Controls for cross-border card transactions

Overview

Feature summary

• Synctera has enabled controls for cross-border card transactions

• A cross-border transaction is a transaction where the merchant's country code is different from the country code of the card BIN

• Cross-border transactions come with a cost to the FinTech

• Options for controlling cross-border transactions:

  a. RECOMMENDED BUT MORE CUSTOMER FRICTION: For a USD card, reject non-US based transactions by default and let the cardholder opt-in per transaction to approve it if they want to, acknowledging a recommended minimum 2% fee
  b. HIGHLY RECOMMENDED: Pass on fees to cardholders as a standard Foreign Transaction Fee, which is common in the industry
  c. Disable cross-border transactions altogether and inform cardholders they are disallowed
  d. EXPENSIVE BUT GREAT VALUE PROP: Absorb the fees (network passthrough fees) as part of the program and advertise this feature as part of the product’s value proposition vs competitors (alternatively, offer a lower fee (e.g. 1% and absorb the remainder of the fees)
  e. Educate cardholders to sign up for or switch to merchant accounts registered in the BIN issuing country (for example, sign up for Amazon US for purchases with a US-issued card)

Feature details

Network fees

Mastercard:

• Cross-border issuer fee = 90 bps on the transaction $ volume (Gross Merchandise Value - GMV)
  • by default is NOT included in the amount requested from the cardholder
  • The network bills this fee to the issuer weekly, and Synctera passes this fee through to the FinTech monthly
• Currency conversion user fee = 20 bps on the transaction $ volume (GMV):
  • The estimated fee is by default included in the amount requested from the cardholder
  • The actual fee comes through in the daily settlement from the network - occasionally, there is a minor difference between the estimated and the actual fee, resulting in an FX adjustment, which is, by default, also covered by the FinTech

Visa:

• Cross-border issuer fee = 100 bps on the transaction $ volume (GMV)
  • by default is NOT included in the amount requested from the cardholder
  • The network bills this fee to the issuer daily, and Synctera passes this fee through to the FinTech monthly

Identification of a cross-border transaction:

• A cross-border transaction is identified in the transaction API, in the authorization gateway, in the Synctera Console and in Synctera Insights

• Transaction API:

  • When applicable, cross-border fees would be shown under under user_data.fees:

    

  • Conditions for identifying when cross-border fees apply:

    user_data.merchant.country_code DOES NOT EQUAL issuing country
    OR 
    user_data.pos.country_code DOES NOT EQUAL issuing country (fallback)
    

• Authorization gateway:

  • Conditions for identifying when cross-border fees apply:

    merchant.country_code DOES NOT EQUAL bin.country_code
    OR 
    pos.country_code DOES NOT EQUAL  bin.country_code (fallback)
    
    

• Synctera Console (UI):

  • Card Transaction Details > Details (Merchant Country Code / Fees):
    

  • Card Transaction Details > POS data (Country, if available):

    

• Synctera Insights:

  • FinTechs can build their own reports based on the Card Transactions Extended Metadata view contained within the Card Reference Dashboard. This view contains the:

    • Processor Estimated Cross Border Issuer Fee
    • Processor Estimated Currency Conversion User Fee (already part of amount requested from cardholder)

  • Example - sum of Estimated Cross Border Issuer Fee and Estimated Currency Conversion User Fee by Merchant Country:

    

Implementation of controls

Option a: Allow cardholders to approve cross-border transactions and charge a minimum fee

• Reject cross-border transactions by default, but allow the cardholder to approve, across all merchants, specific merchants or per-transaction, with the acceptance of a fee being added (minimum of 2% to be inline with the market).
• Implementation effort:
  • FinTech uses the authorization gateway to decline or accept the transactions, based on own rules/framework to allow the cardholder to accept

Option b: Pass fees directly to cardholders

• Charge cardholders a foreign transaction fee when a cross-border transaction is posted:
  • The recommended fee is around 2.5%-3.0% - to cover the cross-border and any FX adjustment costs
  • Implementation effort:
    • A new internal account must be created for this use case - FinTech can contact their Synctera implementation or CS representative for help getting this account setup
    • FinTech uses the Fees API to create and post the fee:
      • Create a fee template with subtype FOREIGN_TRANSACTION, and an internal fee account. Note that the fee template has a fixed amount, but each fee can override that. We recommend that you use metadata to reference the cross-border transaction to which the fee applies.
      • Post the fee using the Create Fee endpoint, and make sure to override the fixed amount with the actual amount (see recommended percentage below).
    • FinTech could include the fee in the validation of available balance in the authorization gateway to reduce the likelihood of the cardholder going into negative balance.
    • Timing of the posting: listen to the “posted” webhook for the transaction to trigger the fee.

Option c: Disable cross-border transactions

• Disable cross-border transactions at the card product level to automatically decline all cross-border transactions.
  • This will be the default option for new card products
  • Implementation effort:
    • None - this setting is controlled by Synctera on the card product level. FinTechs can contact their Synctera implementation representative for this setting.

Option d: Absorb the fee as a benefit of the program

• Continue to accept and process cross-border transactions and consume the fees on behalf of cardholders
  • Implementation effort:
    • None
• As an alternative, absorb some of the fees and pass the remainder onto the cardholder as a program benefit (e.g. charge the cardholder 1% of the fee, and absorb the rest).
  • Implementation effort:
    • Same as for option b

Option e: Educate cardholders to sign up for or switch to merchant accounts registered in the BIN issuing country

• Based on observed usage, educate cardholders on how/when to use the card.
• For example, some merchants route their transactions through their cross-border entities for various reasons.
  • The transaction can be initiated in USD, and the card can be in USD, but if the merchants themselves are in the GBR, the cross-border rules apply.
    • If the card was issued in the US, and the business/cardholder is signed up to a merchant with their non-US merchant account and address, or via a non-US merchant location, the business/cardholder could:
      • establish merchant account based in the US
      • contact the merchant directly and ask for all transactions to be processed in USD (some merchants provide this service upon request)
      • Implementation effort:
        • None

Compliance considerations

1. If cross-border transactions are enabled on the card product and:
   a. FinTech wants the ability to decline a transaction in the authorization gateway based on their own business rules, it needs to be disclosed in the account agreement.
   b. FinTech charges customers a foreign transaction fee, the fee details must be disclosed in the account and cardholder agreements.

2. If cross-border transactions are disabled on the card product, they must be disclosed in the account agreement.

Initiate Compliance Approval by:

• Creating a case to alert the bank/Synctera Compliance about your selected option for cross-border fees
• Compliance and banks need to sign off on fee and the appropriate disclosures
• Wait for approval and update disclosures