The trends and challenges for cross-border payments in 2024

In an era marked by digital acceleration and innovation, the landscape of cross-border payments is going through a transformation. These shifts not only redefine how global transactions are conducted but also offer a glimpse into the future of financial exchanges. Consumers and, therefore, businesses, increasingly operate on a global scale, and so understanding the nuances of these changes has become essential if businesses want to capitalize on emerging opportunities and tackle the challenges that come with them.

These challenges arise as the process of cross-border transactions involves multiple financial institutions and is subject to a range of fees, currency conversion rates, and regulatory requirements. In order to meet shifting expectations, innovations in technology are paving the way for faster, cheaper, and more transparent cross-border payments. 

To find out some of the most notable changes and trends on the horizon and what these mean for your business, we spoke to Jasmine Chana, Director of Account Management at Checkout.com.

The shift towards digital-first solutions

Consumer preferences are changing. They want instant and transparent payments no matter where they order from — even if this is cross-border. And, as the number of cross-border payments increases, there is a corresponding rise in payment solutions that cater to this consumer preference for seamless payments.

According to Chana, “​​The paramount concern for acquirers and payment service providers (PSPs) centers on performance. In delivering a seamless cross-border payments experience, the importance lies in the selection of payment methods offered—are these appealing to your target market as a merchant? Furthermore, it’s critical to optimize these payments for success on the very first attempt. Notably, digital wallets have surged in popularity and continue to exhibit growth as a preferred payment method year after year."

To remain competitive in this digital-first environment, customer experience should be top of mind for businesses. Through the adoption of advanced technologies, companies are striving to offer services that are not only efficient and transparent but also instantaneous, catering to consumers’ demand for seamless transactions. Businesses are adopting a variety of digital-first solutions, including online payment platforms and digital wallets in order to meet these expectations. 

Moreover, as the industry changes due to shifting consumer preferences, gaps emerge in consumer protection and this is where regulations are providing a framework for cross-border transactions to happen safely for the consumer. 

"Within the ever-evolving payments landscape, the constancy of regulatory change presents a real challenge for merchants. With the progression from PSD2 to PSD3, merchants must remain at the forefront of these shifts. Success lies in facilitating secure payments while minimizing friction for the cardholder, as friction can not only drive cart abandonment but significantly reduce the creation of loyal customers and, therefore, revenue streams - a fact highlighted by the introduction of 3DS2," says Chana.

The challenges that have emerged

The global nature of cross-border payments introduces a complex regulatory environment that organizations have to navigate. Compliance becomes a challenging task due to the diversity of regulations across different jurisdictions. Businesses need to strike a delicate balance between innovation and adhering to regulatory requirements, ensuring that their solutions are not only effective but also fully compliant with international standards.

"For PSPs, the goal is to streamline the process to be as smooth and cost-efficient as possible, all while adhering to regulatory mandates. Solutions that can analyze transactions in real-time like Intelligent Acceptance serve as a pivotal tool in this regard, increasing transaction success by selecting the best optimizations to improve conversion rates. Moreover, the topic of network tokens remains crucial within the industry. Network tokens replace sensitive card data such as the primary account number meaning that the merchant only handles the token. This reduces the chance that sensitive information is exposed to fraudsters, while allowing the merchant to benefit from increased authorization rates as declines due to fraud and out-of-date card information are reduced. The challenge lies in balancing transaction performance and cost to create a win-win."

As the volume and value of digital transactions continue to rise, the threats of fraud become more pronounced. Ensuring the security of cross-border payments requires continuous investment in state-of-the-art security measures and fraud detection technologies. 

"Grasping which transactions embody lower risk—such as those involving repeat customers, low-value transactions, or cards that have been previously authenticated—is fundamental. Utilizing Transaction Risk Analysis (TRA) exemptions can also lead to elevated acceptance rates for merchants. Moreover, the application of machine learning is transformative; the more data merchants compile and incorporate into the initial payment request, the more effectively fraud detection tools can conduct comprehensive risk assessments and refine the foundation for future risk decisions.

Optimizing cross-border transactions

To overcome these challenges and capitalize on the opportunities in cross-border payments, businesses can adopt the following strategies:

• Offer a variety of local payment options and continually test and optimize these options based on consumers’ most popular methods so you can enhance the customer experience, increase conversion rates, and reduce transaction costs. This can include A/B testing on payment page layouts, the payment methods offered, and the order of payment methods on the checkout screen.
• Embrace digital wallets so you can provide a secure and convenient payment option, catering to the preferences of your consumer base and enhancing payment security.
• Employing dynamic currency conversion and working with payment service providers that offer competitive FX rates can help businesses manage currency exposure and mitigate risks.
• Implement robust compliance frameworks and invest in advanced security technologies to protect against fraud and ensure the integrity of transactions.

Where we are headed

As we navigate through 2024 and beyond, the cross-border payments landscape will continue to be defined by these evolving trends. 

Businesses will need to remain informed and adaptable in the face of a rapidly changing cross-border payment landscape. Being successful in this environment will mean prioritizing customer satisfaction and navigating regulatory complexities. As we progress, the continuous evolution of payment technologies and business models presents challenges and opportunities for merchants aiming to excel in the global payments arena. For those that are invested in the future of cross-border transactions, leveraging the skills and technology of a payment partner will be key to shaping successful strategies in this industry.