Cross-border payment processing

Cross-border declines are primarily driven by issuer risk models that categorise foreign transactions as higher risk for fraud. When an authorisation request originates from a foreign acquirer, the issuing bank may not have sufficient data to verify the user's intent or location.

Additionally, technical mismatches in security protocols, such as a lack of 3D Secure support in regions where it is mandated, or incorrect MCC coding, can trigger automatic refusals.

Merchants can mitigate this by using acquirers with local presence or optimising the data sent in the authorisation message.

The transaction currency is what the customer sees and pays at the checkout, such as EUR or USD. The settlement currency is the denomination in which the acquirer pays the merchant, such as GBP.

Cross-border processing involving these two different currencies usually incurs an FX fee. Some setups allow for 'like-for-like' settlement, where the merchant receives the same currency that was paid, provided they hold a bank account in that currency, thereby avoiding conversion fees at the processor level.

Interchange fees for domestic transactions are often capped by regional regulations, such as the 0. 2% for debit and 0.

3% for credit cards in the European Union. However, these caps typically do not apply to inter-regional or cross-border transactions.

For example, a UK merchant processing a card issued in the USA will face significantly higher interchange rates, often exceeding 1. 5%.

These costs are set by the card schemes and depend on the card type, the merchant's location, and the issuer's location.

3D Secure is a security protocol that provides an additional layer of authentication. In many regions, particularly the EEA under PSD2, its use is mandatory for most transactions.

For cross-border payments, implementing 3DS is crucial because it can provide a liability shift from the merchant to the issuer in the event of a fraud dispute. Furthermore, many international issuers will automatically decline non-authenticated traffic from foreign merchants as a default security posture.

Yes, domestic or localised acquiring involves routing transactions through an acquiring bank located in the same region as the cardholder. This makes the transaction appear domestic, which typically results in lower interchange fees and higher authorisation rates.

To implement this, a merchant usually needs a local legal entity and a domestic bank account in that region. For businesses without a local presence, using a PSP with a broad international footprint is the standard alternative.

FX risk occurs because exchange rates fluctuate between the time of authorisation and the time of settlement.

Merchants can manage this by settling in the same currency as the transaction, using fixed exchange rates provided by their gateway for a specific window, or using multi-currency accounts to hold funds until rates are favourable.

Some processors also offer dynamic currency conversion, which locks in the rate at the moment of purchase, transferring the FX risk and choice to the cardholder.

Merchants must navigate various data protection laws like GDPR, as well as PCI-DSS compliance for handling card data globally. Payment-specific regulations such as PSD3 and local AML requirements mean that merchants must be verified through rigorous KYB processes.

Furthermore, some countries have strict controls on capital outflows, which can affect the ability of an acquirer to remit funds to a merchant located in a different jurisdiction.