The Question of Cross-Border Transacations

March 29, 2021

There has been a strong focus on false declines by merchants over the last few years. A primary trend has been the discrepancy between payment acceptance rates covering both domestic and cross-border transactions.

Cross-border transactions are transactions that occur when card issuing banks and acquiring banks are in different countries. Domestic transaction, by contrast, involve initiation by a payment card issue bank and merchant bank located in the same country. 

Cross-border transactions carry their own set of challenges, which can affect the likelihood of acceptance rates. Rates are calculated through comparison of “the number of approved (accepted) payments with the number of those declined.” Acceptance rates also vary by the type of merchant involved: eCommerce merchants often have a 90%+ acceptance rate while subscription merchants typically come in at a lower figure.

Evaluating the impact of these trends can be rather complex. It falls on the merchant to categorize sales, identify debit versus credit card transactions and distinguish the issuing cardholder bank’s country of origin. For security purposes, some card issuing banks enable consumers to set country/ merchant local restrictions (i.e decline all cross-border transactions).

Making the Difference

Customers are not always aware of how many regular purchases might be cross-border transactions, though, and typically forget that online shopping means a greater likelihood of transacting internationally.

For these reasons, among others, tallying rates for cross-border transactions is an incredibly involved process. It goes much further than comparing the sum of successful and attempted payments for measures to be detailed. How can we get a better grasp of the overall picture? A few steps can point us in the right direction:

Step 0

review historical orders, using at least one quarter of order history data. We recommend that merchants examine their order history and identify the card issuing bank country and if the card used is debit or credit. Merchants can determine the country and card type by using a Bank Identification Number (BIN) table, which is available on request from the acquiring bank/processor.

Step 0

Calculate and compare the acceptance rates by country and payment type. After reviewing and sorting historical transactions, merchants should calculate the acceptance rates by issuing country and card type. Unusual variations might indicate issues with cross-border orders and uncover opportunities to increase revenue by processing domestically.”

Merchants considering whether to provide cross-border payments need to calculate the costs of doing business. What is the acceptance rate were all orders processed domestically? If they decide that enlisting a third-party solutions’ provider is the best route, they should also calculate those added costs into the equation.

There is also the consideration of increased payment acceptance, which offers its own “soft benefits:” better customer experience and retention, greater channels for revenue growth and fewer risk of losses on future purchases from consumers.

Making the Difference

While consumer experience is hard to quantify, it should remain a key factor in transaction decisions. Customer loyalty is hard to gain but easy to lose and the multitude of competitive options available online means that merchants must design a seamless and easy transaction process. Providing alternative payment methods also gives consumers greater agency during transactions, such as bank transfers, digital wallets, and credit card payments.

As merchants open their online stores to the global community, it is important for them to examine consumer trends and payment methods. According to Julie Ferguson (CEO of MRC), some “…larger solutions providers offer global payments reports, which provide good insight into what payment methods ecommerce merchants should accept in each of the different countries.”

These same service solution providers often act as Merchant of Record for alternative payments. The accumulated calculations of costs, refunds and associated fees quickly become too complicated for many merchants to tackle themselves, which means they are outsourced to third-party vendors (at least until an in-house strategy becomes economically viable).

There is also the consideration of increased payment acceptance, which offers its own “soft benefits:” better customer experience and retention, greater channels for revenue growth and fewer risk of losses on future purchases from consumers.

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