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What Are Cross Border Payments?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJun 20233 min read

For many, cross border payments are a necessity of doing business in the modern world, particularly for those who run online companies with global aspirations. Indeed, international trade has never been more vital, with the pandemic now behind us and small businesses seeking fast growth at a global level.

International payments are, by design, more complicated than domestic payments. This is due to different financial regulations across different countries and jurisdictions, as well as currency exchange and other challenges.

Here, we’ll take you through cross border payments and what they entail.

What are cross border payments?

As the name implies, cross border payments refer to any funds that move between one country’s border to another. This can be anything from a bank or wire transfer to credit and debit card payments and even digital payments and blockchain-based cryptocurrencies such as Bitcoin.

The significance of cross border payments

Cross border payments allow businesses to expand their interests to a global scale by receiving funds from customers and clients in different countries. For individuals, meanwhile, they let people based overseas send funds home as investments or remittances (or gifts). In a nutshell, they facilitate international trade and, without them, the world would be a much smaller place.

Understanding the challenges of cross border payments

There are several challenges facing cross border payments that don’t apply to domestic transactions. For example, different countries, and even different regions of those countries, might use different currencies, payment systems and regulatory infrastructures – not to mention time zones!

What makes things complicated, however, is ensuring compliance at both ends of the transaction while also transferring funds securely – that is, away from fraudsters and hackers. A cross border payment must also accurately convert currencies at a competitive rate. So, there are a lot of moving parts to consider and maneuver around.

Infrastructure and technology

In an effort to streamline cross border payments, steps have been taken by everyone from service providers to regulatory bodies to develop an infrastructure and technology that can handle them. Banking relationships might have formed the backbone of international payments in the 20^th century, but today, online payment gateways, digital wallets and other practical digital solutions have become the standard. These technologies not only enhance the speed, transparency, and traceability of cross border payments, but reduce costs and improve the general user experience when it comes to sending and accepting global payments.

Regulatory landscape

To ensure the integrity, transparency and security of international transactions, governments and international financial institutions are working together to establish standards that prevent nefarious activities. The Financial Stability Board (FSB) has also launched various initiatives to address issues like slow payment processing. These initiatives not only foster innovation in the sector but promote coordination among different global payment systems.

Evolving trends in cross border payments

Digital transformation

In many ways, the influx of digital payment solutions like mobile wallets and online direct debit platforms has revolutionized the world of cross border payments by offering convenience, speed, and reliability. They are also significantly more accessible than many more traditional financial solutions.

Blockchain

The blockchain offers secure, transparent, and near-instantaneous transactions, eliminating the need for third-party intermediaries and drastically reducing costs.

Open banking

Using APIs and open-source technology, open banking allows different banks and other financial companies to share data securely. This leads to faster transactions and greater native compatibility between senders and receivers.

The lifeblood of the global economy

Cross border payments represent the lifeblood of the global economy and although cross border payment challenges persist, advancements in technology, infrastructure, and more consistent regulatory frameworks are driving the transformation of cross border payment systems.

Moving forward, businesses must remain informed about the evolving landscape of global payment systems. Because by leveraging the advancements in technology (including emerging technologies like AI and blockchain) and understanding international regulatory requirements, they can optimize their cross border payment processes, reduce costs, and mitigate risks, all while contributing to the cultivation of a more inclusive global economy.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. It also allows businesses to receive international payments from 30+ countries at the real exchange rate by offering the local bank debit option in each of the supported countries. This allows customers to pay in their currency and for the merchant to receive it in their own currency, without the need for foreign bank accounts.

GC also offers competitive pricing for international payment processing, taken in your customers’ currencies and uses Wise to provide the real exchange rate so that customers get the best rate on currency conversion.

Find out how GoCardless can help you with one-off or recurring payments.