Understanding Cross Border Transaction Fees and How You Can Avoid Them

Due to the surge in e-commerce, international businesses, tourism, and digital innovations, cross border transaction has become an essential part of everyday life and business operations. However, sending and receiving money across borders is not free of costs and complications. It affects individuals and businesses alike, eroding their money and adding the additional burden of compliance and intricacies. Individuals engaging in overseas purchases or cross border remittances can be highly impacted by these high transaction costs. On the other hand, for businesses, it is even more critical to manage these high cross border fees to maintain profitability while staying competitive in the global market. If you don’t want to lose your profit to these cross border transaction fees, then it is essential to understand the breakdown of the costs to avoid them strategically. This blog comprehensively explains all the costs involved and suggests some tips to mitigate fees.

What is a Cross Border Transaction Fee?

Fees and charges imposed on cross border transactions, such as currency conversion costs, payment processing fees of institutions involved, and additional costs, are commonly referred to as cross border fees. The overseas transaction fee is typically higher than domestic transaction fees, which reflects the intricacies and risks involved in international payments. The cross border fee is charged not only by the sender but usually also by the receiver on each transaction. For example, you make an online purchase using an e-commerce website and pay via card; what happens is that your money goes through a complicated process as opposed to domestic payments that are directly transferred. Before reaching the retailer, currency conversion and international financial institutions are involved, which adds up to higher costs. This explains why cross-border payments are slower and more costly.

Types of Cross Border Transaction Fee

The cross border fee involved in international payments primarily depends on the transaction method you choose, such as bank transfer, credit card or debit card, or online transfer services. Every method carries its own process and fee structure; however, here is a list of some common types of fees included in the cross border transactions:

Currency Conversion Fees

A currency conversion fee is applied when money is transferred to a different country, which involves exchanging it for another currency. This typically only covers the cost of currency conversion. However, there’s no fixed rate, and the fee depends on the amount to be transferred.

Foreign Transaction Fees

If you use a credit or debit card for foreign transactions, a fee is deducted, per your bank’s policy, which is usually some percentage of the transaction value. This payment option is valuable and convenient for frequent travellers, but the fees are higher than those for other methods, such as digital platforms, which can be a more cost-effective solution for businesses and individuals making cross-border transactions.

Correspondent Bank Fees

In international bank transfers, the correspondent banks act as intermediaries between the sender’s and receiver’s banks. Each bank has a unique fee structure; therefore, bank transfers are relatively more expensive as the fees of each bank add up, increasing the total cross border transaction fee.

Assessment Fees

The assessment fee is charged on the card payments for processing the cross border transaction, and similar to the transaction fee, it depends on the transaction volume.

Additional Costs

Some additional costs applied while making cross border transaction are exchange rate margins depending on the amount received, or additional compliance costs charged by some service providers for compliance checks.

How to Avoid These Cross Border Fees?

These high cross-border fees make international transfers daunting and complicated; despite that, by dealing with them strategically, you can minimise the costs of each transaction and protect your hard-earned money.

Right Payment Method: It is immensely important to pick the right method to make your cross-border transactions. Compare service providers and choose the one that offers secure service and competitive fees to save on processing costs.
Understand Fee Structure: Before opting for any method, first ensure a transparent fee structure and then understand all the fees applied, including hidden costs, to protect your payment from additional charges.
Use Digital Platforms: Many fintech solutions and digital platforms are worth considering for international transfers. They usually offer cross border transactions at lower costs and better exchange rates, such as Linea Global, which can be an efficient and cost-effective alternative to bank transfer that costs much more comparatively on larger volumes of transactions.

While all transactions, whether domestic or cross border, are subject to fees and payment processing charges, these charges are very much manageable if you identify the costs, compare the available options and choose the right service provider.

Linea Global

Linea Global offers the most convenient and efficient solution for cross border transactions. Now, you can easily connect to the world without any complicated process, long processing time, or high transaction costs. We offer the most competitive currency exchange rates so you can get the best value for your money. Contact us and find out how we can help you with your international payments and currency exchange needs.