In 2022, revenue generated from cross-border payments reached around $240 billion, a 17% rise. Business-to-business and business-to-consumer cross-border payments rose by 10%. Cross-border payments are becoming important in the business landscape.

This blog is the ultimate guide to cross-border payments. You’ll get an overview of what they are, the types, the methods, the benefits and risks associated, and how to send international payments.  

What Are Cross-border Payments?

Cross-border payments are international transactions of funds between parties based in separate countries. Cross-border fund transfers can be useful for travel expenses, sending money to family and friends abroad, and international trade, as well as investments, among other activities.

So, for instance, if your business has a workforce spread across different countries, cross-border payment solutions could help you pay your dispersed employees and manage the payroll securely and efficiently.

Types of Cross-border Payments

Both businesses and individuals can do cross-border transactions that usually involve different currencies. The types of cross-border payments can broadly be classified as:

Consumer-to-consumer (C2C)

C2C cross-border payments and remittances might be between friends or family members.

Business-to-business (B2B)

B2B cross-border payments can include business investments and international trade. 

Consumer-to-business (C2B)

Some examples of C2B cross-border payments are e-commerce purchases and education or healthcare bill payments.  

Business-to-consumer (B2C)

B2C cross-border payments can include salaries, government payouts, refunds and disbursements.

Cross-border Payment Methods

The choice of the cross-border payment method will depend on factors like the amount of money being sent, the currencies, the transaction speed, and the fees associated. It’s best to consider these factors before initiating a cross-border transaction. There are several ways to make the payments:

Credit Cards

Credit cards are accepted worldwide and can be used by businesses and consumers to accept payments in different currencies. This method might incur currency conversion charges and other fees. 

Wire Transfers

Wire transfers are usually used for large transactions. These are electronic transactions done between two financial institutions or banks. 

Online Payment Platforms

Online payment platforms facilitate international digital cross-border transactions between individuals and businesses. This method might give you low fees and good exchange rates. 

Electronic Funds Transfers

Electronic funds transfers or EFTs allow for almost instant cross-border payments. EFTs can be more convenient than other methods.

International Money Orders

International money orders can be purchased at banks. They can be transferred via mail as a paper-based method or electronically through a third-party international payment platform.

SWIFT Payments

Merchants and individuals can receive and send funds via SWIFT cross-border payments. DSGPay offers this method from their multi-currency accounts.

Cryptocurrency

Cryptocurrency is also a fast and secure option for cross-border transactions but the volatility of the cryptocurrency market accompanies it.

Cross-border Payments Fees

Businesses need to know and understand the additional costs that might be added to international transactions. This can help determine the cross-border payment method that best suits a business’s needs. The main costs are:

Currency Conversion Fees

Currency conversion fees come into the picture when the sender and receiver use different currencies. The fee amount can vary depending on the currencies involved, the exchange rates, the provider facilitating the cross-border transaction, and the method used. 

Cross-border or Card Fees

Processing cross-border payments can be complicated and involve risk for the involved financial institutions. This has led to businesses being charged cross-border fees or card fees by credit card companies. It’s usually a percentage of the transaction amount.

Benefits of Cross-border Payments

Cross-border payments bring several benefits with them:

Increased Revenue

Businesses accepting payments from different countries can expand the reach of their products and services to new international markets. This can increase their revenue and give them a competitive edge.

Expansion to Global Markets

Cross-border transactions can help businesses engage with new partners, suppliers, and customers in global markets.

Convenient Customer Experience

Offering the option of cross-border payments can make it easier for customers to pay using their preferred currency and method, be it credit cards or virtual payments. This can allow a business to offer a more personalised experience to customers.

Portfolio Diversification

Along with the customer base, businesses can diversify and expand their investment portfolio beyond domestic markets with cross-border transactions.

Cost Saving

Depending on the method a business chooses, it can save money on currency exchange rates, transaction fees, and other fees that come with international trade. 

Cross-border Payments Disadvantages

While there are many advantages of cross-border payments, businesses might also have to consider some of the disadvantages and risks.

Fluctuating Exchange Rates

Changes in the currency exchange rates can affect the final amount the recipient gets, which can be an issue for businesses.

Regulatory Compliance

Cross-border transactions need to navigate regulatory compliance with different countries, such as anti-money laundering, know your customer, data privacy, consumer protection, and other regulations. This can be complex and time-consuming.

Fees

As mentioned earlier, international payments usually come with fees. These can make transactions expensive if the most effective cross-border payment company or method aren’t chosen by the business.

Security Risks

Cross-border payments can be vulnerable to security risks such as cyberattacks, identity theft, payment scams and fraudulent activity. Businesses should protect their transactions by staying updated on data security practices and choosing the right cross-border payment partner, such as DSGPay, that prioritises data security.

How to Send Cross-border Payments

The process of cross-border money transfers will vary depending on your preferred method, but the main steps will generally be as follows:

Step 1: Choose a Payment Method

Choose from one of the payment methods mentioned earlier based on your business’s requirements.

Step 2: Check the Currency Exchange Rate

Since exchange rates continuously fluctuate, it’s important to know the rate when sending money so that both the sender and recipient understand the amount being transferred.

Step 3: Fill in the Recipient’s Details

A recipient’s name, bank account number, address, and other details will be required when sending a cross-border payment.

Step 4: Verify, Send and Track the Payment

Look over all the details of the payment to make sure they’re accurate before hitting send. Depending on the method chosen, the time it takes for the payment to be received will differ. The transaction can usually be tracked with a reference number.

A Vital Part of the Global Economy

Cross-border payments have been instrumental in the rise of the global economy, facilitating international trade and investment. They’re especially helpful for small businesses as, with cross-border payments, even they can expand their operations and customer base beyond their home countries.

DSGPay can empower your business with our cross-border payment solutions that connect you to consumers and businesses all around the globe. Contact DSGPay to learn more about how we can support your business with our online payment solutions and other services.