Everything You Need To Know About Cross-Border Buying and Payments

More global browsers are becoming digital buyers, and cross-border eCommerce is here to stay. Regions that have low electronic penetration, such as Brazil, Indonesia, India, and Thailand, are poised for strong opportunities for payments growth, while countries with higher levels of digitization, such as Germany and the United Kingdom continue to fuel increased payments revenue as cash usage remains at a minimum. A Forrester study goes on to predict that cross-border eCommerce spans at least 29 countries in the regions of North America, Latin America, Europe, Asia Pacific, Africa, and the Middle East by 2022.

What are Cross-Border Payments?

Cross-border payments are transactions when the payee and the transaction recipient are in separate countries. The transactions between individuals, companies, or banking institutions are looking to transfer funds across territories. For merchants who are operating internationally, it becomes crucial that they accept payments across all countries that they are targeting.

How do Cross-Border Payments Work?

When a customer makes an international online purchase or when a small business pays one of its suppliers abroad, money is transferred from the payer's account to the recipient’s account. While this transfer of money takes many forms, banks are involved in the process as funds leave the client's bank account and enter the recipients.

With international payments, this simple process of money transfer seems much more complex. Often multiple banks participate in the transfer from one country to another. They garner significant transfer fees, and exchange rates between different currencies need to be taken into account, as do local taxes for each country.

Types of Cross-Border Payments

Credit card payments, bank transfers, debit cards, and APMs are all types of cross-border payments. Customers prefer to pay in a way that is convenient for them. On top of this, the customers like to be offered tailored choices and be assured that their payment data is securely handled. As a result of this, merchants cover all bases and offer various ways for their customers to pay across borders.

Credit Card Payments

Credit cards are crucial in cross-border payments and are a go-to option for many consumers. From the consumer’s point of view, they simply enter their card details and wait for the transaction to be verified. Behind the scenes, there is a lot that goes on. Cross-border payments require ample work from the involved credit card networks. These payments acquire banks as they need to convert between two different currencies. This additional workload results in increased fees that are consequently passed down the payment chain.

Bank Transfers

International bank transfers are a way of placing a cross-border payment. Most larger banks have a limited range of currencies stocked, but it is impossible to accommodate more than a handful at any given time. Therefore, when a customer in the United Kingdom is looking to transfer money to a country that does not have the currency in stock, they have to rely on their foreign banking partners to engineer the transaction. Smaller banks often do not hold any foreign currencies, so they turn to large banks to host cross-border payments on their behalf.

This is just a trailer of cross-border payment processing. There is a space for many more parties to be involved which causes delays in the transaction.

eWallet

An eWallet is another name for a digital wallet. eWallet is a software-based electronic APM allowing customers to pay for online or in-store transactions. These are commonly available through apps for smart devices. eWallets allow users to store their payment cards safely so they can pay for goods and services. popular ewallets include Paypal, Neteller, Alipay, Apple Pay, and Google Pay.

Some eWallets allow consumers to operate in different currencies and to place orders across borders. Although wallet-to-wallet transactions do not technically count as cross-border payments, they 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 categorized as a cross-border payment.

Prepaid Debit Cards

A prepaid debit card is one of the fastest and easiest ways to transfer money internationally.  Funds are automatically deducted from the payer's account and transferred to the recipient's account attached to the debit card.  The disadvantages of this payment method are the transaction fees, often for both the payer and the recipient as well as ATM fees charged when withdrawing the funds.

Challenges Found With Cross-Border Payments

Merchants are concerned about the cost and time involved in accepting cross-border payments. They have concerns regarding navigating several different territories to complete a transaction that might seem like a complicated process. Receiving payments as quickly and cost-efficiently as possible is crucial for merchants. It is, therefore, important to work with a PSP to alleviate these potential pain points.

In addition, merchants need to make sure that they partner with a provider who is transparent about the transaction and foreign exchange (FX) fees, so they do not incur hidden costs.

How Long Do International Payments Take?

International payments normally take between two to five business days to clear the payments. The timeframe to clear payments is dependent on where the funds are being sent to and the number of intermediary banks in between. The more financial institutions that the payment has to go through, the longer the transaction takes to clear.

Real-Time Cross-Border Payments

The goal or motive of being able to make real-time cross-border payments is within reach. International payments take longer to clear than domestic payments due to the involvement of more beneficiaries and compliance processing. SWIFT GPI opens the doors for many eCommerce businesses to conduct operations efficiently on a global scale. They capitalize on the existing infrastructure that is already in place for processing real-time domestic transactions. SWIFT GPI aims to increase transparency by providing real-time payment tracking and information about the fees that are charged.

Another service facilitating real-time cross-border payments is Visa Direct which allows person-to-person, business-to-consumer, and business-to-business international payments. Operating within the Visa network, funds are transferred internationally. They reach the recipient’s account in as little as 30 minutes.

Cross-Border Payments Solutions

Today, any business that aims to grow internationally must incorporate cross-border payments.  This is a difficult task - navigating through the international banking system. Keeping track of multiple payments in multiple currencies as well as local tax laws in every country is a tedious and challenging task.

Luckily, however, today, there have emerged innovative solutions to help businesses to manage cross-border payments and thrive in the global market.

Final Thoughts:

For merchants searching for an opportunity to expand their markets overseas, it is integral that they are knowledgeable about cross-border payments. They must be in the situation of keeping up to date with the latest innovations. These updates can provide your customers with the best payment experience possible and can encourage return customs. The mechanisms of international payments are complicated, so it is worth partnering with an experienced PSP to overcome any challenges.