Foreign transaction fees can significantly impact your business' 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, eating into your profits.
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 is added when you make a payment in a foreign currency or through an overseas bank. This can be up to 3% of the transaction amount. You might incur these fees during your everyday business, such as when paying for social ads, booking flights, ordering from overseas retailers, or paying overseas suppliers for goods and services.
Understanding these fees is essential if you are to keep a lid on your costs.
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%).
For example, imagine you buy something from another country for US$10,000. You’re likely to pay up to US$300 (3%) in foreign transaction fees of up to 3%. This fee is made up 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 FX markups on currency conversions. Additionally, it’s important to consider how long international bank transfers take and potential delayed bank transfers, as timing can also affect your overall costs and cash flow.
How do foreign transaction fees impact business owners?
Foreign transaction fees quickly add up and can make the difference between profit and loss for businesses. Here's an example:
You’re a UK company (the merchant), your customer is based in the US and your supplier is based in Vietnam but accepts USD.
- 1. Your US customer checks out in USD.
- 2. You use an acquirer/card network such as Visa/Mastercard/Stripe/Worldpay to convert the USD into GBP. This is the FIRST CONVERSION.
- 3. Your UK company then needs to pay suppliers in Vietnam in USD. To do this, you must convert GBP back into USD. This is the SECOND CONVERSION.
These two conversions can cost you up to 3-4%. Double currency conversions are not efficient. They impact your bottom line and drain internal resources. But here’s the thing, the conversion trap and double currency conversion are completely avoidable.
Read the guide on how businesses can avoid the conversion trap.
How to avoid foreign transaction fees
The convenience of card payments comes at a price, especially when you’re dealing with foreign currencies. The good news is that you can reduce or completely eliminate these unwanted fees. Here’s how:
- Avoid paying in your home currency during business travel.
- Use fixed-fee, wire transfers for large payments.
- Use a card with low or no foreign conversion fees such as the Airwallex business account.
- Use a card with no foreign transaction fees.
- Use a multi-currency corporate card.
Benefits of multi-currency cards for businesses
If your team makes global payments or travels frequently, you can reduce card fees with multi-currency corporate cards. These are debit cards that let you spend in various currencies. Here’s how your business can benefit from using these:
- Avoid unnecessary currency conversion. Multi-currency cards come with a multi-currency account or wallet. When you use the card to pay for a currency that's already in your account, there's no need to convert the currency. This way, you can make purchases or withdraw cash abroad without the extra cost of exchanging money.
- Increased transparency over business expenses. A multi-currency card can enable streamlined accounting by consolidating transactions from different currencies into one account. This centralised view makes it easier to track spending and leads to more accurate and efficient financial reporting.
- Global acceptance. These cards work with payment networks like VISA or Mastercard, allowing you and your team to make payments anywhere in the world.
Frequently asked questions
1. Is the foreign transaction fee the same as the currency conversion fee?
Foreign transaction fees and currency conversion fees are similar but not the same. A foreign transaction fee is charged by your bank or card issuer when you make a purchase in a foreign currency or through a non-domestic bank. It's usually a percentage of the transaction amount and is sometimes called an administrative fee.
On the other hand, a currency conversion fee, often included in the foreign transaction fee, is the charge of converting from the foreign currency to your home currency.
2. Why do credit card companies charge a foreign transaction fee?
Foreign transaction fees help card issuers and networks cover the costs associated with processing overseas payments. This includes the costs of currency conversion, and the risks involved in international transactions, such as fluctuating exchange rates and potential fraud. The fee also serves as a source of revenue for the card issuer and network.
3. Are there any hidden or additional fees associated with foreign transactions that business owners should be aware of?
When making overseas card payments, business owners should be aware of hidden fees beyond the foreign transaction fee. These can include currency conversion fees, which are sometimes separate from the foreign transaction fee, and dynamic currency conversion fees if you choose to pay in your home currency at a foreign merchant.
There might be ATM withdrawal fees if you use your corporate debit card to get cash overseas. It's important to review your card's terms and conditions and consult with your card issuer to understand all potential fees.
4. What are some alternative payment methods to avoid foreign transaction fees for international business transactions?
To minimise foreign transaction fees, consider payment methods such as transfers through multi-currency accounts, business credit or debit cards with no foreign transaction fees, and fintech payment specialists like Airwallex.
Airwallex’s multi-currency Business Account allows you to hold, pay, and receive funds in multiple currencies. The Borderless Card lets you make card payments from the currencies you hold, which eliminates conversion fees altogether. Additionally, Airwallex provides competitive exchange rates and transparent pricing, so you know exactly what you're paying without any hidden fees.
Copyright 2025. Featured post inspired by and made possible by Airwallex. You can read the original article on the Airwallex website.