Are the high fees on your monthly processing statements giving you a headache? Acquiring fees, gateway fees, card scheme fees — it’s a lot to process (pun intended) as a merchant, and it can be even more difficult to understand what you’re paying for, why, and how to reduce those costs where possible.
Sadly, there’s no way around the fees, especially when you’re trading goods or services across borders. So, what does that leave merchants with then? Well, at the end of the day, it’s important you understand every fee you’re charged and work with a processor who can help you make the most out of every transaction you process.
To help you better understand one common fee, ISA fees, our payment experts have created this quick guide to explore the main pricing structures and suggest ways to avoid excessive costs.
What is the ISA Fee?
In simple terms, the ISA fee is a processing fee per every transaction when the customer uses a credit or debit card that’s been issued by a bank outside of your region. The fee itself is unavoidable, unfortunately, as it’s the service fee charged by payment processing networks, like VISA or Mastercard (so, your payment partner can’t likely do anything about it).
Some might interpret it as a “high-risk fee,” which is true to some extent as you’re essentially paying for the fact that your company does pose more potential risks. The major card schemes justify the extra costs by saying they have to hire more people and spend more time and effort on the businesses that process interregional (hence riskier) transactions.
ISA Fee vs. IAF Fee
Now this is where it may get a little confusing. These two fees look the same but are charged separately. Did you just catch onto your first hidden charge?
Fortunately (or unfortunately?), the IAF is a separate fee from the ISA fee. While that means it’s yet another fee for you to consider, it does mean that no one is stealing from you at least.
While it’s a separate fee entirely, the International Acquirer Fee is charged, again, on all cross-border payments. The rate for this charge is often higher for businesses with a higher chance of risks. So, high-risk merchants can expect to see slightly higher IAF fees on their processing statements.
When Are International Service Fees Charged?
As mentioned above, these fees apply to purchases made with a foreign card. This doesn’t only apply to card-present purchases but also to transactions made online.
For example, if you have an eCommerce store that’s incorporated in the United States but distributes products worldwide, odds are, you’ll have to pay for the international service on a big portion of your sales when international customers use their international bank cards to purchase your products.
Who Covers ISA Fees?
As a high-risk merchant, it makes sense that the customer from the other side of the world who wants your products or services should pay the international transaction fee, right?
Wrong! Merchants cover ISA fees.
The card network charges your payment service provider first, and then the processor deducts it from your funds and often takes their own cut along with it. The amount of the processor’s cut, of course, depends on your service provider, but it doesn’t change the fact you’ll likely be charged twice for the same transaction by two different links in the payment processing chain.
Processors use three main structures for these kinds of charges, which we’ve broken down below.
Interchange Plus
The IC++ pricing structure means that the card scheme’s cut is combined with the processor’s cut.
Both are typically very small percentage fees per transaction. The card scheme’s part of this fee generally varies per region. The service provider’s markup, however, usually depends on how high your business ranks on the risk scale and your transaction volumes or forecasts.
Tiered
As you can guess from the title, tiered pricing involves fees built up in tiers or levels. So, every time you hit the cap, which is typically a goal set by your processor, the transaction fees will be lowered.
IC++ pricing changes per country and region, for example. If you have the chance, we also usually suggest to go for tiered pricing if you can. It's usually a better option for most businesses because you always have a plan that you can follow to lower your fees over time.
Flat Fee
Flat rate fees are simple, fixed fees that are agreed upon before starting a contract with a payment service provider.
These fees are typically a little higher than other types of fees on this list, but they are more straightforward because they never change. So, it’ll be easier to plan ahead for costs when forecasting the long-term goals of your business.
How Much is the ISA Fee?
The fee itself varies depending on the card network, the type of payment, and the card being used to make the purchase. The percentage of the fee typically ranges from 1% up to as high as 3%, making it one of the highest assessment fees currently.
On top of transaction fees, high-risk merchants trading goods internationally should keep in mind that, nowadays, there is a “high-risk scheme fee” that you’ll have to pay yearly.
Due to Visa’s and Mastercard’s new policies this fee has risen from $500 to a whopping $950 a year.
One of the more important fees to consider as a high-risk merchant is the high-risk scheme fee, which is part of the Visa Integrity Risk Program (VIRP). This is similar to a registration fee, and you have to pay a yearly fee of $950, check for each card scheme.
International Service Assessment Fee
Most main card chains have set their own terms that they go by regarding the actual percentage of this rate:
Visa: The fee ranges from 1.1% to 2% without other additional charges like the interchange, for example.
Mastercard: Mastercard’s ISA fees can fluctuate between 0.6% and 1% on foreign transactions.
Discover: They go by the same logic as Visa when it comes to ISA fees. The rate for their international service assessment is set at 1.35%.
American Express: American Express is known for having the highest rate for ISA, charging almost 3% on every transaction made with a card issued outside of your region.
International Acquirer Fee
The IAF is also charged by the international card scheme and is subject to all international transactions. These add-ons are typically lower than IAFs since they’re stacked.
Visa’s rate for the fee currently sits at 0.45% on every transaction made with a card issued outside of your country.
Mastercard charges around 0.85% for the international acquiring service on each transaction.
Discover’s IAF rate remains at a low 0.07%.
AMEX network charges its users 0.12% on all international transactions for acquiring.
Can You Avoid the ISA Fee?
The short answer is no, you can’t completely avoid these fees, especially if you’re looking to attract international customers or clients.
While that might sound unfortunate and perhaps even annoying, you’re essentially paying to ensure all of your international transactions are carried out securely. So, it’s worth it in a sense to keep you and your customers safe.
It's impossible to avoid fees as a merchant, whether you're high or low-risk, but it is important to know what fees are deductible in your business. Ensure you're working with knowledgeable payment processing providers or tax consultants who can help you make sense of your overall fees to optimize your accounting.
The good news is the fees can always be negotiated a bit. So, it’s important to communicate with your processor, gain trust, and ensure you understand what you’re paying for.
Additionally, showing that you’re aware of the risks involved in your high-risk business and doing everything in your power to mitigate and navigate the risks at hand will put you in a better light and improve your odds of scoring lower fees.
Of course, there’s always the option of narrowing down your target market to local users, but that has its own downsides, like lower revenue, all while the potential and inherent risks remain the same.
Optimize Payment Processing with FastoPayments
FastoPayments has years of experience helping merchants in different high-risk sectors optimize their payment processing efforts and manage the fees effectively. And as some of the fees, like ISA, can’t be avoided completely, it’s vital to partner up with a processor who knows how to make the most out of every single transaction.
Want to reduce costs and improve payment efficiency? Consider FastoPayments for your cross-border payment needs. Get a free, no-obligation quote for a high-risk merchant account here.
