In today's global economy, it’s become essential for many businesses to expand beyond borders. However, digital merchants face unique challenges when it comes to cross-border payments, from ensuring payments acceptance to navigating regulatory requirements.
This article will set the record straight. To help you overcome the associated challenges of cross-border payments, we’ll explore some top tips for successfully expanding your online brand overseas – by optimizing payments acceptance with local payment methods and acquiring, and by reducing the costs of international payments.
Cross-border payments are financial transactions where the payer (normally the customer) and the recipient (normally the merchant) are located in different countries. Typically made between individuals, companies, or governments located in different countries, cross-border payments can be for a variety of purposes, such as international trade, remittances, travel expenses, or investment transactions.
For merchants, the process of making cross-border payments can be complex. That’s because it involves multiple parties, including the sender's and recipient’s bank, and possibly one or more intermediary banks.
But cross-border payments remain on the rise. According to Juniper Research, cross-border ecommerce sales accounted for US$1.9 trillion in 2022. As international trade and globalization continue to grow, the demand for cross-border payments has increased.
To address this demand, new technologies and payment systems have emerged, including blockchain-based payments (i.e. cryptocurrency) and mobile money transfer services, which aim to make cross-border payments faster, cheaper, and more efficient.
Learn more: What is a money transmitter
Cross-border payments move money between different countries and currencies through a network of banks or financial institutions. The process typically involves six steps:
Despite the rise in popularity of cross-border payments, they still pose several challenges for businesses, including:
Cross-border payments can be complex and involve multiple parties, such as banks, intermediaries, and regulatory bodies, making the process more time-consuming and prone to errors than domestic payments. This can result in delays and additional costs for your business.
They can also be expensive, with fees and charges for currency conversion, transaction processing, higher card scheme costs, and intermediary bank fees. These costs can add up – particularly for small and medium-sized businesses – and affect your profit margins.
As you’d expect, cross-border payments involve currency exchange, which can expose businesses to currency risk. Fluctuations in exchange rates can affect the value of payments, resulting in losses or reduced profits.
Like all online payments, cross-border payments are subject to various regulations, such as anti-money laundering laws and economic sanctions. To that end, your business must comply with these regulations, which can be time-consuming and potentially costly if you fail to meet the requirements.
Cross-border payments involve the transfer of sensitive financial information, which can be vulnerable to cyber-attacks or fraud. That’s why your business must ensure that your payment systems and processes are secure to protect against these risks.
To overcome these challenges, we recommend that your business uses various strategies, such as working with reputable banks and payment providers, using technology-based payment solutions, and implementing robust compliance and security measures.
You should also consider using alternative payment systems, such as mobile money transfer services, like Alipay, which can be faster and easier for your business to accept payments.
The most popular examples of cross-border payments include:
As a merchant, you’re most likely to deal with international wire transfers, credit and debit card payments, and online payment platforms, as they’re commonly used for cross-border transactions.
If your business sells products or services globally, you’ll need to be able to accept payments from customers in different countries and currencies, which means you’ll need access to payment processing services that can optimize your global payments performance in each market.
However, as we mentioned, you’ll also need to be aware of the fees and charges associated with cross-border payments and the compliance and regulatory requirements that apply to international transactions.
Even though there are some potential challenges to cross-border payments, they can offer many benefits for your business:
By accepting payments from different countries, you can start selling products or services to customers in different markets, increasing your revenue streams. This can also give your business an edge over competitors that only accept payments from customers in their own country.
Meanwhile, cross-border payments enable you to capitalize on the rapidly growing global cross-border B2C ecommerce market, helping you boost sales and conversions.
Cross-border payment methods offer customers the ability to make payments easily using their preferred payment method and currency, allowing for a more personalized customer experience which can improve your brand image and encourage repeat sales.
Using reputable cross-border payment methods can also help build trust with customers, which is vital for building your brand and boosting your bottom line.
Because these payment systems process international money transfers using a single platform, cross-border payments can improve accounts payable efficiency and transparency.
These payments also enable you to connect to multiple acquirers, including local acquirers, resulting in higher bank approval rates, lower interchange costs, and greater risk diversification.
Most cross-border payment methods offer currency conversion services, which can keep you in the loop when it comes to currency risk, and minimize losses due to exchange rate fluctuations.
Cross-border payments increase your ability to customize authentication and fraud rules using configurable workflows and risk management options. This can make it easier to scale your business and accept more payments in different markets.
If you want to provide your international customers with a seamless and trustworthy buying experience, it’s essential to collaborate with a reputable payment service provider.
The ideal payment partner should have an in-depth understanding of the local payment and consumer trends, as well as the constantly changing regulatory framework of your desired markets.
To help you nail your cross-border strategy, we've compiled a list of our best tips:
Consider offering a range of payment methods, both local and global, to establish your business in your chosen market. In addition to traditional cash and credit and debit card payments, you can also use alternative payment methods to increase conversion and payment acceptance rates.
Examples of popular local and global payment methods include:
As the merchant, when you receive funds in a currency that differs from the currency in which the payment was processed, you may be charged foreign exchange (FX) fees. An experienced payment service provider can provide access to competitive and transparent FX rates, helping you save on expenses associated with global payment acceptance.
If you’re looking to expand your digital brand overseas, it’s essential to maximize payments acceptance and to provide a localized checkout experience with the preferred payment types of that specific region. We recommend using digital wallet payments like Google Pay or Apple Pay to improve acceptance rates due to their 2FA (two-factor authentication) use.
Another efficient method is local acquiring, which allows your business to process and route transactions with an acquiring bank in the same geography as the cardholder and their issuing bank. You can access local acquiring through a payment gateway that integrates with domestic financial institutions, payment types, and currencies that are favorable for the business and customers. For a business to benefit from a local acquirer they would need a legal entity set up in the same country as that acquirer i.e. if a UK merchant wants to use US acquiring of Chekout.com they will need to have a US entity.
Also, by using a local acquirer, the transaction will be considered 'domestic'. These transactions typically carry lower card scheme fees and have higher acceptance rates compared to cross-border transactions.
To start accepting cross-border payments – and grow your business into new markets – you’ll need to optimize your global payment strategy. Checkout.com can help you get started.
Our Unified Payments API gives you easy access to various local payment methods across various international markets, including digital wallets and global card schemes. With all this at your fingertips, you can more easily expand your customer base and improve your payment acceptance. Talk to our sales team today to find out more.