Cross-border transaction expenses for retailers: An analysis of costs involved

As Black Friday approaches, cross-border purchases are on the rise, and understanding the costs associated with these transactions is crucial for both merchants and customers.

International currency conversion fees are a significant factor in the overall cost of cross-border transactions. These fees can vary significantly depending on the payment gateway and the specific circumstances of the transaction.

For instance, Braintree's fees depend on whether the merchant's currency is considered standard or exotic. Credit card fees for international transactions are generally higher than domestic ones, and these fees can be charged at the point of sale or when the merchant converts their account balance.

US merchants tend to see lower fees for currency conversion compared to international merchants. Services like Wise charge between 0.3% and 0.7% of the transaction amount, while Revolut charges around 0.4% plus possible additional weekend or over-limit fees. Traditional banks often charge a fixed fee plus unfavorable currency exchange margins that can significantly increase costs.

However, some payment gateways, like Worldpay and Adyen, do not publish standard currency conversion fees. Stripe charges an additional fee for cross-border transfers, ranging between 0.25% and 1%. Stripe also charges for local payouts at a rate typically around the local equivalent of $0.25 plus 0.25%.

The structure of the payment provider determines whether the currency conversion fee is paid by the merchant or the customer. Some payment gateways, like Stripe, charge extra fees for cross-border transfers and local payouts. On the other hand, Square allows merchants to choose whether to handle currency conversion.

If a merchant offers products in their customers' local currencies, they bear the currency conversion fee. Conversely, if a store prices goods exclusively in their local currency, the customer pays the currency conversion fee.

The fees for currency conversion and cross-border transactions can have a significant impact on the overall cost for merchants. As a result, merchants worldwide expect record sales during Black Friday, making it essential for them to understand these costs to maintain profitability.

Black Friday has become a largely online event, adopted by numerous countries, making cross-border transactions increasingly common. As such, understanding the costs associated with these transactions is crucial for both merchants and customers to make informed decisions and ensure a smooth shopping experience during this busy season.