Cross-border payments have become an important part of global commerce in the increasingly interconnected world. A cross-border payment or global payment is a transfer of monetary value across international borders involving parties whose banks are located in different countries.
Global & cross-border payments market size & statistics
As companies expand their reach beyond national borders and consumers become more familiar with international shopping, global payment demand becomes greater. The Brainy Insights reveals that the global cross-border payments market was valued at approximately $190.2 trillion in 2023. The market is also expected to grow at a compound annual growth rate (CAGR) of 7.5%, reaching around $392.01 billion by 2033
With the growing global payment market, both consumers and businesses are adapting to new trends. Consumers increasingly prefer instant and transparent payment options, regardless of geographic boundaries. This demand has led to a rise in digital payment companies.
Technological advancements, such as real-time payment systems and blockchain technology, are another key trend streamlining cross-border transactions. These innovations reduce processing times and transaction costs while enhancing transparency in fees and currency conversions.
Who uses cross-border payments?
A diverse range of people uses cross-border payments on a regular basis, including:
Individuals: This group typically consists of consumers making transactions for personal reasons or small-scale purchases. They use global payments for remittances, travel payments, and e-commerce transactions.
Small and medium enterprises (SMEs): Cross-border payments are important for SMEs that engage in international trade or provide services to clients across borders.
Large corporations: Multinational companies with operations and supply chains across various countries need global payments for investment payments, B2B transactions, and payroll management.
Financial institutions: Banks and financial service providers facilitate cross-border transactions on their clients' behalf, including foreign exchange services and wholesale payments.
Non-governmental organisations (NGOs): NGOs operating globally that require funds to be transferred across borders for various projects. Some are receiving international funds or donations that need cross-border payments.
Governments: Governments involved in international trade and investment activities use global payments for trade settlements and foreign aid disbursement.
Global payments benefits
Global payments offer numerous benefits for both businesses and consumers.
For businesses
Global market access: Cross-border payments allow businesses to reach new customers and access international opportunities.
Economic growth: Economic growth can be instigated by allowing the flow of goods and capital across borders.
Operational efficiency: Global payment platforms can automate invoices, reduce AP headcount, and redirect employees to other operational tasks, making operations more efficient.
Enhanced security: Fraud detection is often built in a global payment processor.
For consumers
Convenience and speed: Real-time payment systems enable consumers to receive their money immediately.
Better customer experience: Offering international payment methods in local currencies and preferred payment methods.
Financial inclusion: Cross-border payments enable transactions through digital wallets and other platforms, providing access to financial services for unbanked populations.
Types of cross-border transactions
Cross-border transactions can be categorised into several types based on the parties involved and the nature of the transactions. Here are the most common types.
Wholesale cross-border transactions: These transactions occur between financial institutions, such as banks, and are typically used for large-scale economic activities.
Retail cross-border transactions: These transactions occur between individuals, businesses, and consumers across different countries like Business-to-Business (B2B) transactions. This type of transaction is made between businesses for goods and services.
Investment: Global payments play a significant role in the functioning of global financial markets, facilitating investment and financial transactions.
How do international payments work?
You might be wondering how your funds can be securely transferred across borders. Here's a breakdown of how the process works.
Initiation: The payer (individual or business) starts the process by providing recipient details and selecting a payment method, such as wire transfers or online platforms.
Authorisation and verification: The payer’s bank conducts compliance checks and verifies account funds.
Communication between banks: The payer’s and recipient’s banks securely communicate via networks like SWIFT to ensure accurate fund transfers.
Currency conversion: If needed, funds are converted at the current exchange rate, potentially incurring fees.
Settlement: After compliance checks, funds are transferred through intermediaries and credited to the recipient’s account.
Notification: Both parties receive transaction confirmation, including reference details and fees.
Common challenges
Specific issues may arise that could hinder your global payment process. If these issues arise, you can follow these tips on how to face them.
High costs
Challenge: Multiple intermediaries, regulatory fees, and foreign exchange charges make cross-border payments expensive.
Solution: Fintech companies and financial institutions are developing cost-effective solutions, such as faster, more transparent payment systems that reduce intermediary fees.
Slow transactions
Challenge: Processing traditional cross-border payments can take 2-5 business days.
Solution: New payment service providers offer near-instant or instant payments by minimising intermediary involvement and speeding up transaction times.
Security issues
Challenge: Cross-border payments are prone to security breaches, leading to financial loss and reputational damage.
Solution: Institutions enhance security with advanced encryption, risk management protocols, and cybersecurity measures to safeguard transactions.
Lack of transparency
Challenge: Payment parties often lack real-time updates, making tracking transactions and understanding costs hard.
Solution: Technologies like ISO 20022 improve transparency by standardising data exchanges and enabling real-time tracking of payments.
Regulatory complexity
Challenge: Different countries have varying regulations, making compliance complex and legally challenging.
Solution: Financial institutions must stay informed on global regulations and adhere to local laws to ensure compliance with cross-border transaction requirements.
Operational complexity
Challenge: The involvement of multiple intermediaries and banks creates operational challenges and settlement delays.
Solution: Investing in modern systems like blockchain helps financial institutions streamline operations and reduce settlement times.
Data protection
Challenge: Differing data protection laws across countries make handling sensitive financial data difficult.
Solution: Institutions must comply with regulations to secure personal data management during cross-border transactions.
International payment requirements
International payments involve various regulations that must be complied with. Here's a brief overview:
AML and KYC regulations: Banks must perform Anti-Money Laundering (AML) and Know Your Customer (KYC) checks to verify the identities of both parties, ensuring transactions are legitimate and preventing any criminal activity.
Country-specific regulations: Different countries have unique rules. For instance, Canada requires the beneficiary’s full address, while the UAE mandates Purpose of Payment Codes for cross-border transactions.
Tax compliance: Businesses must comply with tax regulations in both the sending and receiving countries, which may include withholding taxes or reporting obligations.
Data protection: Compliance with data protection laws, like Europe’s GDPR, is important when managing personal data during international transactions.
To fulfil all the requirements, you can start by preparing the common documentation needed for cross-border transactions.
Beneficiary information:
Full name of the recipient (individual or company).
Complete address, including city, country, and postal code.
Bank account number or International Bank Account Number (IBAN).
Bank Identifier Code (BIC), or SWIFT code, of the recipient's bank.
Payer information:
Full name of the sender.
Complete address of the sender.
Bank account details of the sender.
Transaction details:
Amount to be transferred.
Currency of the transaction.
Purpose of the payment (if required by regulations).
Any additional information required by specific countries or banks, such as transaction reference numbers.
Compliance documents:
Documentation proving compliance with AML and KYC regulations, including identification documents for both parties involved in the transaction, may be required.
International payment methods
There are several methods to do cross-border payments. Here are the pros and cons of using each payment method that you need to consider.
Bank transfers
Pros: Secure, reliable, good for large transactions.
Cons: High fees and slow processing times.
Credit/debit cards
Pros: Convenient, widely accepted, offers rewards.
Cons: High fees, less favourable exchange rates.
E-wallets
Pros: Convenient, fast, low fees.
Cons: Security risks, limited acceptance.
Wire transfers
Pros: Fast, secure.
Cons: Expensive, complex process.
Global ACH transfers
Pros: Cost-effective, convenient.
Cons: Slower than wire transfers, complex regulations.
Cryptocurrencies
Pros: Fast, secure.
Cons: Highly volatile, uncertain regulations.
Digital wallets
Pros: Convenient, fast, competitive exchange rates.
Cons: Complex setup, fees may apply.
Charges for international payments
Making an international payment usually requires extra fees, such as the following:
Foreign transaction fees: Credit card issuers charge 1%-3% for purchases made in foreign currencies.
Currency conversion fees: Fees for converting one currency to another, usually around 1%.
Transfer fees: Fees for transferring funds between banks vary by provider.
Intermediary fees: Fees charged by intermediary banks or networks for processing international transactions.
Here are some tips on how to minimise these fees.
Choose cards with no foreign transaction fees: Opt for credit or debit cards that don’t charge foreign transaction fees, particularly those tailored for travel.
Use digital wallets: Digital wallets like PayPal or TransferWise often have lower fees, real-time tracking, and transparent fee structures.
Use local currencies: Pay in the local currency at the point of sale to avoid unfavourable exchange rates and extra fees from DCC.
Optimise your payment method: Consider wire or global ACH transfers for large transactions, which may be more cost-effective than credit cards.
Research and compare fees: To minimise fees, check terms and compare payment options.
Avoid multiple ATM withdrawals, Withdraw larger amounts less frequently to reduce ATM fees, and look for accounts offering free withdrawals abroad.
Different currency payment issues
There are several challenges in cross-currency transactions, including:
Currency conversion and exchange rates: Fluctuations in exchange rates can make payments more expensive.
Fees: Cross-border payments typically include foreign transaction fees, currency conversion fees, and intermediary bank fees, which can add up quickly.
Regulatory requirements: Countries have varying regulations for international payments.
Security: Cross-border transactions may be vulnerable to cybersecurity risks, requiring robust security protocols to protect against fraud.
Here are some strategies to safely manage foreign exchange risks.
Use cost-effective payment methods: Opt for digital wallets or wire transfers that minimise fees.
Monitor exchange rates: Timing payments to take advantage of favourable exchange rates can reduce costs.
Avoid using foreign currencies: Always pay in the local currency to avoid poor exchange rates.
Use hedging tools: For businesses, hedging can protect against exchange rate volatility.
International payment systems
What are international payment systems?
International payment systems are operational networks that facilitate the transfer of monetary value across borders. They link bank accounts and enable monetary exchange using bank deposits.
Here are some widely used international payment systems in the current age:
SWIFT: A global secure messaging network used by over 11,000 financial institutions to send payment orders.
SEPA: A European network that simplifies euro-denominated payments across EU countries.
CLS: A system designed to eliminate foreign exchange settlement risk by simultaneously settling both sides of a transaction.
CIPS: A Chinese payment system for cross-border Renminbi (RMB) transactions.
International payment systems typically use the either of the following mechanisms:
Real-Time Gross Settlement (RTGS): Processes payments in real time, ensuring they are final and irrevocable.
Automated Clearing House (ACH): Used for low-value, non-urgent transactions, offering lower costs but slower processing times.
International payment gateway
Payment gateways are crucial tools for businesses in international commerce.
Enabling cross-border transactions: Facilitating payments between businesses, employees, and customers across different countries.
Providing infrastructure: Offering the framework for transferring funds between financial institutions in various currencies.
Enhancing efficiency: Automating processes and providing real-time tracking to streamline international transactions.
Supporting economic growth: Promoting global trade and investment by ensuring secure and seamless cross-border payments.
Here is what you need to look for in an international payment gateway.
Multi-currency support: The gateway should allow transactions in multiple currencies, enabling businesses to accept payments in customers' local currencies for a smoother transaction experience.
Dynamic currency conversion (DCC): This feature automatically converts the transaction amount at the point of payment, ensuring customers are charged in their local currency and enhancing transparency.
Quick integrations: A user-friendly integration process is essential, allowing businesses to implement the gateway quickly without significant disruptions to operations.
Settlement in local currency: The ability to settle funds in the recipient’s local currency ensures timely and secure transfers, minimising delays or losses.
Security measures: Robust security protocols, including PCI DSS compliance and 3DSecure 2.0, are critical for protecting sensitive transaction data and preventing unauthorised access.
Customer support & technical assistance: Reliable, 24/7 customer support through various channels (email, phone, chat) is vital for promptly resolving issues and enhancing customer satisfaction.
International payment processing
International payment processing is a complex series of steps. Here’s a detailed breakdown of the process.
Initiation: The payment process begins when the payer initiates a transaction through their bank or payment service provider, providing essential details like the recipient's name, bank account number, and the transfer amount.
Authorisation and verification: The payer’s bank performs compliance checks to validate the transaction's legitimacy. The bank also checks the payer’s account balance to ensure sufficient funds for the transfer.
Communication between banks: The payer’s bank communicates with the recipient’s bank through secure networks such as SWIFT or CHIPS. If necessary, funds are converted at the current exchange rate, potentially incurring additional fees.
Settlement: After verification is complete, funds are transferred through intermediary banks or payment networks, ensuring compliance with international regulations. The recipient’s bank credits the funds to the recipient’s account, with processing times varying from minutes to days based on the payment method.
Notification: The payer and recipient receive notifications confirming the transaction's completion, including transaction reference numbers and details of any fees incurred.
The key players in cross-border payments are:
Payers: Individuals or entities that initiate payments.
Recipients: Individuals or entities that receive funds.
Banks and financial institutions: Banks facilitate fund transfers, handle currency conversion, and ensure compliance with regulatory requirements. Currency conversion institutions manage currency conversion to execute transactions in the correct currency.
Payment service providers: These providers offer platforms that enable efficient cross-border payment processing, including currency conversion, compliance checks, and tracking.
Fintech companies: They provide various services, such as pre-funding for instant payments, automatic payment rerouting, real-time tracking, integration with foreign exchange services, compliance management, and improved customer support.
Receiving international payments
Receiving international payments requires you to do careful planning and preparation.
The recipient must provide the sender with essential information. This includes their full name and address, bank account number or IBAN, the bank’s SWIFT code or BIC, and, if applicable, the sort code.
Once the recipient has provided the necessary information, the sender can initiate the payment. The sender can use a mobile app or online bank websites to set up the transfers. After complete processing and compliance checks, the funds are transferred through intermediary banks or payment networks.
Lastly, both the payer and recipient receive notifications confirming the completion of the transfer.
How can I accept international payments?
Businesses don’t need to rely on a single method for accepting international payments. Combining options such as integrating a payment gateway for card payments, using wire transfers for service-based projects, and offering virtual bank accounts for bank transfers can cater to different customer preferences.
When choosing payment methods, it is important to compare fees, including conversion, transfer, processing, and set-up fees, as these costs can accumulate quickly. Companies should also consider customer service, available payment methods, and the reliability of each option.
Legal issues with cross-border transactions
Cross-border payments come with several legal challenges, primarily due to the different regulations in the countries involved. Every nation has its own rules around taxes, import/export restrictions, currency exchange, and anti-money laundering (AML) laws, making it tricky to stay compliant when doing business internationally.
Following AML, KYC, International Conventions, and Sanctions Law is key to ensuring that all transactions are legitimate. Failing to meet these requirements can result in fines and damage to business reputation.
Taxes are another concern. You must account for value-added tax (VAT) and withholding taxes when selling goods or services internationally. If you don't comply with the relevant tax laws, you could face penalties from tax authorities.
Dispute resolution is also complicated. Since each country has its own laws, it's important to agree on which legal system will handle any disputes upfront. Some countries even have laws that force local courts to handle certain matters.
Confidentiality is another big issue. When sharing sensitive information during cross-border transactions, businesses typically include confidentiality clauses in contracts to protect their proprietary information.
Global payments fraud
A fraudster can intervene in cross-border payments and take your money. Being knowledgeable about the common types of fraud in international transactions is necessary.
Advance fee fraud: A fraud trick where scammers request upfront fees for services or goods never delivered. They often convince victims to make payments via international wire transfer.
Phishing: This fraud usually involves emails, texts, or calls to trick victims into providing sensitive information that can lead to unauthorised access to bank accounts and funds.
Business email compromise: In this case, fraudsters impersonate executives or trusted vendors and send urgent payment requests, tricking employees into transferring funds to fraudulent accounts.
Skimming: This involves capturing card information at ATMs or payment terminals using devices that read credit or debit card data without the owner's knowledge.
These crimes can be prevented by implementing the following strategies.
Multi-layered security controls: Use strong authentication, such as two-factor authentication (2FA), to enhance security for accounts and transactions.
Regular risk assessments: Frequently evaluate systems to identify vulnerabilities and apply necessary safeguards.
Robust KYC and KYB processes: Use KYC and Know Your Business (KYB) to verify identities and assess the risks of customers and partners.
Monitoring transactions in real time: Leverage machine learning and AI tools to track and identify suspicious activity during transactions.
Fraud awareness education for employees: Train staff to recognise phishing, social engineering, and common fraud tactics.
Fraud detection tools: Advanced tools can analyse transaction patterns and flag unusual activity.
Global payments integration
Integrating global payment systems with existing infrastructure is important for enhancing efficiency. It can improve customer experience and reduce costs. This integration minimises the need for intermediaries and reduces manual processing errors, leading to lower transaction costs.
Integrated systems can provide real-time tracking capabilities, which allow businesses and customers to monitor transaction status easily. A well-integrated system also often includes robust security measures, such as multi-factor authentication, encryption, and fraud detection tools.
However, challenges persist in the tech implementation. Many businesses still operate on legacy systems that may not be compatible with modern payment technologies. Integrating these systems with new infrastructure can be technically challenging and requires significant investment in IT resources.
Cross-border payments are also subject to varying regulatory requirements globally. Ensuring compliance with these regulations can be complex and time-consuming.
The increased use of digital platforms for cross-border payments also increases the risk of cyber threats, such as phishing, malware attacks, and data breaches.
So, you must ensure seamless integration between your business and the payment system. A well-integrated system can optimise business performance.
Global payment solutions
At APEXX Global, we offer a comprehensive payment orchestration platform designed to streamline cross-border transactions for enterprise merchants through a single API. Our platform simplifies the payment ecosystem by consolidating global payment providers, offering access to multiple acquirers, and supporting over 120 alternative payment methods.
APEXX enhances efficiency and reduces costs through intelligent routing, optimising transaction flow based on factors like currency and volume. The platform includes a consolidated reporting dashboard for real-time tracking and performance insights.
With global coverage and local processing, APEXX helps merchants enter new markets, lower foreign exchange fees, and improve acceptance rates. Visit our service page to explore how APEXX can optimise your payment operations and reduce costs.
