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Everything You Need to Know About Cross Border Payments

Boaz Gam

Boaz Gam

CEO

linkedin
09.09.2021
7 min
What Are Cross Border Transactions? Main Cross Border Payment Methods How Do Cross-Border Payments Work?
What Are the Cross-Border Transaction Charges? How Does SEPA Affect Cross-Border Payments? Cross-Border Transactions with Payneteasy

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.

What Are Cross Border Transactions?

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:

  • Retail payments - performed as B2B, B2C, and P2P transfers, including remittances. For example, shopping at e-stores located overseas, sending a sum of money as a gift to your friend living abroad, and providing financial help to a family member in a foreign country.
  • Wholesale payments - conducted between governments, financial institutions, and large non-financial organizations. Some examples are foreign exchange, trading of commodities and securities, payments for the import and export of goods.

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:

  • Manufacturers scaling up their supply chains
  • Growth of e-commerce and international trade
  • Global investment flows
  • Migrants forwarding funds as international remittances

As a response to these trends, innovative technological solutions and business models drive the development of cross border money transfers.

Main Cross Border Payment Methods

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.

Modern

The cross-border transaction methods you are likely to come across nowadays are:

  • International Wire Transfers. It's the oldest method of cross-border transaction, often referred to as “remittance”. This procedure requires the payee to visit a bank or agency. The process normally takes up to five working days, is costly, and has limited traceability, yet is still widely used.
  • Credit Cards. Payment cards are owned by the vast majority of people and relieve us from the need of carrying cash, even when traveling to foreign countries.
  • Virtual Wallets. This category includes eWallets, mobile wallets, and digital wallets that can store and transfer funds and user data.
  • Forex Cards. These cards are perfect for travelers as they enable easy international money transfers and help avoid currency exchange rate swings.
  • Visa Direct. This service provides push payments (within 24h from authorization) for individuals and businesses worldwide.
  • SWIFT GPI. A convenient, fast, and transparent worldwide payments service with fully traceable transactions.
  • MasterCard Send. A cross-border payment service that enables real-time money transfers without any reliance on the bank’s ACH system.

Innovative

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:

  • Open Banking APIs. This technology is here to open doors for cross-border payment process optimization by exposing a range of data to third-party financial service solution providers.
  • Decentralized Ledger Technology. DLT has the power to speed up international transfer backend processes, improve the transactions’ transparency, minimize compliance-related costs, and present an unprecedented payment method.

Now that you are aware of the main cross-border payment methods available let’s take a glimpse at how exactly they work.

How Do Cross-Border Payments 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.

What Are the Cross-Border Transaction Charges?

There are many charges associated with cross border money transfers, such as:

  • Bank fees. Typically, the most costly part of the transfer, charged for transactional services.
  • Cross-border fees. What is a cross border fee? It’s a percentage applicable to a consumer’s purchase performed with a foreign credit card. The rate varies depending on the card issuer. For instance, an MC cross border fee equals 0.60% of a transaction settled in USD, while PayPal charges 4.6% + $0.30.
  • Taxes. This expense category varies from one transaction to another, as country-specific taxes apply.
  • Exchange rates. Since we are dealing with international transfers, we should not disregard currency differences and the exchange rates flux.

However, the members of SEPA are exempt from most of these charges - more about it below.

How Does SEPA Affect Cross-Border Payments?

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.

Cross-Border Transactions with Payneteasy

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.

We offer:

  • Full support for e-commerce, m-commerce, and alternative payment methods.
  • Support for P2P transfers: cards, e-wallets, and more.
  • Set of APIs suitable for different payment types.
  • Conversion tools and multi-currency support.

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:

  • Registration-free P2P transfers
  • Online fees calculation and SMS or email confirmation
  • Same rules for domestic and cross-border payments
  • Transfers by card number
  • Free client support included

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.

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