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How Do Cross-Border Payments Work?

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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 editedMay 20232 min read

To reap the rewards of a global reach for your business, then you need to know how cross-border payments work. International ecommerce can be extremely lucrative as more and more shoppers use the internet to find the goods they want no matter where in the world they are.

The same goes for B2B companies who can connect with partners overseas to source products and materials. Such B2B cross-border payments are increasingly common as organisations take advantage of the growing number of B2B cross-border payment solutions that are available. But it’s vital for businesses to know exactly what cross-border payments are and how they work.

In this guide to cross-border payments, we explain what they are, how cross-border payments work, and the different types you can use for B2B and ecommerce.

What are cross-border payments?

Also referred to as international payments, a cross-border payment is a financial transaction where the paying entity and the recipient of the payment are not in the same country. The payment thus crosses a border during the transaction, hence the terminology used.

In ecommerce, a cross-border payment is made by a customer from one country purchasing something from a business based in another country. B2B cross-border payments occur between businesses based in different countries, such as a UK manufacturer who purchases base materials to build its product from a producer in China.

How cross border payments work

A normal transaction between two entities in the same country involves a system that transfers money from the buyer’s account to the seller’s account. However, it is more complicated with cross-border payments as there is a change of currency involved. The exact change in currency is determined by a fluctuating exchange rate which further complicates the transaction.

There are also cross-border transaction fees to factor in. This is because of the extra steps and banking systems involved with cross-border payments. When a cross-border payment is made, the payer’s bank first transfers the money to its counterpart bank in the seller’s country (most banks have such counterparts in other countries which are different banks, but who partner together to facilitate such cross-border payments). The last leg of the transaction can only happen directly if the seller has an account with the counterpart bank. But if their account is with a different bank, then the counterpart bank must first transfer the payment to the seller’s bank before it is finally deposited into the seller’s account.

There can be multiple banking entities involved in a single cross-border payment, with all of them having to navigate their way through the currency exchanges, transaction fees and local tax regulations. This is why cross-border payments are significantly slower than transactions within the same country.

Types of cross-border payments

The two most common types of ecommerce and B2B cross-border payments are:

bank transfer
credit card

Bank transfer

Bank transfers such as ACH cross-border payments and wire transfers involve debiting an account from one bank and crediting an account in another bank. How many banks are actually involved will depend on how connected each bank is, and there can often be three or four banks involved in the process. This correspondent banking network will facilitate the entire transaction from the original bank to the final recipient bank, including making sure they abide by local tax regulations as well as conduct the exchange rate conversions and calculate bank fees.

Credit card

Credit card payments are the preferred choice for consumers, and involve a similar process of credit card networks and acquiring banks applying transaction fees, converting currencies and abiding by tax regulations. All the extra steps involved are the reason why cross-border payments incur higher fees, although these can be mitigated by using online payment systems.

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