Cross-border

Currency conversion on cards: processing currency, authorisation currency, and who really pays

September 8, 2026 · 11 min read

Almost every business that sells beyond its own country ends up in the currency conversion business, whether it intends to or not. A shopper in Warsaw buys from a Dutch store priced in euros with a card issued in zloty. A traveller in Bangkok taps a UK card at a hotel terminal. A subscription company in Riga bills customers in nine currencies and settles in one. In each case the payment passes through several currency decisions, each made by a different party, each carrying a margin. Most merchants never see the full chain, and most shoppers only notice when their statement shows a number they did not expect.

The starting point is to separate three currencies that are often confused. The presentment currency is the currency the price is shown in and the transaction is submitted in, the one the shopper sees at checkout or on the terminal. The authorisation currency is the currency in which the issuing bank actually authorises and debits the cardholder, which may be the same as the presentment currency or may be the cardholder's home currency after a conversion. The settlement currency is the currency the merchant receives in their bank account after the acquirer converts and pays out. A single transaction can move through all three, and a conversion happens at each boundary where they differ.

Price shown to shopper→Authorisation sent to issuer→Scheme clearing and settlement→Acquirer payout to merchant

Take a concrete example. A Latvian merchant prices in euros. A US cardholder pays 100 euros. The transaction is presented in euros. The issuer authorises in euros but debits the cardholder in dollars, applying its own conversion at the scheme rate plus a foreign transaction fee, often between 1 and 3 percent. Visa or Mastercard converts euros into dollars for clearing using the scheme rate published daily. The merchant, meanwhile, may hold a euro account and receive euros with no conversion at all, or may hold a dollar account and be converted a second time by the acquirer. The same 100 euro purchase can therefore involve one, two, or three separate conversions, each with its own spread.

0.2-0.6%

Typical scheme wholesale conversion spread

1-3%

Common issuer foreign transaction fee to the cardholder

1-4%

Typical acquirer or PSP conversion margin on merchant settlement

The obstacles for shoppers are mostly about visibility. A cardholder rarely knows in advance what rate will be applied, because the scheme rate is set at clearing, not at authorisation, and clearing can be a day or more later. The amount held on the card at authorisation is an estimate. Hotels and car rental firms compound this by pre-authorising a larger amount, which is then released slowly. Dynamic currency conversion adds another layer. When a terminal or checkout offers to charge the shopper in their home currency instead of the local one, the conversion moves from the issuer to the acquirer side, and the margin is usually higher, frequently 3 to 6 percent, sometimes more. The offer is presented as a convenience and a certainty, and in narrow terms it is, because the shopper sees an exact home currency amount. In cost terms it is almost always the more expensive choice.

Dynamic currency conversion sells certainty. What it actually sells is a wider spread, disclosed in small print at the moment the shopper is least likely to read it.

The obstacles for merchants are different. The first is authorisation rates. Cross-border transactions are declined more often than domestic ones, because issuers apply stricter risk rules when the acquirer country differs from the cardholder country. A merchant selling into a market through a single acquiring entity in another country can lose several percentage points of approvals purely because of geography. The second is cost stacking. Cross-border interchange, scheme cross-border assessments, currency conversion assessments, and the PSP margin all apply on top of the domestic rate, and they are frequently bundled into a single blended price that hides which component is expensive. The third is settlement risk. A merchant that prices in one currency, holds balances in another, and pays suppliers in a third carries real exchange exposure between the sale and the payout, which for weekly or monthly settlement cycles can matter more than the conversion fee itself. The fourth is refunds. A refund converted back at a different rate on a different day can leave the merchant out of pocket, and disputes about the difference are common.

3-8pp

Typical authorisation rate gap between domestic and cross-border card traffic

T+1 to T+3

Usual gap between authorisation and clearing rate being fixed

2-5 days

Common settlement lag creating merchant currency exposure

Visa and Mastercard address part of this through infrastructure and rules. Both publish daily wholesale conversion rates that apply to scheme clearing, which gives a single reference point rather than each bank inventing its own. Both operate multi-currency settlement so acquirers and issuers can settle in a chosen currency rather than always converting through the dollar. Both have tightened dynamic currency conversion rules over time, requiring that the shopper be offered a genuine choice, that the local currency amount be shown, that the margin over the reference rate be disclosed, and that the choice not be pre-selected by the merchant or terminal. In Europe, the interchange fee regulation and the cross-border payments regulation went further, requiring that cardholders be shown currency conversion charges as a percentage markup over the relevant European Central Bank reference rate, so that a comparison is possible before the shopper accepts.

The schemes also help indirectly through routing and product design. Multi-currency pricing programmes let merchants present prices in local currencies while still settling centrally. Network tokenisation keeps stored credentials valid across borders, protecting recurring revenue when a card is reissued. Local acquiring arrangements, where a global merchant acquires domestically in each market through a local entity, remove the cross-border flag from the transaction entirely, which usually lifts approval rates and lowers interchange at the same time.

Payment companies build on top of that. A modern PSP will typically offer multi-currency accounts so the merchant can hold balances rather than convert everything immediately, local acquiring or partner acquiring in the main markets, guaranteed FX rates fixed for a period so pricing pages stay stable, and smart routing that sends each transaction to the acquiring connection most likely to approve it. Better providers disclose the FX margin as a separate line rather than folding it into the processing rate, which is the single most useful thing a merchant can ask for. Some also offer settlement in the currency of sale, netting of refunds against sales in the same currency, and hedging products for merchants with large predictable exposures.

Local pricing→Local acquiring where volume justifies it→Hold balances in currency→Convert on a schedule, not per transaction

So what can a merchant actually improve quickly, without rebuilding anything? Several things, and most of them are commercial rather than technical.

Price in the customer's currency in your main markets. Shoppers convert far better when the price is familiar and there is no conversion surprise, and it removes the argument for dynamic currency conversion at checkout. Second, ask your provider to unbundle FX from processing on your statement. If the margin is not shown as a number, it cannot be negotiated, and unbundling alone often reveals one to two percent that was invisible. Third, open settlement accounts in the currencies where you have real volume and stop converting every payout. If you buy inventory or pay staff in a currency, holding revenue in it is free hedging. Fourth, review dynamic currency conversion. If you operate terminals and are taking a share of DCC revenue, weigh it against the customer complaints and chargebacks it produces. If you are not taking a share, there is no reason to leave it enabled.

Fifth, look at authorisation rates market by market rather than in aggregate. A single weak market can hide inside a healthy overall number, and the fix is often local acquiring or a second acquiring connection rather than anything to do with pricing. Sixth, handle refunds in the original currency and the original amount wherever possible, and set the policy explicitly so support staff do not improvise. Seventh, check that your checkout shows the currency clearly at every step, including the confirmation page and the receipt. A surprising share of currency related disputes are simply shoppers who did not notice which currency they were charged in.

1-2%

Typical margin recovered by unbundling and renegotiating FX

2-5pp

Approval uplift commonly seen from local acquiring in a strong market

10-20%

Reduction in currency related disputes from clearer checkout labelling

None of this removes conversion cost. Cross-border commerce genuinely involves moving value between currencies, and someone has to carry the spread and the risk. What merchants can control is how many times a single transaction is converted, who does the converting, whether the margin is visible, and whether the customer is charged for a convenience they did not need. Those four questions cover most of the money that leaks out of cross-border card payments, and none of them require a change of platform to start answering.