Why do international transaction fees cause complaints for e-commerce businesses?

The root of the problem is that cardholders expect their credit card to be charged for the exact amount that was indicated when they completed the purchase. The merchant has the same expectation. In fact, both the seller and the buyer have agreed on a set price and expect the transaction to be processed accordingly. The issue arises when the poorly understood international transaction fee is charged by some card issuing banks.

We need to clarify at the start that if you purchase items in a foreign currency you can expect to be charged currency exchange (currency conversion fees) on your credit card processor statement. The card issuer must do this in order for you to complete the purchase. For example, if a Canadian cardholder purchases something online from a U.S business whose prices are in USD, it means that the merchant is expecting to be paid in USD. In order for the purchase to happen your card issuing bank takes the amount in USD that the merchant needs to be paid, converts it into CAD using the exchange rate at the time of the transaction and charges this amount to your card. On your credit card statement you will see the original purchase price in USD, along with the exchange rate used to convert it into CAD. There is nothing wrong with this because it’s required to complete the transaction.

The problem is when no currency exchange occurs but a card issuer still charges an extra fee. To reiterate the frustration, it’s when a credit card is used in an e-commerce transaction, it’s charged directly in the cardholders local currency, no currency exchange is needed, but the card issuing bank still charges an extra international transaction fee. It is often shown as a separate line item below the original purchase and it’s most often 3% of the original purchase amount. Compounding the issue (and what causes the greatest frustration) is that the separate line item on the statement often shows the merchants name beside it. Even though it is the card issuing bank that levied the payment gateway fee, the statement often makes it appear that the merchant charged an extra cost to the customer. This can lead to upset customers or accusations of overcharging, and it’s no wonder that this causes frustration for both cardholders and merchants.

What can we do about this problem? Let’s dig in further…

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