Got Hit by an ISA Fee? What You Need to Know about Visa’s International Service Assessment
As the credit card industry continues to grow, Visa cards comprise approximately 50% of all issued payment cards. According to The Motley Fool, Visa has roughly 3.8 billion active cards in circulation.
Visa’s 2022 Q1 income statement also shows strong revenue growth. Specifically, the company’s net revenues show a 24% increase over the same period in the previous year. Visa’s domestic card payments and cross border volumes also showed impressive gains.
In this article, we’ll take a look at Visa’s ISA Fee including what it means, when it may apply, and how it impacts merchants.
Credit card foreign transaction fees explained
A credit card foreign transaction fee is assessed for a purchase made via a foreign bank. Purchases made with a non-US foreign currency are also subject to a foreign transaction fee.
US-based retailers may accept a foreign bank’s Visa card from a customer, especially during an e-commerce transaction. The merchant’s card statement will likely show a foreign transaction fee for these customer purchases.
Most credit card issuers charge this fee, which generally ranges between 1% and 3% of the transaction amount. A card statement’s fee section may include the foreign transaction fee.
This section may also list a cash advance fee and other applicable charges. Finally, the statement displays the total fee assessed during the period.
The two-part foreign transaction fee includes the credit card network’s fee. To illustrate, Visa and Mastercard each assess a 1% fee.
Although most issuing banks add their own 2% fee, your financial institution may not do so. In fact, some issuing banks do not pass on the card network’s fee, either.
What is the Visa ISA fee?
The Visa ISA fee is an acronym for the Visa international service assessment fee. A retailer incurs this fee when a customer uses a Visa credit card or debit card from a foreign bank. Or most commonly, when a visitor from a foreign country uses their card to purchase items in a US retail store.
As a US-based retailer who only does business in this country, you may think you are exempt from this fee. Unfortunately, that is not the case. The Visa ISA fee applies to US-based card transactions involving a Visa credit or debit card from a foreign bank.
Mastercard, Discover, and American Express also charge a similar international processing fee for similar card transactions. Each card brand determines its own credit card processing fee requirements.
When does an ISA fee apply?
The Visa ISA fee applies when a US-based retailer processes a transaction with a non-US Visa credit or debit card. The fee is assessed for all applicable card-present transactions. It also applies to applicable card-not-present sales such as manually keyed-in transactions.
E-commerce purchases are not exempt from the ISA fee assessment. If a customer makes an online purchase with a foreign card, the ISA fee applies. This is true even if the item is shipped to a US address.
Criteria for a foreign transaction
Credit card networks (or card companies) have a broad definition for “foreign transactions.” In these transactions, the relevant data travels through a foreign bank at some point during the process.
This definition applies to purchases made with a foreign card or purchases made from a non-US merchant. Purchases made in a foreign currency are also considered foreign transactions. Each of these transactions is likely subject to a foreign transaction fee (or cross border fee).
Sometimes, even if a purchase is shown in US dollars (or USD), a foreign transaction fee may still apply. This is true for countries such as Ecuador and Panama that use the US dollar as their national currency.
The exchange rate factor
Know that a foreign exchange rate will apply to most foreign transactions. This means foreign currency exchange fees will be part of the fees assessed.
It’s important to note that the currency conversion to US dollars occurs first. Then, the foreign transaction fee is charged based on the transaction’s USD value.
The Visa ISA fee does not include the foreign currency conversion fee. The customer pays the add-on currency conversion fee during the card transaction.
How the Visa ISA fee impacts merchants
The Visa card network considers foreign card transactions riskier than US-issued card transactions. To compensate for this additional risk, Visa charges a foreign transaction fee to a retailer’s credit card processor.
In turn, the processing company usually passes the fee to the retailer. However, this practice can vary depending on the processor’s contract and payment structure.
The Visa ISA fee evolution
When Visa initiated the ISA fee in 2008, it assessed a flat 0.40% assuming no currency exchange was involved. If a currency exchange took place, Visa doubled the fee to 0.80%. This fee was added to the card network’s customary interchange rate that applies to each transaction.
In 2015, Visa established a new ISA fee structure. Under the new rules, the standard fee (with no currency conversion) was raised to 0.80% while the fee with currency conversion was raised to 1.20%.
According to Visa, the higher fee was to compensate for the additional work of sending a transaction through a foreign bank. However, the real reason was likely the extra risk Visa assumed for transacting with a potentially unregulated financial institution.
How the Visa ISA fee is calculated
As previously noted, Visa currently charges two fees for each completed foreign transaction. In addition, each card-issuing bank sets its own fee percentage.
International service assessment fee: 0.80% – 1.20%
The Visa ISA fee pertains to US-based transactions that involve a non-US credit card or debit card. The fee differs according to the settlement currency.
A transaction settled in US dollars does not incur a currency exchange fee. For foreign currency transactions, Visa adds an extra 0.40% onto the standard foreign transaction fee.
International acquirer fee: 0.45%
Visa’s international acquirer fee (or IAF) is assessed under the same conditions as the ISA fee. Essentially, Visa has created two different names for the same foreign transaction fee. Each transaction automatically incurs both fees.
ISA fees vs IAF fees
Each retailer’s bank statement will likely include two international transaction fees for each sale that uses a foreign card. Merchants can expect to pay these fees along with standard interchange rates and other additional fees. A currency exchange fee or currency conversion fee may also apply to each credit card transaction.
The Visa international service assessment fee (or ISA fee) was the first Visa foreign transaction fee. In October 2009, the Visa international acquirer fee (or IAF) made its debut.
The international acquirer fee mirrors the Visa international service assessment fee. In other words, the same assessment criteria apply to both fees.
Solution: A credit card with no foreign transaction fee
Naturally, every cardholder wants to avoid paying foreign transaction fees. The best way to do that is to find a card issuer that doesn’t charge the fee.
Certain credit card and debit card issuers waive the foreign transaction fee for customers’ card payments. This is designed as a perk for their high-spending customers.
This is especially the case for travel-related cards and co-branded airline and hotel credit cards. Premium travel rewards cards do not generally charge a foreign transaction fee.
However, these card issuers usually charge pricey annual fees that help to compensate for that shortfall. The card’s disclaimer text may provide additional details.
Customers traveling outside of the US may decide to visit an ATM during their trip. Unfortunately, they will likely be hit with multiple ATM fees each time they withdraw cash. Besides out-of-network fees, they will pay an international transaction fee for each cash withdrawal.
How retailers can minimize foreign transaction fees
International customers are increasingly buying from US-based retailers. In fact, foreign customers account for a good-sized chunk of some e-commerce merchants’ sales volumes.
Many retailers consider foreign transaction fees a necessary evil. If US retailers decline international cards, they’ll lose more in sales volumes than they would pay in these extra fees. In addition, most retailers may not be aware that the customer’s card came from a foreign card-issuing bank.
Potential fee-reduction tactics
Retailers who want to reduce their foreign transaction fees should consider choosing interchange-plus pricing. This transparent pricing structure shows the card network’s fee for each transaction.
The credit card processor’s transaction markup is also clearly displayed. Note that membership-based Payment Depot offers interchange pricing with no extra markup.
A retailer who does substantial business in a specific country may have another option. If they are taking a long-term approach, setting up a branch in that country could make sense.
Note that this strategy requires substantial capital and lots of patience. However, the retailer will be able to legally avoid foreign transaction fees when the process is complete.
Choosing the best of both worlds
Maybe you’re a budget-conscious retailer who takes foreign bank-issued credit and debit cards. If that’s the case, consider switching to a payment processor that offers transparent interchange-plus pricing and cost savings.
Membership-based Payment Depot meets both criteria. Plus, the company doesn’t charge any extra fees to its small- and medium-sized business customers.
Payment Depot is also well known for its excellent customer service. Knowledgeable customer and tech support associates are available whenever you need them. Contact our award-winning customer service team today to learn how we can help your business save more on credit card processing.