower them can help businesses and people handle international transactions better. Whether it’s picking the best way to pay or discussing fees with suppliers, being well-informed is beneficial for making smart money choices in a worldwide market.