Understanding Cross-Border Payments: The Ultimate Beginner’s Guide

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.

Looking ahead, the global payments industry is projected to continue its expansion. By 2028, global payments revenue is expected to surpass $3 trillion, with the Asia-Pacific region leading, contributing nearly 50% of the total revenue.

These projections highlight the critical role cross-border payments play in facilitating international trade and economic growth. As businesses and consumers increasingly engage in global transactions, understanding the mechanisms, benefits, and challenges of cross-border payments becomes essential.

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 individuals or businesses located in different countries and using different currencies.

Cross-border fund transfers can be useful for travel expenses, sending money to family and friends abroad, international trade, and investment activities.

So, for instance, if your business has a workforce spread across different countries, cross-border payment solutions could help you pay your 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. These transactions can broadly be classified as:

Type	Definition	Use Cases
Consumer-to-Consumer (C2C)	Financial transfers between individuals, typically for personal reasons.	– Sending money to friends or family. – Gifting money to someone abroad.
Business-to-Business (B2B)	Financial transfers between businesses operating in separate countries.	– Importing goods from overseas suppliers. – Paying for outsourced services – Making investments in foreign markets.
Consumer-to-Business (C2B)	Individuals make payments to businesses located in another country.	– Purchasing goods from e-commerce. – Paying tuition fees for foreign universities. – Covering healthcare expenses abroad.
Business-to-Consumer (B2C)	Businesses make payments to individuals across borders.	– Paying salaries to remote employees. – Issuing refunds to international customers. – Distributing government benefits to citizens living abroad.

Cross-border Payment Methods

The choice of the cross-border payment method will depend on factors like transaction amount, the currencies, the transaction speed, and the associated fees.

It’s best to consider these factors before initiating a cross-border transaction. There are several ways to make the payments:

1. 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.

2. Wire Transfers

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

3. Online Payment Platforms

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

4. Electronic Funds Transfers (EFTs)

Electronic funds transfers are the electronic transfer of funds between bank accounts without using paper transactions. EFTs can be more convenient than other methods.

5. 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 service.

6. SWIFT Payments

The SWIFT network enables secure fund transfers between financial institutions worldwide. Merchants and individuals can receive and send funds via SWIFT.

7. 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.
Transaction Processing Fees: Due to the complexities and risks involved, financial institutions often charge processing fees for international payments. These are typically a percentage of the total transaction amount.

Pros and Cons of Cross-Border Payments

Cross-border payments have become essential for global business and personal transactions. While they offer significant advantages, they also come with a few challenges.

Here’s a quick look at the pros and cons:

Pros

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 customers, partners, suppliers 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: By selecting the right payment solutions, it can save money on currency exchange rates, transaction fees, and other fees that come with international trade.

Cons

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 (AML), know your customer (KYC), 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 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:

Step1: 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
- Provide accurate details, including the recipient’s name, bank account number, address, and other details, to prevent errors.
Step 4: Verify, Send and Track the Payment
- Review all details of the payment to make sure they’re accurate before confirming the transaction. Depending on the method chosen, the time it takes for the payment to be received will differ. Most payment methods provide tracking tools to monitor transfer status.

Concluding Thought on Cross-border Payments

Cross-border payments have been instrumental in the rise of the global economy enabling seamless financial transactions across different regions. Whether for individuals sending remittances or businesses expanding internationally, these payments facilitate global trade, economic growth, and financial inclusivity. As technology advances, international transactions are becoming faster, more secure, and more cost-effective, making it easier for companies and individuals to connect worldwide.

How DSGPay Can Help with Cross-Border Payments

DSGPay can empower your business with our cross-border payment solutions that connect you to consumers and businesses all around the globe. Our services include:

Named Global Virtual Accounts: Send and receive payments in 30+ currencies with ease.
Competitive Exchange Rates: Benefit from favourable currency conversion rates for cost-effective transactions.
Secure Digital Payments: Utilize advanced security measures to protect your transactions from fraud and cyber threats.
Fast Transaction Processing: Speed up international payments with optimized processing times.
Compliance & Regulatory Support: Navigate complex global financial regulations with our compliance expertise.
Custom Payment Solutions: Tailored payment solutions for SMEs, large corporations, and individual users.
User-Friendly Mobile App: Manage, track, and initiate transactions from your mobile device for convenient access anytime, anywhere.