Everything You Need to Know About Cross-Border Payments (2023)

cross-border payments

Leverage local payment methods to support commerce strategy in the global marketplace

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What are cross-border payments?Why use cross-border payments?What are some examples of cross-border payments?How do cross-border payments work?What are the benefits of using cross-border payments?Are there any challenges associated with cross-border payments?How does ACI Worldwide support cross-border payments?

What Are Cross-Border Payments?

A cross-border payment refers to any transaction in which the payer and the payee are located in different countries; these transactions can take place between individuals, companies and banking institutions. Global cross-border payment flows are expected to reach$156 USD trillion by 2022, making it one of the fastest growing segments within the global payments ecosystem.

(Video) Cross-border payments explained | emerchantpay

Everything You Need to Know About Cross-Border Payments (1)

Why use cross-border payments?

Globalization, digitalization and the rise of eCommerce have changed the way consumers around the world shop, creating a truly global marketplace. In this environment, merchants have the opportunity to enter new markets and access new customer bases — but in order to take advantage of that opportunity, they must first understand the nuances and expectations of consumers in different regions.

For example, merchants who wish to grow their customer base in Europe would do well to offer SOFORT, an online payment system that acts as an intermediary between buyers and merchants. Owned and operated by Klarna, SOFORT is widely used throughout Germany, Austria, Belgium, the Netherlands, Poland, Italy, Spain and Switzerland. Merchants hoping to do business in Latin American will similarly want to support PayPal, which is one of the most popular payment methods in the region, as well as voucher-based payments such as Boleto in Brazil, OXXO in Mexico and Via Baloto in Colombia.

The entire purpose of cross-border payments are to help merchants adapt their global commerce strategy to local markets; by offering consumers in different regions payment options familiar to them, merchants can both enhance the customer experience and capitalize on new revenue streams.

What Are Some Examples of Cross-Border Payments?

Cross-border payments take many forms, including (but not limited to):

  • Bank transfers
  • International wire transfers
  • Electronic funds transfers
  • Credit card payments
  • Debit card payments
  • Prepaid debit card payments
  • Global ACH payments
  • Digital currencies
  • Digital wallets
  • Mobile wallets
  • Buy now, pay later
  • Blockchain-based payments
  • Voucher-based payments
  • Cash-based payments
  • Paper checks

The popularity of these payment types varies by region.

For example, mobile wallets are the fastest growing payment methods in Southeast Asia, where the total number of mobile wallets is expected toincrease 311 percent from 2020 to almost 440 million by 2025. In North America, credit cards are the preferred payment method and account for47 percent of all eCommerce transactions. Though cash-based transactions — such as cash-on-delivery payments — remain the most popular payment method in Africa, mobile money transfer service M-Pesa has seen significant uptake, with a reported48 million customers. Originally launched in Kenya, M-Pesa now operates in Tanzania, South Africa, Afghanistan, Lesotho, the Democratic Republic of Congo, Ghana, Mozambique, Egypt and Ethiopia.

Certain companies and platforms also have a stronger presence in some regions than others. For evidence of this, look no further than buy now, pay later (BNPL): While Klarna is the dominant BNPL service provider throughout Europe and the U.K., Afterpay drives the BNPL market in Australia and New Zealand and Affirm is an important player in North America. When developing a cross-border payments strategy to support global commerce, it’s imperative that merchants take these regional preferences into considerations.

Everything You Need to Know About Cross-Border Payments (3)
(Video) Cross-border payments made simple

How Do Cross-Border Payments Work?

The general concept behind cross-border payments is fairly simple: You set up a website with a checkout page and, on that checkout page, offer various payment options to customers. A customer making a purchase can select their preferred payment method and finish the transaction, often after completing some sort of identity authentication.

Everything You Need to Know About Cross-Border Payments (4)

On the back end, the situation is far more complex. International payment processing typically involves a change in currency, which means merchants have to navigate exchange rates, taxes, foreign transaction fees and bank accounts in each currency. If the consumer makes a payment using a credit or debit card, there are also interchange fees to contend with.

Merchants must also be pragmatic about which cross-border payment methods they configure and make available to customers. Naturally, they’ll want to select payment methods that appeal to their target market — for example, credit and debit cards for customers based in North America and Latin America, digital wallets for those in the Europe and Asia-Pacific regions and so on. Regardless which payment method(s) a merchant chooses to configure, they must be visible in the technical connection in the payments processing gateway.

From there, merchants must decide whether to implement localized or global fraud prevention and authentication strategies and whether to create a single or multi-acquirer setup. Additionally, if a merchant wanted to use a local acquirer in a shopper’s country of origin, they would need to register as a local entity in that country. In order to achieve all of this, merchants require a cross-border payments platform capable of recognizing the consumer’s origin source, applying the appropriate configuration to payment connectors, utilizing the appropriate authentication method and generating business analytics for payments optimization. This last item is especially important, as performance metrics are essential to merchants adapting their cross-border payments strategy for the future.

Everything You Need to Know About Cross-Border Payments (5)
(Video) Payment Mastering Program - Strategies to Understand Cross-Border Payments

What are the benefits of using cross-border payments?

There are numerous benefits to developing a cross-border payments strategy:

  • Cross-border payments enable merchants to capitalize on the rapidly growing global cross-border B2C eCommerce market, which is projected to be worth$4,195.4 billion by 2027
  • Cross-border payment options allow for a more personalized customer experience by enabling merchants to present consumers with their choice of popular regional payment methods.
  • Most cross-border payment platforms are mobile-enabled, so merchants can pay invoices for suppliers from any device and any location; intelligent scheduling also makes it so that merchants can schedule invoice payments. These capabilities enable merchants to expand their supplier and affiliate bases — in addition to their customer base — on a global scale.
  • Cross-border payment systems process domestic and international money transfers using a single platform, enhancing accounts payable efficiency and transparency.
  • Cross-border payment platforms enable merchants to connect to multiple acquirers, including local acquirers, which results in higher bank approval rates, lower interchange costs and greater risk diversification. In fact, merchants using multiple acquirers are found to have acceptance rates up to16 percent higherthan those using a single acquirer setup.
  • Cross-border payments increase merchants’ ability to customize authentication and fraud rules using configurable workflows and risk management options.
  • The impending global adoption ofISO 20022will create international cross-border message standards and enhance cross-border payments efficiency.
Everything You Need to Know About Cross-Border Payments (6)

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With expert insight from payment experts across the globe, we’ve debunked some of the most common misconceptions to bring clarity to a complex topic.

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Are there any challenges associated with cross-border payments?

Despite the benefits they offer, some merchants find cross-border payments intimidating due to their perceived complexity and the fact that costs associated with them — foreign transaction fees, interchange fees, taxes and so on — can be high. It can also be difficult to predict settlement times on cross-border payments and challenging to reconcile multiple currencies for revenue accounting. End consumers may find exchange rates confusing, which can deter them from completing a purchase, and merchants must ensure that they select the right payment methods for each market.

There is also the matter of regulatory compliance. Almost every region has its own set of regulations pertaining to the transfer of financial data, such as APEC’sCross-Border Privacy Rules (CBPR)and Europe’sPayment Services Directive 2 (PSD2). Certain countries even have their own regulations, such as Germany’sBundesdatenschutzgesetz (BDSG), or unique versions of existing regulations, such asCommission nationale de l’informatique et des libertés (CNIL), France’s interpretation of the General Data Protection Regulation. Finally, there are regulations that apply to specific cross-border payment types, such as thePayment Card Industry Data Security Standard (PCI DSS), a set of policies and procedures designed to promote credit card payments security.

Depending on which cross-border payment options they offer and which markets they operate in, merchants need to be cognizant of various regulations in order to ensure that their international payment processing systems are compliant. Fortunately, these compliance concerns — as well as concerns related to cost and complexity — can be resolved by choosing the right cross-border payments platform.

(Video) Key Strategies to Understand how Cross-Border Payments Work
Everything You Need to Know About Cross-Border Payments (7)

How Does ACI Worldwide Support Cross-Border Payments?

ACI Worldwide offersglobal connectivity via a single APIandpayment orchestrationbased on customer journeys; this enables us to automatically convert transactions so that they align with local payment options, customs, acquirers, fraud strategy and authentication. We’re constantly adapting to changes in the market and supporting emerging payment types, such asBNPLanddigital currencies, to help merchants take advantage of new technology, close payment gaps and seize new revenue growth opportunities. All of our solutions are tightly integrated, which means ACI customers are able to easily switch on new solutions as needed, enabling them to break into new global markets at speed.

Contact ustoday to learn more about ACI Worldwide’s cross-border payment processing solutions.

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FAQs

How does a cross border payments work? ›

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. Cross-border payments can be made in several different ways.

What is the problem with cross border payments? ›

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.

What information do we need to request when completing payment details for a cross border payment? ›

Those details include the bank account number, name, recipient country's currency, SWIFT code, IBAN (International Bank Account Number), bank address, amount to be transferred, etc. The currency rate is fixed before the transaction.

What is cross border transactions and how it happens? ›

Cross-border payments refer to transactions involving individuals, companies, banks or settlement institutions operating in at least two different countries and are international transactions. These payments are inclusive of retail and wholesale transactions.

What are the 2 payments covered under cross border payments? ›

Bank transfers, credit card payments and Alternative Payment Methods (APMs) are the most prevalent ways of transferring funds across borders.

How much money can you transfer without being reported UK? ›

You have to declare cash of £10,000 or more. But there are no limits on money transfers sent through the banking system. However, you may find your bank has set its own daily limits. Banks can choose to do this for their own internal security.

How do you avoid cross border fees? ›

What Can You Do to Minimize Cross-Border Interchange Fees? To reduce cross-border interchange fees, businesses need to process card transactions as if they are local to the region where the shopper's card was issued. This means businesses need to connect to local banks in every region where they have a legal entity.

How do banks settle cross border payments? ›

Cross-border payments are generally slower, more expensive and more opaque than domestic ones. They tend to flow through the so-called correspondent banking network, where chains of banks work to get funds from the payer to the payee.

What is the most important part of cross border transaction? ›

One of the most critical decisions that the parties to a cross-border transaction will make is the choice of governing law applicable to the deal. Most courts in most countries will respect the parties' right to decide which country's law to apply.

What details are needed for payment? ›

Six-digit sort code of the account you're paying.
  • Eight-digit account number of the account you're paying.
  • A payment reference (often your name or customer number) to let them know the money came from you.
  • Sometimes you'll need the name and address of the bank you're sending the money to.

What details does someone need to take a payment? ›

What do I need to make a bank transfer?
  1. the amount you want to send.
  2. the full name of the person you're sending money to.
  3. their 6-digit sort code.
  4. their 8-digit account number.
  5. a payment reference (usually your name, so the person knows who sent them money)
  6. whether you want the money to be sent right away.

What information is needed for payment? ›

Depending on the payment method, other required information can include the user's full name, credit card number, security code, and expiration date, as well as billing address, account number, routing number, and other information.

What are the fees for cross border payments? ›

How much will a cross-border fee cost you? Mastercard and Visa apply different cross-border fees, depending on the type of transaction and the currency used. At the time of writing, Mastercard's cross-border fee ranges from 0.6% to 1% of the purchase, and Visa's cross-border fee is 1% to 1.4% of the purchase.

How long do cross border payments take? ›

Whereas a domestic payment can take anywhere from three to five days to settle, cross-border payments can take weeks before a payee receives funds.

Who charges cross border fee? ›

The two biggest players in the credit card industry — Mastercard and Visa — both assess cross border fees to credit card processing companies. The credit card processing company then typically passes these charges on to the merchant in the sale.

How much money can I transfer out of the UK? ›

The UK doesn't technically have a set limit on how much you can send overseas, but both the FCA and HMRC will monitor your transfers for illegal activity. You'll only run into a barrier if there are reasonable grounds for concern that your transfers are in aid of money laundering or tax avoidance.

What are five terms of payment for exports? ›

Methods of Payment
  • Methods of Payment. To succeed in today's global marketplace and win sales against foreign competitors, exporters must offer their customers attractive sales terms supported by the appropriate payment methods. ...
  • Key Points. ...
  • Cash-in-Advance. ...
  • Letters of Credit. ...
  • Documentary Collections. ...
  • Open Account. ...
  • Consignment.

What is cross border ACH? ›

The cross-border ACH (XB-ACH) platform is built to meet the unique payment needs of global corporate clients. This streamlined solution helps clients make low-value ACH payments around the globe to their vendors or suppliers using our cost-efficient ACH network.

How much money can you transfer without getting flagged? ›

Who must file. Generally, any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file a Form 8300.

Can UK government check your bank account? ›

HMRC can check your bank account

Back in July 2020, HMRC announced the creation of a new 'financial institution notice' to speed up the process of obtaining information about a known taxpayer's tax position from banks and other organisations.

How much money is considered money laundering UK? ›

Who should register. You may have to register with HMRC if your business operates as a high value dealer. A high value dealer under Money Laundering Regulations is any business or sole trader that accepts or makes high value cash payments of 10,000 euros or more (or equivalent in any currency) in exchange for goods.

Why am I being charged a cross border fee? ›

A cross border fee is the fee charged to a merchant when a customer uses a credit card as payment for purchases or services from an issuing bank not located in the same country as the merchant's processing account.

Does Visa charge a cross border transaction fee? ›

Foreign cross border charges

These fees apply to cross border transactions processed in a currency other than U.S. dollars. MasterCard charges 1 percent for these exchanges and Visa charges 1.20 percent.

What is PayPal cross border fee? ›

Accepting international credit cards is no problem, but there's an extra 1.5% cross-border fee. A 2.5% currency conversion fee also applies if the customer pays in a different currency.

How long does it take for international payments to clear? ›

How long do international payments take? International bank transfers usually take one or two days but can take as long as five depending on the currency. For example, US dollars and euros are normally quicker than weaker currencies.

Can my bank account receive international payments? ›

Bank deposit is a very secure method of receiving money from abroad, which is offered by nearly all banks in India and all money transfer services. Bank deposits can often get expensive if the sender uses the SWIFT network to wire the money overseas and then charges fees associated with the network.

How long does it take for an international wire to settle? ›

International wire transfers usually take two business days, but depending on the destination and when you send the transfer, it can take up to five days.

What are the four pillars of cross border selling? ›

Selling Cross Border, Simplified!
  • Market & Channel. Identification. ...
  • Logistics & Fulfillment. ...
  • Marketing Activation.

How do I transfer a large amount of money? ›

7 methods to consider when transferring large amounts of money
  1. Automated clearing house (ACH) ...
  2. Bank-to-bank. ...
  3. Money transfer. ...
  4. Cash-to-cash. ...
  5. Prepaid debit cards. ...
  6. Foreign currency check. ...
  7. International money transfer service.
27 May 2021

How much money can I transfer between banks? ›

Bank transfer limits
Type of transferTransfer limit
Bank of America Corp.$3,500 per day or $10,000 per week
JPMorgan Chase & Co.Up to $25,000 per day
Citigroup Inc. Standard ACHUp to $10,000 per day
Capital One Financial Corp.Up to $10,000 per day or $25,000 per month
1 more row
6 Aug 2022

What details do I need for an international bank transfer? ›

When sending an international bank wire, you will need to provide the recipient's name, address, banks SWIFT BIC, and bank account number, plus the International Payments System Routing Code, for certain countries (you will be prompted for this).

What can someone do with your bank account number? ›

When a scammer has your bank account and routing numbers, they could set up bill payments for services you're not using or transfer money out of your bank account. It's tough to protect these details because your account number and routing number are hiding in plain sight at the bottom of your checks.

Who can see my bank account information? ›

Can Anyone Check My Bank Statement? No. Unless you give out your account number, banks do not release information regarding your bank statement to unknown third parties without your consent.

Can DWP check your bank account? ›

DWP could monitor your bank account and social media activity at any time in fraud crackdown. More than 600 people across the UK were convicted of benefit fraud in the last year, and the Department for Work and Pensions (DWP) have plans in place to combat the fraud.

What is minimum payment warning? ›

A minimum payment warning on every single credit card statement. This warning is based on your current balance and spells out exactly how long it will take you to pay off your debt if you pay just the minimum amount due. It will also spell out how much interest you'll pay over time.

Do I get charged for international transactions? ›

A foreign transaction fee is a fee charged by a credit card issuer or bank for every transaction made in a country outside of the U.S. Fees vary depending on the credit card or bank's terms and conditions, but usually fall between 1% and 5% of the purchase amount.

How much does it cost to make an international payment? ›

Watch out for the margin on the exchange rate

In addition to the international transfer fee, a margin on the daily exchange rate is also tacked on to most foreign transfers. This rate is typically around 5% at most major banks, so if you're sending $10,000, you may have to pay up to $500.

Why are cross border payments difficult? ›

Lack of transparency

Cross-border payments can have transparency issues with so many intermediaries involved in the process. The SMEs may have to go through a lack of transparency in terms of the costs, speed, and arrival of payments while doing business with different intermediaries.

What is cross border risk? ›

Cross-border risk. Describes the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent.

How many hours does it take to receive money from abroad? ›

Generally speaking, international bank transfers will arrive within one to five working days. Let's explore what this looks like. To send an international payment, you simply need to gather all the necessary information (IBAN number, BIC/SWIFT number, recipient's banking details, etc.)

What are the two payment covered under cross border payments? ›

Bank transfers, credit card payments and Alternative Payment Methods (APMs) are the most prevalent ways of transferring funds across borders.

What is cross border processing? ›

Cross-border processing is an instance of personal data processing that has a connection to more than one member state because you as a data controller or data processor do one of the following: You process personal data in the context of activities at establishments in more than one member state.

Do you have to pay to go through the border? ›

Do I have to pay a fee to cross the border? There is no fee to visit a Duty Free store, however there is a border crossing toll charge at select border crossings. You can pay in Canadian or U.S. currency.

How do banks settle cross border payments? ›

Cross-border payments are generally slower, more expensive and more opaque than domestic ones. They tend to flow through the so-called correspondent banking network, where chains of banks work to get funds from the payer to the payee.

Who pays the cross border fee? ›

In short, it's an assessment charged to a merchant when a customer pays with a credit card issued by an international bank. Put more simply, it's a fee instituted when a merchant in one country (e.g., the United States) accepts payment from a customer whose card originates from another country (e.g., China).

What are the fees for cross border payments? ›

How much will a cross-border fee cost you? Mastercard and Visa apply different cross-border fees, depending on the type of transaction and the currency used. At the time of writing, Mastercard's cross-border fee ranges from 0.6% to 1% of the purchase, and Visa's cross-border fee is 1% to 1.4% of the purchase.

How much are cross border fees? ›

The cross border fee is a flat 0.40%, but it's often bundled into an overall international assessment fee. If you work a lot with American Express, I'd contact them directly.

How long do cross border payments take? ›

Whereas a domestic payment can take anywhere from three to five days to settle, cross-border payments can take weeks before a payee receives funds.

What is the most important part of cross border transaction? ›

One of the most critical decisions that the parties to a cross-border transaction will make is the choice of governing law applicable to the deal. Most courts in most countries will respect the parties' right to decide which country's law to apply.

How much money can I transfer out of the UK? ›

The UK doesn't technically have a set limit on how much you can send overseas, but both the FCA and HMRC will monitor your transfers for illegal activity. You'll only run into a barrier if there are reasonable grounds for concern that your transfers are in aid of money laundering or tax avoidance.

How do you avoid cross border fees? ›

What Can You Do to Minimize Cross-Border Interchange Fees? To reduce cross-border interchange fees, businesses need to process card transactions as if they are local to the region where the shopper's card was issued. This means businesses need to connect to local banks in every region where they have a legal entity.

Does Visa charge a cross border transaction fee? ›

Foreign cross border charges

These fees apply to cross border transactions processed in a currency other than U.S. dollars. MasterCard charges 1 percent for these exchanges and Visa charges 1.20 percent.

Who owns cross border? ›

Cross Border Xpress
Cross Border Xpress (CBX) Tijuana Cross-border Terminal
ClientBancomext and Invex
OwnerOtay Tijuana Venture, LLC
Technical details
Floor area65,000 square feet (6,000 m2)
21 more rows

Do I get charged for receiving international payments? ›

There's no transaction fee to receive an international payment. You need to give the person sending money: Your Bank Identifier Code (BIC). These are sometimes called 'SWIFT codes'.

Why am I being charged a cross border fee? ›

A cross border fee is the fee charged to a merchant when a customer uses a credit card as payment for purchases or services from an issuing bank not located in the same country as the merchant's processing account.

Do I get charged for international transactions? ›

A foreign transaction fee is a fee charged by a credit card issuer or bank for every transaction made in a country outside of the U.S. Fees vary depending on the credit card or bank's terms and conditions, but usually fall between 1% and 5% of the purchase amount.

What is PayPal cross border fee? ›

Accepting international credit cards is no problem, but there's an extra 1.5% cross-border fee. A 2.5% currency conversion fee also applies if the customer pays in a different currency.

Do you have to pay to go through the border? ›

Do I have to pay a fee to cross the border? There is no fee to visit a Duty Free store, however there is a border crossing toll charge at select border crossings. You can pay in Canadian or U.S. currency.

How much does it cost to cross the border into Mexico? ›

You will need to show your proof of US citizenship, your passport, or a passport card. The cost of a Mexico tourist visa is about $30 USD. (Note: In many instances, the FMM visa fee is included in a travelers' airfare or in cruise packages).

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