In the era of economic globalization, cross-border payments have become a vital necessity. In 2019, their value totaled $130 trillion and is estimated to reach $250 trillion by 2027. Since the volume of cross border transfers is demonstrating such rapid growth, it is an absolute must for business owners to be aware of what these transactions are and how to make them efficient. Our guide is your key to mastering the intricacies of this topic.
Cross border payments are financial transactions performed between a payer and a recipient based in different countries. By definition, they are far more complex than domestic transactions, as they involve multiple jurisdictions, time zones, and legal regulations. Typically, a cross border transfer is thought to lag a domestic one when it comes to speed, accessibility, cost, and transparency.
Cross-border transactions can be categorized as:
he importance of both cross-border payment categories for the modern economy cannot be overestimated. It is an intensifying niche due to a variety of factors, including:
As a response to these trends, innovative technological solutions and business models drive the development of cross border money transfers.
These days, there are various payment types that facilitate cross-border transfers. For your convenience, we have made a compilation of the major methods available.
The cross-border transaction methods you are likely to come across nowadays are:
Cross-border transfers have improved significantly within a fairly short period of time, and progress doesn’t stop, so there are even more advanced tech solutions arising:
Now that you are aware of the main cross-border payment methods available let’s take a glimpse at how exactly they work.
It is important to understand that when an individual or an organization initiates a bank transaction between two jurisdictions, the currency doesn’t physically travel abroad, as the payment systems of different countries are not connected directly. In reality, what happens is that an account in the sender’s country is credited, and the receivable amount is debited at the beneficiary’s jurisdiction.
Banks also cooperate with other parties, such as PSPs, for the sake of settling such issues as currency conversions, varying tax regulations, and transaction fees. Besides, cross border finance is not always as simple as sending a payment message with a debit and credit request from one financial institution to another, as not all banks have direct links. In such a case, a correspondent bank steps in as an intermediary.
The less common the currency pair, the more intermediaries get involved, forming a correspondent-banking network and resulting in additional processing fees.
There are many charges associated with cross border money transfers, such as:
However, the members of SEPA are exempt from most of these charges - more about it below.
SEPA, or the Single Euro Payments Area, is a pan-Europan initiative aiming to simplify Euro currency cross-border bank transfers within the eurozone (36 member states). It was first introduced in 2008 for credit transfers only, followed by direct debits in 2009. SEPA came into full force in 2016.
SEPA makes cross-border transfers as simple as local ones and even has similar rates. In other words, SEPA transactions are typically free. Yet, some banks may choose to charge an extra fee if they also perform local transfers at a cost.
Luckily for businesses, there are also all-in-one tech solutions that enable convenient management of all the steps and fees of cross-border transactions.
Payneteasy was established in 2006 and has grown to be a leading player in the market. We work with banks, platform providers, PSPs, and merchants worldwide to provide custom payment solutions for conducting cross-border transactions seamlessly.
Our payment solutions feature 350 integrations with various PSPs, wire transfers, APMs, and crypto. At Payneteasy, we ensure a cost-effective transaction flow and top security for the efficiency of your business.
Since 2017, we have been providing our clients with an opportunity to perform cross-border money transfers between cards of different foreign banks with our white label Smart.Transfers solution, featuring:
With the help of this service, any business linked to the Payneteasy platform will provide its clients with stress-free access to international money transfers.