Foreign transaction fees and how to avoid them

Key takeaways:

• Foreign transaction fees are charged by your card issuer when payments are processed through foreign banks or involve currency conversion. They typically range from 1-3% of the transaction amount.

• Typical rates include a currency conversion fee (around 1%) and an issuer fee from your card provider (about 2%).

• The best ways to cut rates include using no-foreign-transaction-fee cards, paying in local currency, and exploring fintech solutions for better exchange rates.

Foreign transaction fees can significantly impact your business's bottom line. Every time you or your employees make payments abroad – with a credit card or through a bank transfer – unexpected fees can quickly add up.

Without the right partner, even routine expenses in another country can lead to unnecessary costs that eat into your profits. Understanding how these fees work is essential for making informed decisions about cross-border payments.

For modern digital businesses, grasping the intricacies of foreign transaction fees and foreign exchange (FX) fees is crucial. Traditional banks often charge up to 3% per international transaction, but innovative solutions are transforming how global businesses manage cross-border payments.

Fortunately, you can reduce or eliminate these fees, enabling you to handle global transactions more efficiently.

What is a foreign transaction fee?

A foreign transaction fee is a charge that financial institutions add when you make payments in foreign currencies or through overseas banks. This charge typically ranges from 1% to 3% of the total amount.

Understanding the structure of these fees and interchange fees can provide deeper insights into the costs associated with international transactions.

These fees can be incurred in everyday activities, such as paying for social ads, booking flights with an international carrier, ordering products from a foreign retailer, or paying overseas suppliers for goods and services.

Understanding these fees is essential for businesses across industries to manage international payment costs effectively. For example, companies involved in eCommerce payment processing often encounter these fees when selling products to customers abroad.

Today, money flows across borders constantly, but the processes behind these transactions are complex:

• Each country has distinct financial regulations

• Banks must coordinate cross-border transfers

• Card networks maintain global security protocols

• Currency conversion happens in real-time

Foreign transaction fees can vary depending on the payment method. For this article, we'll focus on international card payment fees. These fees comprise of:

• Network fee: ~1% (charged by the card network, e.g., Visa, Mastercard, etc.)

• Issuer fee: ~2% (charged by the issuer, usually your bank)

• Total: up to 3% of transaction value

These fees can significantly impact the profitability of companies that make frequent international transactions. If left unchecked, foreign transaction fees can erode your business’s bottom line. While traditional banks typically charge these full amounts, modern fintech solutions often provide quicker and more cost-effective alternatives.

How do foreign transaction fees work?

Foreign transaction fees vary depending on your bank or payment method. These fees combine a currency conversion fee (often around 1%) and an additional charge from your card issuer or bank (usually around 2%).

To understand how these fees affect your business, think about this example: When you buy something from another country for $10,000, you'll pay a foreign transaction fee of up to 3% or up to $300. This fee consists of a network fee and an issuer fee.

For companies managing multiple overseas vendors, employees, and customers, these fees compound quickly:

• Monthly supplier payments: $50,000 × 3% = $1,500

• International customer refunds: $20,000 × 3% = $600

• Employee travel expenses: $10,000 × 3% = $300

Beyond these visible charges, businesses may encounter other hidden costs, such as foreign exchange (FX) markups on currency conversions. Additionally, it’s essential to consider the duration of international bank transfers and potential delays, as timing can significantly impact your overall costs and cash flow.

How to avoid foreign transaction fees

Foreign transaction fees may seem inevitable, but there are ways to minimize or even eliminate them. Avoiding foreign transaction fees is a smart way for businesses to reduce costs and keep international payment expenses low.

With an Airwallex Business Account, your business can hold, receive, and pay in different currencies, avoiding foreign transaction fees and minimizing costs by steering clear of providers that charge extra for international payments.

Additionally, some banks and card issuers still charge foreign transaction fees, so choosing the right provider is key. If your business relies on wire transfers for cross-border payments, understanding their fee structures can help you avoid surprise charges.

Foreign transaction fee-free cards

Many banks and card issuers now offer credit cards with no foreign transaction fees, making them ideal for international travel and global business expenses. Whether you’re a business owner making overseas purchases or an employee traveling for work, using a foreign transaction fee-free card can help reduce costs.

Some travel credit cards also offer valuable rewards, such as points or miles for spending on flights, hotels, or international purchases. While these cards may have an annual fee, the ability to avoid foreign transaction fees – and potentially earn rewards – can make them worthwhile.

Major card issuers like Capital One and Chase offer both personal and small business credit cards with no foreign transaction fees. However, not all banks offer this benefit, so it’s essential to review the card’s terms before applying.

For companies with larger teams or global operations, corporate cards like the Airwallex Corporate Card can be even more effective. This multi-currency debit card draws from your Airwallex Business Account, allowing you to hold and spend in local currencies without incurring foreign transaction or conversion fees.

If the needed currency isn’t available in your account, Airwallex automatically converts funds at competitive FX rates with low or no markup, helping your business manage global spend more efficiently.

Dynamic currency conversion (DCC)

Dynamic currency conversion (DCC) is a service that allows you to pay in your home currency instead of the local currency when making a purchase abroad. It’s commonly offered at international points of sale or ATMs, especially when using a credit or debit card. While DCC may appear convenient, it typically comes with higher fees and less favorable exchange rates.

When you choose DCC, the merchant or ATM operator handles the currency conversion instead of your card network (like Visa or Mastercard). This means the exchange rate is set by the merchant’s provider, not your card issuer, and it often includes a markup. Often, this results in additional fees being added to the total transaction amount.

To avoid unnecessary fees, it’s best to decline DCC and choose to pay in local currency instead. This ensures that your card network handles the currency conversion, using more competitive exchange rates with fewer added costs.

Whether you’re traveling for business or making international purchases online, local currency payments help you minimize DCC fees, reduce transaction costs, and get better overall value.

Convert cash

For employees traveling abroad, converting cash at the destination can be one way to avoid foreign transaction fees charged on card purchases made abroad. However, currency conversion at airport kiosks or local exchange offices often comes with unfavorable exchange rates or hidden service fees, which can offset any savings.

Another option is withdrawing money from international ATMs using a debit card. Many travel-friendly bank accounts reimburse ATM fees or minimize charges, making this a more cost-effective way to access local currency. Still, some foreign ATMs impose additional fees, so it's important to check whether your bank offers fee waivers or reimbursements.

Using a debit card for cash withdrawals is typically more economical than using a credit card, which often incurs cash advance fees and immediate interest charges. Always keep your debit card information secure when using international ATMs to help prevent fraud.

Choosing the right bank account and debit card can significantly reduce fees when withdrawing cash abroad. Look for accounts that offer no foreign transaction fees and ATM fee reimbursements, especially if your business involves frequent international travel.

While converting cash can help you sidestep card-based fees, it’s often less convenient and may result in higher total costs than simply using a card with favorable foreign exchange terms. However, it may still be more cost-effective than accepting dynamic currency conversion (DCC), which typically includes significant markups.

Simplify global transactions with a multi-currency account

Having a multi-currency business account that supports foreign currencies can simplify overseas transactions and help reduce costs.

With an Airwallex Business Account, you can hold, transfer, and receive funds in 60+ currencies, reducing costly foreign exchange conversions and streamlining cross-border transactions.

Choosing the right payment processor also plays a role in minimizing fees for international payments, as providers may charge different rates for handling foreign currency transactions. When used in conjunction with an international business debit card, such as Airwallex Corporate Cards, your business can make global payments with low or no foreign transaction fees.

These solutions are especially valuable for businesses expanding into new markets or managing international vendors, contractors, or employees. Together, they enable you to handle global money movement more efficiently and cost-effectively, boosting your ability to operate across borders.

Frequently asked questions about foreign transaction fees

Why am I charged a foreign transaction fee?

You may be charged a foreign transaction fee if a transaction is processed through a foreign bank or involves a currency conversion. These fees pay for the costs banks and credit card networks pay when processing international transactions. They include currency conversion fees based on the exchange rate and the risks involved. If your business uses a telegraphic transfer for international payments, these fees can also apply.

How much is a foreign transaction fee?

Foreign transaction fees typically range from 1% to 3% of the transaction amount. This includes a currency conversion fee or network fee (approximately 1%) and an issuer fee from your card provider (approximately 2%).

How do I know if my card has a foreign transaction fee?

Your card’s terms and conditions should outline any fees for foreign transactions. If you don't have your paperwork handy, contact your card issuer directly to confirm whether your card charges these fees.