Credit Card Fees Per Transaction – Credit card fees are complicated, and the picture gets even more complicated when it comes to currency conversion fees and foreign transaction fees. Both fees apply to the same transaction.
When you make purchases (or withdraw money from an ATM) with a US-issued credit or debit card online in a foreign country or with a company in a foreign country, the card issuer, usually a bank, may charge a foreign transaction fee. . 2% to 3% of the purchase price. At the same time, the credit card payment processor, usually Visa, MasterCard or American Express, will charge an additional 1% of the purchase price to convert your purchase from a foreign currency to US dollars. Whether you pay this fee depends on the credit card or ATM network you use
Credit Card Fees Per Transaction
Many, but not all, credit and debit card issuers and ATM networks charge a transaction fee for purchases or withdrawals made abroad or when ordering online from a foreign merchant. Fees vary, but are typically between 2% and 3% of the dollar amount of the purchase or withdrawal.
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For example, you travel to Paris, spend the equivalent of $1,000 at a department store, charge the purchase to your credit card, or pay with a debit card. With a 3% foreign transaction fee, you’ll notice a $30 surcharge when you receive your statement online or in the mail. This is due to foreign transaction fees imposed by the credit or debit card issuer.
Alternatively, suppose you run out of cash and decide to use an ATM that charges a 3% transaction fee to withdraw $1,000 in euros (equivalent to dollars). $1000 in EUR will cost you $1030 in real terms. By the way, sometimes the foreign transaction fee is called a foreign exchange fee. This used to be called a currency conversion fee, but this fee is now something entirely different (see below).
There are two types of currency conversion fees that a merchant typically charges when making a purchase abroad – fees charged by a credit or debit card payment processor or ATM network, and fees charged through a process known as dynamic currency conversion (DCC).
A currency conversion fee is an additional fee for converting a transaction from one currency to another – usually from the local currency of the country you are visiting to US dollars. When transferring through your credit card payment processor (usually Visa, MasterCard or American Express), 1% of the dollar amount of the purchase is charged. According to a European study, when the conversion is done via DCC, the fee is usually up to 12% higher.
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The difference between these two types of currency conversion fees has to do with how quickly you will know the price of the conversion. When your credit card payment processor charges you, you won’t know the true dollar cost of your purchase until your statement arrives or is posted online. (You can get around this by using an exchange rate app like XE Currency and adding a foreign transaction fee to your card.) With DCC, you can see the difference immediately on your receipt or at the terminal at the time of sale.
Since DCC usually costs more, it’s up to you to decide if it’s worth knowing the extra charge now. Please note that DCC does not reimburse your credit card’s foreign transaction fees. This fee will be paid in addition to the DCC fee. Merchant cannot use DCC without your consent. You have the right to refuse.
There are ways to avoid fees, including using a “no fee” credit card and reducing your DCC if one is offered.
The foreign transaction fees you pay often include currency conversion fees. For example, your total fee might be 3%, consisting of a 1% currency conversion fee and a 2% transaction fee.
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Both Visa and MasterCard charge the card issuer a 1% currency conversion fee. The issuer has the option to pay this fee along with any other fees it chooses to add and call the whole thing a foreign transaction fee. Some card issuers, especially travel cards, do not charge any fees. American Express, which does not use Visa or MasterCard to process payments, charges a 2.7% fee on some cards and waives the fee on others.
The table below describes the main types of foreign credit card fees, who charges them and how much they are.
Whether it is a foreign transaction or a currency conversion fee, it is better not to pay the fee. Here are some ways to avoid or reduce fees when traveling and spending abroad:
Get an exchange rate app like XE Currency so you always know the market exchange rate.
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It only takes a few seconds for your customer’s banking network to be notified whether a credit card payment was successful or not. The card network (Visa, MasterCard, Discover, etc.) will then notify your credit card processor.
As a new payments user, credit card payments should appear in your account the next business day for payments made before 3:00 p.m.
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Sometimes your customer and card may not be present. These transactions cost a bit more because more data requires special verification. Your credit card processor charges a flat transaction fee for this. Fees may be listed separately or bundled with your rate.
If your customer is not satisfied with the goods or services they paid you for, they have up to 6 months to dispute the charge with the bank. This is called a chargeback/dispute. When this happens, you will receive a request for documentation of the goods/services provided to your customer. Do not refund the customer because they have already received a temporary credit from their bank. Typically, a dispute costs between $10 and $50. Answer all required items as quickly as possible.
The issuing bank is the bank that provides the credit line to the cardholder. For example, if you have a Chase credit card, your issuing bank is Chase.
Your merchant bank is the financial institution that manages your merchant account. It handles credit card processing and all payments for credit card transactions.
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Your merchant service provider processes your credit card transactions both front and back. They will also take care of your communication with card associations, processors and your bank.
Your payment gateway allows associations, merchants and banks to communicate with each other. Payment gateways support most point-of-sale systems, banks, processors and merchant types.
There are two types of processors. The front-end processor takes care of card authorization, connection to card associations and network authorization. The end processor receives and forwards the settlement batches to the issuing banks on a regular schedule.
Your credit card processing fee (usually per transaction) is the cost that includes processing the transaction and sending payments to your account. You will often pay a compound rate based on a percentage of sales and a flat fee. This fee may combine the fees of your merchant service provider, processor, issuing bank and card association. Your interchange fee is fixed, but you can try to negotiate lower communication and processing fees to lower your rate. For example, merchants who process more than $7,500 per month are offered a 40% discount per transaction.
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You’ve probably heard of Visa, MasterCard, American Express, and Discover. They’re called card networks, and they handle the transactions that happen every time you use a credit card—simply speaking, they move money from one place to another. Credit card networks charge businesses, also known as merchants, a percentage of each transaction for processing payments. Merchants can choose to only accept payments through certain networks to avoid higher fees.
Once the credit card purchase is approved, sponsoring banks, also known as acquiring banks or merchant banks, receive payment to the merchant. Sponsor banks make a profit by charging fees charged by credit card networks. Sponsor banks guarantee payments or accept liability for payments in case of fraud, monitor transactions and measure merchant compliance with credit card network rules.
Independent Selling Organizations, commonly known as ISOs, are third-party companies approved by credit card networks that help sponsor banks or merchants with credit card processing services. ISO services can vary from generating sales to referring merchants to a sponsoring bank for payment processing services.
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