Accepting International Credit Cards

International Processing Models (US Perspective)

Case 1: Foreign Currency Card Purchasing in Dollars from US Merchant:

• When the cardholder receives his or her statement, they will see the charge in USD and their native currency, as well as the conversion rate. The card associations perform the conversion automatically, based on the exchange rate at the approximate time of sale.
• The cardholder will also see a currency conversion fee of up to 3%, which is shared by the associations and the card issuer.
• The merchant will experience a downgrade, in the form of a higher discount rate or interchange fee than if the transaction were a native U.S. transaction.
• The merchant will also incur a cross-border assessment from the associations. These fees can range between 0.40% and 1.0%, depending on the association and circumstances of the transaction.
• The merchant’s processor is in the U.S. and, as usual, the merchant’s funds are deposited in dollars in the merchant’s U.S. bank account.

Case 2: Foreign Currency Card Purchasing in Native Currency from a U.S. Merchant:

• When the cardholder receives his or her statement, they will see the charge in their native currency at the exact price they purchased the product for.
• The merchant has the ability to settle the transaction in USD or in the foreign currency.
  • If the merchant decides to settle in USD, then either the acquirer can settle in USD or the merchant’s bank converts the currency at a time agreed upon by the merchant and bank, usually at the time of deposit.
  • If the merchant decides to settle in a foreign currency, then a multiple currency bank account must be used to fund payments.
  The merchant is susceptible to foreign exchange risks when they authorize in one currency, but settle in another currency as the value of the respective currencies can fluctuate significantly between the time of customer purchase and transaction settlement. The merchant also incurs costs related to the reconciliation and management of currency conversion.
• Merchants typically pay a high premium for this type of settlement because the merchant’s bank marks up fees it must pay foreign banks to provide the service. These fees are much higher than if the merchant settled locally in a foreign bank or used a foreign exchange management solution.

Case 3: Merchant Opens Merchant Accounts in Foreign Countries:

• When the cardholder receives his or her statement, they will see the charge in their native currency at the exact price they purchased the product for.
• The merchant’s funds are deposited in the local currency at a bank within the operating country – or anywhere in the world their acquirer can fund to. It is up to the merchant to repatriate the funds as their business requirements call for.. Therefore, the merchant also incurs costs related to foreign exchange fluctuation risks, the reconciliation and management of currency conversion.
• Depending on the licensing of the acquirer, the merchant may be required to be registered within the region. There are “incorporation services” that will provide merchants with the minimum requirements for meeting these domicile or registration regulations. Registration can be done easily and quickly online.
• Most multi-national merchants retain the international currencies as they have expenses (i.e., employees, rent) within that country or region. In this manner, the merchant can pay in local currency, reducing the effects of large foreign exchange imbalances. This may also be a good option for merchants with large sales volumes, as foreign interchange rates can be significantly lower than U.S. rates.
• Using foreign processors and banks generally allows the merchant to accept payment types not common to the merchant’s native land. For instance, most electronic transaction in France and Germany are by direct debit.