Facilitating Cross Border Payments

Cross border payments have long been a financial burden for small businesses to bear, involving steep fees and unfavourable currency exchange rates. Yet with today’s crop of cross border payment systems, it’s now easier than ever to facilitate payments from multiple regions. We’ll discuss your options below, including online payment gateways.

What are cross border payments?

First things first: what are cross border payments, anyway? As the name suggests, a cross border payment is an international transaction. It takes place when the payer and recipient bank accounts are in two different countries, which means the payment must travel across global borders.

There are two main types of cross border payments:

1. Wholesale cross border payments take place between financial institutions and involve large-scale sums of money. Examples include the wholesale import and export of goods, financial market trading, and lending between two different financial institutions.

2. Retail cross border payments take place between individuals and businesses. This is the type of payment you’re most likely to facilitate as a small business owner, whether it’s a transaction with an individual client, supplier, or vendor.

How do cross border payments work?

Cross border payment systems work a bit differently to domestic payment systems because they incorporate currency exchange. For example, if an Australian business makes a payment to a partner in Spain, the AUD wouldn’t be physically transferred to a Spanish bank account. Instead, it must be converted first into EUR with the corresponding value deposited, in Euros, into the Spanish bank account. This means a third party is required to facilitate cross border payments. Accounts are credited in one country and debited in another, using a payment processor or gateway as a third-party correspondent.

As with any type of payment, there are many different methods that can be used for cross border transactions. These include international bank transfers, credit card payments, digital wallets, and mobile apps.

Transactions are processed using the intra-bank SWIFT network, so you’ll need the following details to send and receive cross border payments:

• Full name and address of account holders

• Account numbers and sort codes

• SWIFT/BIC code to identify bank

Bank and wire transfers can take up to five business days for processing, which is why many businesses use online or mobile payment services instead.

What is the Global Payment Initiative (GPI)?

International bank transfers have been slow and costly up until recent years. As a result, the SWIFT network developed and launched its Global Payment Initiative (GPI) in 2015. This has helped enable same-day transfers with predictable fees and end-to-end tracking. Australian banks can connect with other financial institutions to provide a uniform cross border payment system.

Until recently, this system was only available to corporate banking customers. However, in 2020 SWIFT began a GPI trial extending the same benefits to small and medium businesses. Currently the National Australia Bank is signed up as a part of this trial, but you can expect to see more local banks sign up soon. Benefits for small businesses include use of the secure SWIFT international banking network, with faster payments and a single payment format for clarity.

How to choose a cross border payment gateway

There are numerous methods to choose from when it comes to sending and receiving fast cross border payments. However, if you want to facilitate these payments directly from your website, you’ll need to choose the appropriate cross border payment gateway. Here a few factors to consider when comparing your options:

• Does the gateway support multiple currencies?

• Which payment methods does the gateway support?

• Does the gateway accept alternative payment methods including cryptocurrency?

• What are the setup and per-transaction fees?

• Are there monthly subscription fees?

• What customer support is available?

• Does the gateway support recurring subscription services?

By comparing features, fees, and payment methods, you can whittle down the options to find a payment gateway that provides fast cross border payments. You can also ensure it’s most compatible with your international business needs.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.