With more global browsers becoming digital buyers, cross border e-commerce is here to stay. Cross border payments revenues were estimated to reach $1.9 billion by the end of 2020, as reported by McKinsey. While the events of 2020 seem to have reset the global payments landscape, cross-border commerce is here to stay.
Regions with low electronic penetration, such as Brazil, Indonesia, India, and Thailand, are poised for a strong opportunity for payments growth, while countries with higher levels of digitization, such as Germany and the United Kingdom, will continue to fuel increased payments revenue as cash usage remains at a minimum.
A Forrester study predicts that cross-border eCommerce will span across at least 29 countries in the regions of North America, Latin America, Europe, Asia Pacific, Africa, and the Middle East by the end of 2022.
This article will look into what cross border payments are and how they affect businesses and a country’s economy at large.
- What is a Cross Border Bank Transfer?
- What is Cross Border Payment in Blockchain?
- What are the Risks Involved in Cross Border Payments?
- What is an Example of Cross Border Investment?
- How Does Cross Border Payments Work?
- Challenges and Solutions of Cross Border Payment Systems
- The Future of Cross Border Payments
- What is Cross Border Transaction Fee?
- CPMI Cross Border Payments Programme
- Cross Border Payments Regulation
- Cross Border Payments Market Size
- Swift Cross Border Payments
- Cross Border Payments Companies
- How are Cross Border Payments Settled?
- Cross Border Payments XRP
- Cross Border Payments Trends
- Cross Border Payments Companies in India
- Cross Border Payments Businesses
- What is Cross Border Financing?
- Cross Border Payment Example
- Types of Cross Border Payments
- UK Cross Border Payments Market Size
- Cross Border Remittance Market Size
- What is the Daily Limit for Cross Border Shopping?
- The Law of Cross Border Business Transaction
- How Long do Cross Border Payments Take?
- Cost of Cross Border Payments
- Cross Border Payments Solutions
- Cross Border Payments Platform
- How do Banks Settle Cross Border Payments?
What is a Cross Border Bank Transfer?
Cross border payments are financial transactions where the payer and the recipient are based in separate countries. They cover both wholesale and retail payments, including remittances.
Read Also: Benefits Of Credit Card Payment Online
Cross border payments can be made in several different ways. Bank transfers, credit card payments and alternative payment methods such as e-money wallets and mobile payments are currently the most prevalent ways of transferring funds across borders.
The two main types of cross-border payments are:
- Wholesale cross-border payments: These are typically between financial institutions, either to support the financial institution’s customers’ activities, or its own cross-border activities (such as borrowing and lending, foreign exchange, and the trading of equity and debt, derivatives, commodities and securities). Governments and larger non-financial companies also use wholesale cross-border payments for large transactions generated by the import and export of goods and services or trading in financial markets.
- Retail cross-border payments: These are typically between individuals and businesses. The key types are person-to-person, person-to-business and business-to-business. They include remittances, most notably money that migrants send back to their home countries.
What is Cross Border Payment in Blockchain?
A Blockchain is a digital record of transactions. The name was derived from its structure, in which the individual records called blocks are linked together in a single list called a chain. Each of these data blocks is secured and bound to each other using cryptographic principles—the Blockchain technology warrants the facilitation of fast, secure and low-cost cross-border payment processing services. The technology can also be used in areas like “Anti-Money Laundering”.
The future of Blockchain technology is quite promising for cross-border payments as this concept uses encrypted distributed ledgers that provide trusted real-time verification of transactions without the need for intermediaries such as correspondent banks. It allows for verification without having to be dependent on third parties.
At the same time, the technology won’t kill the concept of Banking, as anyone can use it for integrating their product to their advantage. Already some banks in Japan, Korea have started using this technology for their payment transactions.
What are the Risks Involved in Cross Border Payments?
Creating a business to business payment system is very different from creating a consumer retail payment system. Cross border business payment systems have to deal with three major issues, profit maximization, tax minimization, as well as risk management.
The primary risk factors are:
The Hawala monetary system used in poor countries such as Somalia to transfer cash cross border appears to be more effective from a risk perspective. In a hawala system, the payor is a person delivering money to a person, who arranges for a person to deliver money to a person. No money, no payment, no risk.
The faster a transaction is completed the less risk of circumstances changing. Extending credit over time is inherently risky. Clearing houses with mutualized capital reserves essentially solve this problem. Credit risk can be mitigated by credit enhancement procedures.
Currency exchange risk
The relative value of a currency to any other currency changes with time. There is no reason to believe that any one transaction will be settled in the same currency, even though it may be denominated in the same currency.
Going from 200 cross exchange rates to 3,600 (including crypto coins) will be a programming nightmare. Who bears the exchange risk is the critical question?
Cross border trade by definition is operating in two regulatory environments, both of which must be satisfied. With multiple legal jurisdictions, there are multiple cross border opportunities to be in violation of regulatory procedures particularly for contracts, even smart contracts.
For failure to perform at any level, what is the enforcement process, and more particularly, the enforcement cost?
Hawala works person to person, as does a consumer remittance to a relative. Payments become more difficult when one factor in the corporate structure of an organization, principal, authorized agent (employee) and executing party who may have the reverse institutional structure. Forget the technology, remember liability.
Identifying the social business network participants, all business locations, and special purpose entities with a unique numerical identifier creates an address database risk issue of who maintains, and at what cost.
What is an Example of Cross Border Investment?
“Cross-border investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.”
As a layman, we may not be able to understand the legal definition of cross-border investment, so to make it simple we define cross-border investment as:
“Investing in a company incorporated under the laws of another country either in the individual capacity by buying shares and/or debentures or in the capacity of a company by way of mergers and acquisitions and/or forming a new company or taking over an existing company etc.”
When it comes to Investments there are always two types of Investments:
- Inward Investment; and
- Outward Investment.
As we understand by very use of the term Inward and Outward that an Inward Investment would mean “an investment coming in” and the Outward Investment would mean “an Investment going out”, but to understand the same legally, an Inward Investment means “an external or foreign entity either investing in or purchasing the goods of a local Economy” and Outward Investment means “when a domestic firm expands its operations to a foreign country either via a Greenfield investment, merger/acquisition and/or expansion of an existing foreign facility.”
To elaborate the same “Inward Investment commonly known as Foreign Direct Investment occurs when instead of forming a new business, a foreign company acquires and/or merges with an existing company giving it a platform to grow and open border for international integration”, and the reverse of this is “Outward Investment commonly known as Outward Direct Investment occurs when a company has bloomed enough in the domestic market that now it is ready to open a new venture in a foreign country and set up a base in the Foreign market”.
How Does Cross Border Payments Work?
Today’s e-commerce world has a global reach. Payments, remittances, and purchases all often require money exchanged across borders. Cross-border payments are defined as funds paid to or taken in from different countries, so the location where the merchant is registered is different from the country where the customer’s card was issued.
Many different scenarios need to be accounted for when a merchant needs to deal with international payments because each country has its own set of rules. The demand for cross-border payments is so high that steps are being made to improve cross-border payments as a whole.
If you want to have a global business, all steps of a cross border transaction need to be identified and sometimes adapted to make sure the customer will have a good experience when making an international purchase online.
Challenges and Solutions of Cross Border Payment Systems
In 2018, the Committee on Payments and Market Infrastructures (CPMI) reported that there was certainly ‘room to improve’ the infrastructure of cross-border payment systems. ‘Cross-border payments do involve more risks, complexities and rules than domestic payments,’ the organization noted, ‘but the difference can often feel disproportionate.’
Many banks and other financial institutions have taken steps to close the gap since then, but lots of cross-border payment systems still suffer from the same problems:
1. High costs
Cross-border payments are notoriously expensive due to the number of intermediaries involved in transferring money from one country to another, all of which charge fees for their services. Regulatory costs add up too, while FX fees will also be charged to convert one currency into another.
- How this challenges businesses, banks and other financial institutions
The cross-border payment space has become increasingly crowded thanks to the rise in overseas workers and international businesses. Price will always be a key factor when retail and consumer customers choose a service provider. Customers will go elsewhere if the financial institutions they use cannot offer a competitive rate.
2. Slow transactions
Cross-border payments via a traditional bank transfer normally take between two and five days to process — a very slow turnaround time compared to virtually instant domestic payments. Again, this is because so many entities are involved in a single transaction.
For example, if someone from Ukraine wanted to transfer money to Sri Lanka, it may have to go through intermediaries in Russia or Germany, and then India first. With a lengthy series of steps to complete, cross-border payments are often delayed as a result.
- How this challenges businesses, banks and other financial institutions
In a world where everyone is looking for the fastest, most convenient services, they won’t be satisfied with a cross-border payment system that is slow and subject to delays. Businesses and consumers have to make international transactions, and the choice is between old, slow, expensive bank transfers, or new payment service providers that offer an instant, cheaper alternative.
While international transactions are undeniably more complex, it’s imperative that organizations look to reduce the processing time in order to meet their customers’ expectations.
3. Security issues
Consumers want to be confident that their money is safe when making international transactions, and of course so do banks. If a hacker is able to steal money from a cross-border payment pathway, there is no guarantee that a bank will be able to recover the stolen funds. Such losses can be extremely costly.
Unfortunately, cross-border payment systems frequently suffer from high-level security breaches, like the $81 million heist on Bangladesh’s central bank in 2016. Every country abides by its own regulations, so the cross-border payment system is at risk of being hacked whenever money enters a country with soft security and access policies.
- How this challenges businesses, banks and other financial institutions
Cybersecurity is a huge concern for any business or consumers making international payments. They’ll be far less likely to do so using systems that aren’t reliably regulated and don’t have the best security measures and risk management procedures in place.
However, this is also a major issue for financial institutions. The reputational damage can be enormous after incidents like the Bangladesh example. For banks trying to cut costs and hold onto their customers, the last thing they need is to refund lost money, pay fines and receive negative press.
4. A lack of transparency
A common complaint both businesses and consumers have about cross-border payment systems is the lack of transparency. In fact, a 2017 SWIFT and EuroFinance survey found that 64% of corporations want real-time payment tracking capabilities, while 47% wanted better visibility regarding the costs and deductions involved. This transparency is very important for businesses and customers who want to ensure they aren’t incurring hidden costs.
- How this challenges businesses, banks and other financial institutions
Greater transparency is a huge benefit to all kinds of organizations. As well as being able to provide better services to their customers with these insights, they can also use the data to understand and improve errors impacting their profitability. For example, learning why certain payments are rejected or require investigation will allow them to improve their processes, save time, and reduce costs and resources.
The Future of Cross Border Payments
The rapidly changing technology landscape has made it difficult for banks and other financial institutions to move money across borders quickly, securely and efficiently. Archaic systems do not seem to have a place anymore, and financial institutions are given no choice but to evolve.
Nonetheless, with the advent of new and innovative payment solutions, cross-border payments’ future looks promising. According to Juniper Research, B2B cross-border payments are expected to exceed USD 42.7 trillion by 2026. This growth is being driven by several factors.
The trends we see today are all pointing to cross-border payments becoming faster, more secure, cost-efficient and more efficient from a customer standpoint. This is good news for businesses and consumers alike.
There are, however, some challenges that need to be addressed. Firstly, the closed-loop nature of some of the new cross-border fintech solutions may limit their market power. Bech and Hancock note that, in contrast to stablecoins, cross-border fintech solutions rely much more on existing providers and infrastructures (banks and payment systems). This means they are less deep than stablecoins in terms of the closed loop they bring.
Secondly, the legal and regulatory environment for cross-border payments is complex. This is due to the fact that there are multiple jurisdictions involved. Regulations are constantly changing, and this can make it challenging for businesses to keep up to date.
Finally, data security is a key concern for businesses when making cross-border payments. This is due to the fact that sensitive data, such as financial information, is often involved.
Despite these challenges, the overall trend is positive, and it seems likely that cross-border payments will continue to become faster, easier and more efficient.
What is Cross Border Transaction Fee?
A cross border fee is an assessment fee merchants pay when customers use cards from international banks at their business.
The cardmember associations first introduced the cross border fee in 2005. eCommerce had finally cemented into the worldwide economy, and assessment fees were rising across the board.
Mastercard and Visa were fed up with paying fees for merchants who were selling abroad and decided to pass that cost along to them.
These cross border fees are charged during international transactions, and they are passed along by the issuing banks to the merchants (a.k.a. the business owners).
CPMI Cross Border Payments Programme
Faster, cheaper, more transparent and more inclusive cross-border payments, while ensuring safety and security, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.
The G20 roadmap to enhance cross-border payments is a comprehensive programme covering 19 “building blocks” across five focus areas. The CPMI is in the lead of the implementation of 11 of the 19 building blocks under the overall programme.
Making a real difference in addressing the existing challenges of cross-border payments needs full support from central banks and close collaboration with the private sector to be successful. This requires direct involvement of public and private sector actors in taking the programme forward.
It is important that the views of the full range of stakeholders are heard. The CPMI is in regular contact with relevant stakeholders and seeks their input via conferences, workshops, consultations and surveys.
Cross Border Payments Regulation
In September 2009, the European Parliament issued a Regulation on cross-border payment that aimed at facilitating cross-border trade within the Union by ensuring that cross-border payment charges across Member States are the same regardless of the participation in the euro area.
Unfortunately, the non-euro area Member States did not benefit from the entry into force of the latter Regulation. For these Member States, domestic payments in euro remain very costly and consequently rare. From a study carried out by Deloitte Luxembourg from a request of the European Commission, a transfer of €10 initiated in Bulgaria can be charged from €15 to €24 to the payer while a transfer from a euro area Member State to a Member State using a national currency would be charged a much lower (or no) fee(s).
The direct consequence is the high level of fees for cross-border payments initiated from their country. This creates a significant barrier to the achievement of a Single Market that would only have one payment service users category without any discrimination on the currency used.
The Revised Cross-Border Payment Regulation aims ensure that cross border payments in euro are not more costly than national transaction in the national currency of a non-euro Member State.
Additionally, the Regulation aims to increase cost transparency requirements, for currency conversion services provided when clients initiate online credit transfers and card-based transactions.
Cross Border Payments Market Size
The market size of cross-border B2B payments was $1,000 billion in 2021 and it is expected to reach $2,515 billion by 2030 which means that in 8 years, a growth rate of 10.8% is anticipated for the B2B payments market according to the report of Straits Research.
One of the main accelerators of this growth is the digitalization trend taking over the payments industry as an effective solution to overcome conventional barriers in trade. The technological enhancements pawed the way to a more frictionless, fast and automated cross-border B2B payments environment.
One of the most obvious outcomes of digitalization in almost all business areas is going more global and borderless. Occasionally, it is no surprise that B2B businesses are looking to grow their cross-border commerce and payments. According to the statistics, by the year 2040, it is thought that 95% of all purchases will be actualized online and by 2027, the value of all global payments is estimated to be $250 trillion.
These data demonstrate that there are a lot of opportunities in the cross-border payments area to be discovered in the upcoming years. As new technologies such as AI (artificial intelligence), DLT (distributed ledger technology) and machine learning are integrated into the payments industry, it will be easier for businesses to benefit from the automation in payments and to overcome the challenges of cross-border trade.
Swift Cross Border Payments
Customers today expect their international payments to be as seamless and fast as their domestic ones. That means payments made in seconds, with real-time confirmation of credit.
However, when there are multiple banks involved in the payment chain, and the final leg needs to be cleared within the recipient country, the domestic payments are sometimes delayed owing to the limited operating hours of the local clearing systems.
With the advent of real-time payments systems, which typically operate 24/7, there is an opportunity to remove these last frictions and ensure that these payments are credited in seconds rather than hours.
Cross Border Payments Companies
One of the best ways to understand an industry is to keep its biggest players front of mind. That’s why FXC Intelligence has released The 2022 Cross-Border Payments 100, a market map that recognizes and celebrates the 100 most important players in the cross-border payments space. Now in its fourth year, The Cross-Border Payments 100 profiles the 100 players that truly matter in the sector.
Featuring companies across money transfers, payments processing, e-commerce, B2B and beyond, the map separates the top 100 players into seven groups: VC/growth equity-backed, independently owned, banks, private equity-backed, mobile, crypto and public companies.
Below are some of them:
- Clover Network
How are Cross Border Payments Settled?
The cross-border payment process flow isn’t that different from making a domestic payment, but there are some unique details along the way to consider. Here’s how cross-border payments work.
Step 1: Identify
Just like a domestic payment, accounts payable (AP) tracks incoming invoices and identifies that a payment is coming due for an overseas vendor. Tax documentation should be collected before a vendor is deemed payable. Having these documents on hand before the first invoice arrives helps make the following steps easier since they include identifying information you need to complete payments.
Step 2: Route
Once approvals for the payment are met, the payment can continue. You’ll need important identifying information from your vendor when you’re routing an international payment. If you’re sending a check or prepaid card, your vendor’s name and address will suffice.
However, if you’re making a wire transfer or international ACH, you need a bank account number and/or an international routing number. Have your vendor’s International Bank Account Number (IBAN) handy as well.
Step 3: Approve or decline
Your financial institution takes over processing the payment transfer. If there’s an error with your bank communicating to a foreign financial institution, the payment will be stopped or declined. A number of reasons affect approval for international payments, including incorrect banking information.
There may also be more than just two financial institutions involved in the transfer depending on where your vendor is located, which can further slow the process.
Step 4: Settle
If all goes well, your payment will be approved. At this time, a foreign financial institution takes over and settles the final transfer of payment to your vendor. The amount of time that it takes for a payment to settle depends on the regulations in place by the local bank. Fees may be assessed at this stage of the process depending on currency conversion and the payment method used.
Step 5: Track
Just like a domestic payment, once a cross-border payment has been made and processed, your finance team will need to track whether the payment has been approved and settled. Unfortunately, two-way communication between payer and payee via their financial institutions is not always available.
The payer may be informed that a payment is declined while the payee isn’t notified. If there are delays or hidden fees, both finance teams may spend time retracing the steps of the process to resolve the issue.
Cross Border Payments XRP
Anyone who has tried to send or receive money internationally knows that historically it has been a long, drawn-out, complicated, and often painful process. In our last discussion on cross-border payments, we showed how this fragmented landscape is being redefined by the power of ISO standardization and the fresh technology approach of RippleNet.
Today, cross-border payments are on the cusp of further transformation. Blockchain technology and digital assets like XRP can help enable a more frictionless cross-border payment experience for both senders and receivers.
Through RippleNet, each bank, financial institution, and payment provider connects in real time to a global network that rigorously adheres to the ISO2022 standard. In doing so, they enable these organizations to send and receive payments on behalf of their customers and between each other instantaneously, with finality and transparency — regardless of the amount of money or currencies that need to be sent.
Because of its design, the digital asset XRP is especially useful in making cross-border payments faster, more efficient and reliable, and less costly. XRP acts as a blockchain-powered cross-border bridge between two different currencies, ensuring that payments are delivered in a given geography’s or user’s local currency in as little as three seconds.
Put simply, it’s now possible to send and receive money to or from any location, in any currency, across the globe in less than a minute.
Cross Border Payments Trends
Digital wallets have consistently come out top as the frictionless payment method that consumers are comfortable with. While it is estimated that 12% of the global population currently uses digital wallet apps regularly while shopping, reports show that the adoption of mobile payments will surpass the use of credit cards and cash as soon as next year.
Unsurprisingly, merchants are moving fast to respond to this market trend and meet global consumers’ preferences. They recently announced the addition of the three global leaders in the digital wallet space t offering – Apple Pay, Google Pay and PayPal.
Through one seamless integration, merchants can now implement these payment methods on their websites’ checkout pages through payabl. and reap the associated benefits. These methods are added to our 100+ alternative payment methods available to merchants, converting browsers to buyers, including bank transfer, mobile payment, and prepaid voucher technology.
With open banking solutions soon to be added to our portfolio, they aim to enable merchants to boost their business across the board and leverage emerging trends among global end customers to achieve sustainable growth.
Cross Border Payments Companies in India
To fully understand how cross-border payments work, you should also take cross-border payment methodologies into account.
Financial institutions and banks use SWIFT to allow the inflow and outflow of funds across borders.
Not only banks but also clearance houses, money transfer agents, security dealers, and other agencies that process extensive sums of money. It takes one to five business days for B2B cross-border payments to be processed through SWIFT infrastructure.
In order to use the SWIFT network, financial institutions obtain NOSTRO accounts by collaborating with respective foreign correspondent banks.
To make way for ultra-fast international transactions for Indian users living abroad, banks partner with exchange houses. Customers can contact these exchange houses and deposit money that will be sent quickly to the recipient in India.
The exchange house will transfer the funds to the recipient’s bank account with the RDA facility. Only inward remittances are allowed through this.
MTSS is mainly used in inward remittance from foreign countries for personal purposes. The commission for each transaction is really low, ranging from 0.3 to 5%.
It takes three to five business days for the payment process completion. This payment ecosystem is a tie-up between Indian agents and foreign money transfer agencies for them to easily deposit funds into Indian beneficiaries’ accounts.
Each beneficiary can make only 30 transactions per year, and the transaction amount limit for each attempt is USD 2500.
4. Postal channels
Universal Postal Union has designed a platform called the International Financial System (IFS) to allow incoming and outgoing international remittances through postal channels with partnered countries.
Here is how cross border payments work when postal channels are involved. The fund transfer happens through the exchange of EDI (Electronic Data Interchange) from the Indian postal server to the IFS national server.
From this point, it’s then transferred to the recipient’s postal server. If someone wants to use the service in India, they can contact the nearby post office.
Similarly, if you want to send money from any serviceable country to India through the postal channel, you can touch base with the respective IFS.
Cross Border Payments Businesses
The total value of B2B cross-border payments is expected to reach $35 trillion by 2022, according to Juniper Research. It’s easier than ever to move goods, services, capital, and people around internationally, so many businesses are broadening their reach.
Businesses and individual consumers alike are increasingly demanding cross-border payment services that are as efficient and as safe as their domestic counterparts. As it becomes easier, faster, more transparent, and cheaper to execute cross-border transactions, more and more businesses are selling globally. It’s just one reason cross-border e-commerce is booming.
What is Cross Border Financing?
Cross-border financing—also known as import and export financing—refers to any financing arrangement that occurs outside a country’s borders. Cross-border financing helps businesses participate in international trade by providing a source of funding that enables them to compete globally and conduct business beyond their domestic borders.
Cross-border financing sometimes requires the lender or provider to act as an agent between the business, their suppliers, and the end-customers. Cross-border financing comes in many forms and includes cross-border loans, letters of credit, repatriable income, or bankers acceptances (BA).
Cross border financing within corporations can become very complex, mostly because almost every inter-company loan that crosses national borders has tax consequences. This occurs even when the loans or credit are extended by a third party, such as a bank. Large, international corporations have entire teams of accountants, lawyers, and tax experts that evaluate the most tax-efficient ways of financing overseas operations.
While financial institutions retain the lion’s share of business for many cross-border loan and debt capital market financing, increasingly private credit borrowers have supported the arrangement and provision of loans globally. U.S. debt and loan capital markets overall have remained remarkably healthy after the 2008 financial crisis and they continue to offer attractive returns for foreign borrowers.
Cross Border Payment Example
International transactions are far more complex than transferring funds in a domestic payments situation. Often, multiple banks are involved in the transfer of funds from one country to another, attracting significant bank fees at each payment gateway. Also, exchange rates between different currencies and local taxes for each country are big considerations.
Some of the most common cross border payment methods include bank transfers, credit card payments and alternative payment methods such as previously mentioned, eWallets and mobile payments.
Also referred to as wire transfers, a simple cross border transaction using accounts held at each bank would involve a payment message sending an instruction to debit an account in Bank A and credit an account in Bank B.
However, not all banks have a direct relationship with each other, so sometimes they need to transact via an intermediary, or a correspondent banking network. A correspondent bank provides accounts for Bank A and Bank B, enabling the transaction. The correspondent bank is an essential component of the global payment system for cross border transactions.
Credit card payments
Credit cards play a significant role in cross border payments, and are a preferred option for many consumers. From the consumer’s perspective, they simply enter their card details and wait for the transaction to be verified. Behind the scenes, as with any payment process in the global financial landscape, there is more going on.
Cross border payments require more work from the involved credit card networks and acquiring banks as they need to convert between two different currencies. This additional workload results in extra fees that are passed down through the payment chain.
Commonly available through apps for smart devices, eWallets like PayPal, Neteller, Alipay, Apple Pay and Google Pay allow users to safely store their payment cards of choice so they can pay for goods and services. Some eWallets support multiple currencies and the ability to place orders across borders. Although wallet to wallet transactions do not technically count as cross border transactions, they do help facilitate the transaction.
Types of Cross Border Payments
Credit card payments, bank transfers and APMs are all types of cross-border payments. Customers like to pay in a way that is convenient for them. On top of this, they like to be offered tailored choices and be assured that their payment data will be securely handled. As a result of this, merchants need to cover all bases and offer multiple ways for their customers to pay across borders.
Credit card payments
Credit cards play a large role in cross-border payments and are a go-to option for many consumers. From the consumer’s perspective, they simply enter their card details and wait for the transaction to be verified. Behind the scenes, there is more going on.
Cross-border payments require more work from the involved credit card networks and acquiring banks as they need to convert between two different currencies. This additional workload results in increased fees that are passed down the payment chain.
International bank transfers are another long-standing way of placing a cross-border payment. Most larger banks will have a limited range of currencies stocked, but it is not possible to accommodate more than a handful at any given time.
Therefore, when a customer in the UK is looking to transfer money to a country that they don’t have the currency in stock for, they will have to rely on their foreign banking partners to engineer the transaction. Smaller banks often do not hold any foreign currencies, so look to large banks to host cross-border payments on their behalf.
This is just a snapshot of cross-border payment processing and there can be many more parties involved that cause delays to the transaction. SWIFT gpi, which we will discuss further below, is an attempt to speed up the processes behind cross-border payments.
An eWallet, also known as a digital wallet, is a software-based electronic APM that allows customers to pay for online or in-store transactions. Commonly available through apps for smart devices, eWallets allow users to safely store their payment cards of choice so they can pay for goods and services. Popular eWallets include, but are not limited to, Paypal, Neteller, Alipay, Apple Pay and Google Pay.
Some eWallets allow consumers to operate in multiple currencies and to place orders across borders. Although wallet to wallet transactions do not technically count as cross-border payments, they do help facilitate the transaction. It is not until the funds are withdrawn from the eWallet and transferred to the merchant’s bank account, that the process can be classified as a cross-border payment.
UK Cross Border Payments Market Size
During the last few decades, the increased international mobility of goods, services, capital and people has contributed to the growing economic importance of cross-border payments. According to the Bank of England, value of cross-border payments could be over 250 trillion dollars by 2027.
Historically banks have been at the center of the cross-border payment market. However, end consumers and businesses have encountered various problems, like a lack of transparency, long settlement periods, high transaction costs and limited accessibility on the banks’ part.
This means a transaction from a French bank account to Senegal could incur more than €100 of charges depending on the transaction value, and could take up to seven days to be settled. And sometimes, the sender does not even receive an acknowledgment that the transaction has been completed.
These conditions are ripe for competition and new players have entered the market to allow end consumers to have access to efficient, reliable cross-border payment services. The landscape has become more fragmented and competitive as companies focus on different geographic zones, different transaction sizes and different payment segments.
Cross Border Remittance Market Size
The global Digital Remittance market size is projected to reach USD 19710 Million by 2028, from USD 6333 Million in 2021, at a CAGR of 17.4% during 2022-2028.
Major factors driving the growth of the digital remittance market are:
Rapid urbanization and industrialization are attracting residents from various rural and semi-rural areas to metropolitan areas. In search of a job or education, many individuals are migrating to new nations and places. As a result, the number of cross-border transactions increases, accelerating the expansion of the digital remittance market.
Additionally, benefits such as faster funds transfer, lower costs than traditional money transfer services, and ease of use are likely to drive the digital remittance market forward.
The Digital Money Transfer Operators segment is expected to be the most lucrative with a share over 80%. Frequently, money transfer firms might provide lower transfer fees than banks. And in terms of application, the largest end user is personal customers, with a share of about 80%.
Based on region, North America is the largest market, with a share of about 33%, followed by Asia Pacific and Europe with the share of about 32% and 15%. The deployment of compatible devices and workable networks is helping the North American Digital Remittance Market develop rapidly.
Global key players of digital money transfer and remittance include Western Union, Ria Financial Services, etc. Global top 3 companies hold a share over 40%.
- Zepz (WorldRemit, Sendwave)
- NIUM, Inc (Instarem)
- TNG FinTech
- Smiles/Digital Wallet Corporation
- Small World
What is the Daily Limit for Cross Border Shopping?
Returning residents planning to make purchases or pick up online purchases across the border, should be aware of their exemption limits. Be sure to check the CBSA duty and taxes estimator to calculate taxes on goods purchased in the United States and to help make informed decisions when shopping abroad.
Residents can bring back tax and duty free goods valued at CAN$200 after being away for 24 hours, and goods valued at CAN$800 after 48 hours. There are no personal exemptions for same-day cross-border shopping trips, so be prepared to pay tax on those purchases and possibly duty.
The Law of Cross Border Business Transaction
Law of Cross-Border Business Transactions aims at giving a structured introduction to the law and practice of investment deals (e.g., greenfield projects, M&As and hybrid forms) and of non-investment transactions (e.g., trade, technology transfer and services). Cross-border business deals are nowadays routine matters for business entities all over the world and the related legal aspects are becoming more and more complex.
This book provides extensive general background information. It also covers numerous specific issues of relevance in the context of cross-border projects. Substantive law issues, procedural aspects and skills-related considerations such as contract drafting, structuring options and cross-cultural lawyering techniques are included, adding up to an unusually comprehensive and useful guide in the field.
How Long do Cross Border Payments Take?
International cross border payment solutions generally take anywhere from two to five business days to clear. The timeframe depends on where the funds originate, where they are being sent, and the number of intermediary banks in between.
|International Wire Transfers
|1-2 business days
|B2B relationships that consider as main priority the
seep of the transfer execution
|Credit Card Payments
|e-Commerce websites, Online shops, SaaS solutions, Subscription model businesses.
|3-5 business days
|B2B relations in need of more secure payment solution and operating with larger amounts.
|2-3 business days
|e-Commerce websites, Online shops, SaaS solutions, Subscription model businesses.
How long do International Bank Transfers take?
International bank transfers generally take up to five business days to arrive. In most cases, international bank payments are actioned through the SWIFT network that ensures your payment reaches its destination. However, this is not a direct process, the money can pass through up to three intermediary banks, also known as corresponding banks.
To send a cross border payment, you need to gather all the necessary information (IBAN Number, SWIFT number, and recipient’s banking details) and submit them to your bank. If you make your request before the bank’s cut off time, it should be processed on the same day, otherwise, it will be processed the following day.
The reason it can take up to five business days is because of factors such as, fraud prevention, bank holidays and weekends, different currencies, and time zone differences.
Cost of Cross Border Payments
The World Bank published the Remittance Prices Worldwide report in 2016, which stated the fintech industry had lowered the cost of remittance. During the last quarter of 2016, transferring money internationally had an average transfer cost of 7.4% of the total transaction. Banks had the most expensive transfer cost (11%). Money transfer companies, like global payments platforms, had a lower transaction cost of about 6.26%.
As you can see, partnering with a global payables platform can save money on cross-border payments. Reduced transaction fees, however, aren’t the only financial advantage of this type of services provider. When you have a platform automating invoices and global payments, you can reduce AP headcount or redirect those employees toward other pertinent operational tasks.
The invoice automation benefit provided by a cross-border payments platform also reduces overhead expenses and leads to money-saving opportunities by streamlining the end-to-end AP workflow. Manual activities that are normally handled by the AP team can be automated, turning them into “touchless” tasks.
The automation software does the heavy lifting for you using intelligent technology to verify and route each invoice correctly. It also pinpoints potential issues and mitigates human error. Faster invoice processing gives you a better view of where early discount pricing opportunities exist, and it serves as a solid foundation for scaling your AP processes.
The built-in optical character recognition (OCR) scanning feature available through invoice automation software identifies pertinent payee information and records it for future use. Override changes are intelligently identified and then applied to future invoices.
After OCR scanning takes place, the second layer of verification is performed to maintain optimal data extraction accuracy. With greater accuracy comes improved invoice processing and reconciliation, which saves money and reduces the AP workload.
A global payments platform also saves money on cross-border payments by allowing you to send money internationally using various payment methods other than a wire transfer. This is of tremendous value when sending payments to countries where wire transfers are not supported.
Read Also: How to Become a Financial Advisor
And if preferred, you can set payments so that the payee absorbs the transaction fees. Since a global payments platform offers reduced fees, a payee is more likely to absorb them, especially when you point out that you’re sending payments via a method that doesn’t require a wire transfer.
Cross Border Payments Solutions
Cross-border transactions are nothing but sending money overseas. Whether it’s a domestic or international purchase, there are typically 6 steps to every transaction.
Purchase of products or services
When you are looking for products or services online out of your country, you will be directed to the checkout page to complete your transaction. Even if you are making a purchase over the phone, you will be cross-border payment solutions and getting a link to make your payment. Numerous vendors are now offering checkout pages in their native language to localize the customer experience.
Routing & processing
Once you are done filling in your information on the checkout page, whether you are making a purchase via credit card or debit card, you will get an OTP (One Time Password) regardless to obtain authorization to deduct the amount from your bank account.
Approval or denial status
In this stage, your payment process will either get approved or denied depending on the number of funds available. If your bank account doesn’t have sufficient funds, you will be getting a failed transaction message from the bank and merchant. If your payment is approved, your order goes into fulfillment.
Once the payment is successfully made, you will get a message from the bank and the merchant saying the same. You will be provided a link to track your product or service order status.
Cross Border Payments Platform
PAPSS – the Pan-African Payment and Settlement System – is a cross-border, financial market infrastructure enabling payment transactions across Africa. PAPSS ensures instant or near-instant transfers of funds between originators in one African country and beneficiaries in another.
PAPSS addresses the historic challenges of making payments across African borders, adding value through a common African market infrastructure for all stakeholders, from governments, banks and payment providers to corporates, small enterprises and individuals.
Commercial banks, payment service providers and other financial intermediaries connecting to PAPSS benefit from:
- a simplified process that reduces the costs and complexities of foreign exchange for cross-border transactions between African markets
- providing an instant and secure cross-border payment capability to their customers across Africa
- a platform that enables innovation in cross-border trade and access to new African markets
Governments and central banks partnering with PAPSS benefit from:
- easing the pressure on current accounts and demands for foreign exchange liquidity
- increased transparency of cross-border trade activity, bringing greater oversight of cross-border transactions and increased potential to generate revenue
- enhanced financial inclusion opportunities and improved economic growth through intra-African trade
Corporates, SMEs and individuals can benefit from:
- instant/near instant payments of cross-border transactions without the hassle of currency conversion
- improved working capital through payment certainty and faster transactions
- access to various payment facilitating options through a growing network of financial intermediaries
How do Banks Settle Cross Border Payments?
In every cross-border payment, banks and a group of varying domestic entities work together to transfer funds. When a purchase is made, a “correspondent bank,” or the entity requesting the money, speaks with the “respondent bank,” which represents the entity buying something.
Throughout the major cities of the world, each bank has a counterpart in another city. So funds will first leave the buyer’s bank and go to that bank’s counterpart in the merchant’s country to prepare for remittance. The merchant’s bank will then receive the remitted funds, and they will be settled into the merchant’s account.
These banks often work with others to transfer the money, which often involves more than four banking locations dealing with one another, navigating currencies, varying taxes, and transaction fees. Because there are so many entities working on a single purchase, the process can be slow.