Thursday, January 10, 2008
Depending upon the currency used in the transaction, the fee is calculated by multiplying a cross border transaction dollar amount by a predetermined basis point rate, with one basis point equaling one-hundredth of 1%.
Since the fee's inception in April 2006, all cross border transactions initiated by MasterCard, Maestro and Cirrus-branded cards are subject to this fee.
The fee increase will now have an even bigger impact on U.S. merchants who process payments using non-U.S. bank members – meaning offshore issuers – as their merchant acquirers. Many ISOs and merchant level salespeople set up U.S. merchants through foreign banks.
In a tight market, acquirers are reluctant to pass this fee increase on to their merchants. Acquirers can recoup some of their costs by having their merchants implement dynamic currency conversion (DCC) technology at the POS.
DCC is a value added service that converts in real-time a card purchase in a merchant's local currency into the customer's home currency. The service allows customers to shop in their home currencies while merchants receive reporting and settlement in their home currencies.
When an acquirer offers DCC to a merchant, the merchant receives a portion of the margin earned on the cross currency transaction. The remaining balance is split between the acquirer/ISO and the DCC processor. This new revenue stream helps to compensate acquirers and their merchants for the cross border fees charged by MasterCard. DCC is offered by a number of processors, including Planet Payment Inc., E4X Inc., Pure Commerce Pty. Ltd., Fexco and others.
MasterCard charges issuers 80 basis points on each international transaction and now charges an additional 40 points to the acquiring banks on the same transaction.
Visa Inc. also charges a 1% exchange rate fee for cross border transactions, called the international service assessment, but only to the issuer. In 2005, Visa changed its policy that in certain regions, including the United States, the fee would be rebated to the acquirer if the customer paid in their own currency. This practice encourages issuers not to charge additional fees to their cardholders.
In MasterCard's quarterly report filed Oct. 31, 2007, the revenue generated from currency conversion and cross border fees jumped 43.4% in 2007 from the same period in 2006. In the first nine months of fiscal year 2007, MasterCard made $634 million, up from $442 million in 2006. MasterCard said the increase was primarily due to the increase in the volume of cross-border transactions, up 18.7% in the nine months ending Sept. 30, 2007.
In an e-mail response to The Green Sheet, Chris Monteiro, Group Head of Worldwide Communications at MasterCard, said, "We don't comment on pricing. If and when our pricing has a material impact on our financials, we will disclose this impact in the ordinary course."
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