Between high rates, international credit card processing fees, and conversion fees, Stripe’s transaction fees might literally be killing your business. As an international seller, Stripe won’t allow you to set your default currency in the market you may sell in, which means you pay more for no reason.
But there are solutions available that lead to lower fees, higher conversions, and larger payouts.
Flat-fee processing or no-fee processing is a scam.
First, let’s cover an option that most small business owners look at when shopping around for a cheaper credit card processor: no-fee processing. Some are called flat-fee processing, meaning they charge you a very small flat monetary rate, not a percentage.
Every major credit card network—Visa, Mastercard, American Express, Discover—charges a fee. This is the interchange rate.
Interchange rate differs by business type.
Interchange-plus pricing can be viewed on any credit card company website, they’re not held secret. We encourage you to look through and find your business category (you probably fall under several categories) to see the interchange rates that apply to you.
One way to lower interchange fees is to open a merchant account as a new business type to take advantage of the lower merchant category code (MCC) rate.
No-fee processing means your customers pay more.
The trick to no-fee or flat-rate processing is that you don’t have to pay the fee, but your customer does. Customers will not be happy being passed on a processing fee. They could create a chargeback, which would be bad for your small business. Conversions would lower. Your reputation would be put at stake.
The only types of business that can utilize no-fee credit card processing are non-profits. Customers are only okay with this because it’s seen as a donation.
Take the perspective of your customer: you go to buy a product online; the checkout screen shows you the cost with tax and shipping, and maybe a little notice about a processing fee; you make the purchase and check your bank statement to find a significantly larger charge; now you angrily cancel the order/create a chargeback/write a bad review.
Most processors allow settlement in a major currency.
As long as you have a bank account in that currency, processors will allow you to avoid the currency conversion fee. This includes USD, GBP, and EUR.
This is incredibly beneficial to ecommerce businesses abroad who operate in a different market, like selling to the US market from the UK. You should speak with your processor about how to set this up, but they shouldn’t put up a fight about it. They’re already processing the other currency, so it’s actually easier for them to settle in it than to convert it.
Stripe does NOT allow settlements in other currencies. It’s just a Stripe thing; they want to squeeze as much out of you as possible.
Non-domestic accounts are always more expensive.
The cheapest credit card payment processing is always local. Interchange fees are more expensive for corporate cards and foreign credit cards. Foreign, in this scenario, refers to customers in your target market using their local cards and currency.
You can use a local payment processor (where your business is located). Rates would be cheaper, but you would have fewer conversions (5-10% less). Fewer conversions happen because banks decline foreign credit card transactions, which means your customers would have to approve the transaction and try again. You can prevent some of these declines with 3D Secure 2.
It’s a bit double-edged because you pay lower credit card processing fees, but you don’t convert as much. Whereas if you use a foreign account, you pay higher fees but won’t lose conversions. Do the math for your business and see which one pays out better.
A US LLC would help (if your market is the US).
The same concept applies no matter where your market is. If you are able to open an LLC in that market, you will benefit greatly.
The rules change depending on the region, but generally you need a resident director. Some countries require a physical address or an office, others require a person. Either way, that person doesn’t have to hold stake in your business, they just need to be appointed as an officer.
With an LLC, you can:
- open a local bank account
- open a local merchant account
- process locally with lower payment processing fees and higher conversions
Taxes might pose an issue, but that’s something you should look over with an accountant.
Non-Stripe 3rd-party payment processors might benefit you.
If you like the idea of using a service like Stripe that keeps things simple and you can sign up in minutes, we won’t hold you back. But clearly Stripe is not the best option for your foreign business.
Here are some alternatives:
These are similar to Stripe in many ways but with lower fees and can offer (some) international support. We highly recommend opening a real merchant account, but if you’re sticking with 3rd-party processing services then these are ones to look at. Shop around for a solution that meets your business needs, don’t just look at the lower rate.
Most of the options only offer flat-rate pricing models and a monthly fee. So you’re aware, there is likely a high processor markup built into the rate. You’ll have more luck finding something with at least a tiered pricing structure if not interchange plus.
Use a processor that accepts the right types of credit cards.
When we’re looking at the US market, it’s easy to understand the types of credit cards used because they’re the major ones mentioned previously. But if you’re wanting to operate in another market, there may be other cards or payment types to accept.
Consider ACH, wire transfers, debit cards, and other card brands that might be more popular in the market. The processing rate for these other types of transactions might cost even more if you choose an unsupportive credit card processing company.
Pay attention to additional fees and hidden fees.
You need to go through the fine print, as tedious as that sounds, to make sure you’re not paying unnecessary fees. Things to look out for include:
- Cancellation fees – if an order is canceled, you shouldn’t have to pay a fee for it.
- Compliance fees – PCI compliance is legally necessary, but most gateways have it. You don’t need to pay a fee for compliance through your processor.
- Chargeback fees – chargebacks happen. You’re already losing the sale and probably paying the cost of shipping. You don’t need to pay more on top of that.
- Assessment fees – these are non-negotiable, but are set well in advance. Don’t pay too much.
- Online vs, in-person fees – in-person via point-of-sale card readers (POS system) will always be cheaper. Online payments are riskier due to them being a card-not-present transaction, meaning the risk of the purchaser not being the cardholder is higher.
Some software can cascade declined transactions automatically.
The biggest issue with using a domestic merchant account is the loss of conversions due to banks declining the transaction. There is a workaround: software that takes automatically tries a failed transaction with another payment processor.
You should use a domestic account as much as possible. You can minimize not only the decrease in conversions but also the amount of effort placed on the customer to approve a transaction by automating the payment process from one processor to another. Search for software that can help you with this.
In this case, you would use your domestic (re: better) merchant account to process transactions and fall back on Stripe for the ones that don’t go through seamlessly. That way, you can avoid Stripe’s fees most of the time, only paying when it’s necessary to make the sale. Plus, the checkout experience remains clean, with either an automatic change in the payment gateway or no change at all.
Act now to save your business from drowning in fees!
In conclusion, understanding the credit card interchange rate and how it applies to your business is essential for keeping processing costs low.
The best solution is always to open a real merchant account, not a 3rd-party processing account. With a merchant account, you can take advantage of lower interchange rates and settle in multiple foreign currencies all while having more control over what you pay and when you pay.
If you have a steady monthly transaction volume and low chargeback ratio, there’s no reason your bottom line should be suffering due to exorbitant surcharges from your current merchant services provider.
Open a high-risk merchant account that supports your business with DirectPayNet today and reap the benefits of operating from abroad.