What are Visa’s ISA and IAF?
As a business owner, you have to pay high transaction fees to accept payments, not to mention all the external expenses. No wonder you don’t want to spend even more. Yet, poorly–disclosed fees are the culprit of the processing industry. It seems like parties of credit card processing always find new ways to charge you extra.
Today, we cast the light on the Visa International Service Assessment (ISA) fee. If you’re a US–based business, you might fall under the impression that ISA isn’t your story. Yet, you might still have to pay it even if you don’t run a business outside the US. In reality, this fee is applied exactly to the transactions that happen inside the US, but are processed with a Visa credit or debit card from a foreign issuing bank.
What is the Visa International Service Assessment (ISA) and when is it charged?
Any transaction between a US business and a non–US cardholder is subject to the International Service Assessment fee. The charge applies both to credit and debit card transactions in both e-commerce and brick-and-mortar stores. If you run an online business, you’ll be charged the ISA fee every time an international buyer purchases via a credit/debit card obtained in his national bank.
For brick and mortar businesses, the most popular example of the ISA fee would be a tourist visiting the US and using his credit card to purchase. Nevertheless, the customer’s citizenship isn’t the factor defining whether the ISA fee applies. While usually consumers own cards given by banks of countries they live in, there are other possibilities.
Let me offer you an example. An American citizen is living and working in France. He has one card issued by an American bank, and the other one by a French bank. If that US citizen uses a card given by a French bank to purchase, the ISA fee will be applied. The deal is, Visa network will have to coordinate with the French bank so to process the transaction. And that always costs extra.
How much is the ISA Fee?
Once Visa first started applying the International Service Assessment Fee (ISA) back in April 2008, it was a flat 0.40%. That is when currency exchange is not required. With a currency exchange, the fee was increased up to 0.80%. Keep in mind that the fee was charged in addition to the standard interchange rate that would normally apply to the transaction. In 2015, Visa raised the ISA fee drastically. With no currency conversion, the fee has risen to 0.80%. With the conversion, it’s now 1.20%.
Visa company explained the increase with additional expenses on extra steps a transaction from a foreign bank takes on its way to the merchant account. Though rational, the key reason for the extra fee is more likely to be the risks involved in processing transactions in non-US banks.
It makes sense as there are a lot of world banks that are less stable and secure than those in America. Yet, some are regulated just as strictly as those in the US (if not more so). However, it’s more comfortable for Visa to apply a similar fee to all the non–US transactions instead of setting up individual fees per country or financial institution. And well, that is more profitable.
What is the Visa International Acquirer Fee (IAF)?
Visa has two different fees for processing a payment made via a card issued by a foreign bank. The Visa International Acquirer Fee (IAF) was announced in October 2009. It occurs for the same reasons that ISA is. Yet, IAF is fixed at 0.45%. It is charged in thereto to the regular interchange rate and other processing fees your business has.
Hence, if you accept a payment from an international cardholder, you are more than likely to see both fees added to your regular transaction costs. First, Visa applies a standard transaction fee of 0.13%. Don’t forget to add an additional 1.38% (0.13% + 0.45% + 0.80%) on all transactions. And that is without a currency exchange fee. With it, you’ll have to pay an extra 1.78%.
How much is the IAF Fee?
From a business owner’s perspective, it might seem rational for the customer to have to pay this extra processing cost. Well, life isn’t fair sometimes. Since Visa can’t charge the ISA fee directly, they bill your payment processor instead. Usually, your processor will then pass the cost back to you, and it will display as a separate charge on your monthly merchant account statement.
With the rapid growth of digitalization, the transactions between American merchants and international issuing banks are becoming extremely popular. We do believe that the trend will be on the rise in the nearest future. Additional fees for processing international credit card transactions will also grow in popularity. As for today, that’s the only way to save your international client base.
Unfortunately, there’s no way around the ISA and IAF fees. So, though we don’t adore Visa’s International Service Assessment fee, we have no choice but to agree with another “cost of doing business”.