Automation in Cross-Border Payments: The Pressing Priority
How Automation Improves the Cross-Border Payment Process?
Cross-border transactions are critical to global commerce, but they continue to face challenges. The involvement of Multiple jurisdictions and reliance on correspondent banking networks results in inconsistency, costs that are not always transparent, and the reality of settlement to the beneficiary that is unclear which all adds up to the pain for any businesses that desperately need meaningful automation.
The G20 Roadmap for Improving Cross-Border Payments elaborates on current and emerging payment systems and arrangements. However, there is still room for innovation and creativity beyond basic technological advancements. Financial institutions must consider how they can identify and deliver improvements on top of ongoing infrastructure change, both individually and as players in regional ecosystems.
While ISO 20022 will continue to play a leading role in the modernization of cross-border payments, trying to meet the unified communications requirements will only get us so far. To effectively harmonise and leverage the available opportunity, financial institutions must go beyond meeting new standards.
Key challenges experienced in traditional cross border payments systems
1. Data formats that are fragmented or truncated
Payments are made via messages sent across banking institutions to update the sender and recipient’s accounts. These payment messages should include enough information to authenticate the identity of the parties to the payment as well as the credibility of the payment. Data standards and formats differ between jurisdictions, systems, and message networks.
Some formats, for example, only allow Latin characters, while others allow more data than others, requiring names and addresses in other scripts to be translated, resulting in differences in precise spellings. This makes it difficult to implement a streamlined process, resulting in processing delays and an increase in running costs. Our Netremit cross-border payment suite embraces artificial intelligence to handle data fragments more effectively with machine learning techniques that continuously learn from the failures and repair them through harnessed templates to fix them so they can be rightly routed.
2. Processing Complex compliance checks
Since regulatory regimes for sanctions screening and financial crime are inconsistently implemented, the same transaction may need to be checked several times to ensure that the parties are not exposing themselves to illicit finance.
Banks may conduct their checks using various sources, which can result in payments being flagged incorrectly (for example where entities have similar names to those on sanctions or financial crime databases). The number of intermediaries in a chain adds to the complexity, as the original data provided to meet initial checks may not contain elements required for checks under other national regimes. This increases the cost of designing compliance checks, impedes automation, and causes payment delays or rejections. Netremit has inbuilt fraud and enhanced compliance checks that are more effective and matured over years with the frontline experience ported across the process.
3. Limited business hours
Bank account balances can be updated only during the hours when the underlying settlement systems are functional. The operating hours of the underlying settlement system in most countries are typically aligned with normal business hours in that country. Even when extended hours have been implemented, they are frequently limited to specific critical payments. This leads to delays in clearing and settling cross-border payments, especially in corridors with considerable time differences. This causes delays and requires banks to keep enough cash on hand to cover the unknown costs of the eventual foreign exchange rate, which fluctuates during this time, increasing the overall cost of the transaction. This is referred to as trapped liquidity.
4. Legacy technology platforms
A substantial chunk of the technology supporting cross-border payment systems is still being built and working on legacy platforms that were created when paper-based payment processes were first migrated to electronic systems.
Legacy platforms have shortcomings due to their dependency on batch processing, lack of real-time tracking, and limited data processing capacity resulting in settlement delays and trapped cash flow. These constraints affect domestic operations, but they become even more difficult to overcome when different legacy infrastructures need to interact with one another. In this case, interfacing with legacy technology can act as a barrier to the market entry of emerging business models and technologies.
5. Expensive funding
Banks are required to provide funding in advance, often in multiple currencies, or to have access to foreign currency markets to facilitate quick settlement. This creates risks for banks that must be covered by capital, which means that capital cannot be used to support other activities. Uncertainty about when incoming funds will arrive frequently results in overfunding of positions, which raises costs.
6. Lengthy transaction chains
These frictions make it expensive for banks to maintain relationships in all jurisdictions. Therefore, the correspondent banking model is used, but it results in longer transaction chains, which increases cost and delays while also creating additional funding requirements (including covering unpredictable fees deducted along the chain), repeated validation checks, and the potential for data corruption along the way.
Why the cross-border payments should be automated?
As digital invoicing and payments make it easier for B2B funds to cross borders, 64 per cent of B2B firms are moving away from physical invoices to avoid international payments friction. Financial Businesses now are seeking automated technological innovation to better categorise and store data, indicating that meaningful modernisation is now stepping up in the sender and beneficiary space.
Businesses are beginning to assess how their B2B payment processes can accommodate the changing needs of themselves and their clients, as they can no longer bear the time-consuming and costly frictions associated with more traditional B2B payment methods such as wire transfers.
Automation and artificial intelligence (AI) can significantly speed up domestic and cross-border B2B payment processes by eliminating the time and resources needed to finalise attached documents and categorise relevant payment data. Implementing some degree of automation into the cross-border payment practises can assist customers, and businesses with increasing transparency, allowing them to better monitor their transactions.
With consumer-centric peer-to-peer (P2P) payments and associated innovations influencing business payment expectations sending cross-border payments as quickly as domestic ones are critical to building a competitive business. Using an international third-party payment provider could assist businesses in effectively navigating this challenge.
During the pandemic, businesses are frustrated by delayed payments. Payment players are thus investigating ways to modernise the cross-border payment processes associated with cash management, an obstacle that becomes more difficult when dealing with world currencies and an increasingly stringent global regulatory environment era.
Automated Data Reconciliation for faster and easier cross-border payments
Banks and other payment service providers dealing with cross-border payments experience challenges in managing data as they do not have a streamlined process in place which is the primary issue. Customers must provide their identity documents, source of money and other relevant documents to send and receive money. Banks must validate the data and ensure the transactions are done properly. Due to multiple time zones, limited business hours and lack of technology, it is a heavy lift for organisations to share these data for smooth and faster payments. Hence customers experience delays in transactions, payment rejection or even failure in payments.
Institutions must collect, categorise, and validate the huge amount of data which should be shared between various endpoints to enable the transactions. Many organisations use siloed processes as each system is liable for only one step at a time and disconnected from others.
An improved and accurate reconciliation process is critical to enable frictionless real-time cross-border payments despite the transaction volumes. A more efficient process would also avoid putting a lot of pressure on the finance, operations, and treasury teams, which could lead to errors and disillusioned employees.
With our expertise in payment technology including open banking, cross-border payments, and payment clearing solutions, Macro Global is consistently delivering the best customer experience.
NetRemit enables banks to integrate with a vast network such as financial institutions and alternate payment services. Every single payment transaction, as with any financial organisation involving multiple parties, must be reconciled promptly to ensure smooth operations, and compliance, identify fraud risks and maintain the best standard of service for our customers.
Most SMEs perform reconciliation manually through their back-office team. When only a few people are involved, this method remains effective. But how do you handle reconciliation if you have a large number of partners, each with their payment method, transaction format, and data point, as well as millions of transactions?
NetRemit can handle enormous complexity and rising volumes while providing real-time payments. Our V21 version of NetRemit automates the reconciliation process for large transactions with varying payment methods, formats, and data points, faster than ever before. Furthermore, transaction discrepancies can now be detected much earlier and flagged in real-time before being resolved using a simple built-in workflow process.
MG’s NetRemit will take care of all the heavy lifts, and you stay ahead of your peers in the evolving payments space, ensuring that your customers have the best real-time payment experience possible.
Handling Reconciliation for a Frictionless Cross Border Payments
As cross-border payments become more common, businesses must sort, manage, interpret, process, and check ever-increasing volumes of complex data. The involvement of multiple intermediaries, jurisdictions, regulations, and time zones in completing a transaction slows down the transaction process and makes the remittance business a bit complicated.
When the currencies involved are less common, enabling, recording, and resolving payments can become more expensive. The addition of ‘correspondent’ or intermediary banks increases the number of links in the transaction chain, while the transaction process can be slowed due to differences in regulations and security requirements per country or region.
G20 Roadmap for enhancing cross-border payments
G20 Intergovernmental forum is thriving to reduce friction in cross-border payments as it is one of the vital requirements in the international remittance industry. The G20 recognises the benefits of a more seamless, connected, and coherent global financial environment that will address the challenges and pain points around cross-border payments.
It recommends that businesses must adapt quickly to ensure the smooth and secure flow of data and payments around the world. The G20 emphasises limitations with legacy platforms as a key area, as these can cause data processing slowdowns, resulting in negative consequences such as delayed settlements and liquidity issues.
In short, businesses are expected to deal with larger and more complex datasets faster, without sacrificing accuracy or increasing corporate risk. Failure to deal with the increasing complexity and scale of cross-border payments can have ramifications for costs, productivity, and even brand reputation.
As a result, businesses must think about new ways of working in the coming years that minimize risk, expedite operations, and maximise efficiency.
Reconciliation is the smart way to step ahead
Every payment transaction must be reconciled as soon as possible, just like in any financial organisation with multiple parties, to ensure smooth operations, and compliance, spot fraud risks, and uphold the standard of service for our clients and partners.
Reconciliation is typically a manual process carried out by the back-office staff of SMEs. When there are few parties involved, this strategy is still effective. However, how do you manage reconciliation when you have millions of transactions, hundreds of partners, and various payment methods, transaction formats, and data points?
Increasing resilience and speeding up cross-border payments processes
Cross-border payments are the driving force behind international commerce. However, as with all domestic payments, they must be subject to stringent checks and balances. Businesses have two options in the face of this growing scale and complexity: continue to work in a labour-intensive, manual manner, or rely on outdated systems that may fail when handling more extensive and delicate data. Alternatively, they can invest in automation systems that will assist them in adapting, reducing costs, and remaining agile to stay competitive in the new environment.
Automatic reconciliation of payments data
A significant area for improvement in cross-border payments is automatic reconciliation. Businesses can avoid the delays caused by mismatched data, fraud worries, and accounting hold-ups by automating the cross-border payment verification process. Human error is eliminated by automation, freeing up your staff to focus on tasks that add value.
Automated reconciliation of payments data ensures the streamlining of cross-border payments at a fast pace by reducing the complexity and ensuring smooth internal operations. Automatic reconciliation ensures the intermediaries are coordinated quickly irrespective of the number of transactions processed at the same time.
Automation makes it simple to spot data anomalies, problems, or irregularities. Reports are then generated for the appropriate person to act on, enabling more rapid decision-making and problem-solving. It gives businesses more control over their data, resulting in safer management and an improved real-time picture of customer or company finances.
A Multi-acquirer reconciliation approach for payments orchestration
To accept cross-border payments efficiently, a multi-acquirer setup should be in place to connect multiple payment service providers (PSPs). This allows them to provide the appropriate payment methods for the jurisdiction in which they operate, as well as benefit from lower processing fees because of geographical location and other determining factors. While this has advantages, it is not without logistical challenges.
With a lack of accurate reconciliation and settlement data across all their PSPs, it is unable to effectively monitor the remittance lifecycle. This is a frequent complaint that can occur when connections are made separately and do not interact. No matter how many PSPs or even different currencies, such as fiat or cryptocurrency, are involved, merchants can monitor the entire activity from a single dashboard by connecting to payment gateways using just one API.
The data is gathered and presented uniformly by a payment infrastructure that permits a consolidated multi-acquirer setup, such as a payment orchestration platform. This is made possible by the fact that the payment orchestration platform serves as a technical intermediary between the merchant and the PSPs/acquirers.
Transactions are sorted through the payment orchestration platform and then, based on rules set up by platform users, are routed to the most appropriate processor. Additionally, it implies that the platform stores the payment data, making it possible for the payment orchestration platform to gather the necessary data from the payment processors. An effective cross-border payments application with a BI dashboard can import all the data stored on the platform, making it simple to analyse and share data.
Final thoughts
Although reconciliation may appear simple at first glance, there are many hidden difficulties, particularly in cross-border payments where FX and a lack of API integration can cause complications. These complexities must be methodically addressed by the team in charge of the operational process. Businesses must view reconciliation as a core process in their daily work and not just as an activity that takes place at the end of each month to provide a smooth and efficient service.
Selecting the right third-party solution for cross-border payments also guarantees that the technology is managed by experts, is scalable, and is always current. NetRemit is one such efficient cross-border payment solution that offers an easy-to-use admin centre that enables remittance providers to provide a simple onboarding process, handle customer and transaction data, and manage all remittance operations on a single platform.
Through technological innovations like digital identity validation and Open Banking integration, the modern infrastructure of NetRemit’s data orchestration process enables money to transfer between nations without any interruptions.
Business leaders can make informed decisions by analysing important factors like transaction volume, FX commission, and operational revenue with the help of integration with reporting tools (SSIS for data transformation, and Microsoft Power BI for visualisation).
Businesses can use data mining and extended marketing data analytics to forecast consumer behaviour, enhance all types of decision-making, and calculate the return on investment from their marketing efforts.
We support major banks in the UK to take control of their data, ensuring compliance and control with a high-quality product customised for each client’s requirements. Our collaborative approach guarantees that we are always available to streamline your procedures and offer advice on industry best practices.
If you’re interested in learning more about how we can boost the efficiency of your company’s cross-border payment, pls reach us at salesdesk@macroglobal.co.uk.
Cross Border Payments – Regulations, Complexities, Risks and Solutions
How to overcome the challenges of Cross-Border Payments
Cross Border Payments Regulations
The G20 has made improving cross-border payments a priority for 2020. This work included identifying the cross-border payment challenges caused by a series of divergences in current processes and developing a set of key components to confront them.
In the work programme for 2021 – 22 released by Committee on Payments and Market Infrastructures (CPMI), one of its key priorities stated in it was to shape the future of payments. This includes cross-border payments, which the Bank of England anticipates will be good enough to justify over $250 trillion by 2027.
The more regions you choose to run a business in, the more regulations you must consider protecting yourself and your customers from fraud while also avoiding fines and lawsuits. Below are the major regulatory categories in cross border payments.
1. Policies governing payment networks:
This includes any rules, regulations, guidelines, or specifications established by payment networks, such as Electronic Fund Transfer Networks and Credit Card Associations. Payment networks can penalise and fine merchants who do not adhere to established policies.You must follow network policies such as appropriate display of payment brands, transaction-related receipt data requirements, and transparent disclosure of return and refund policies.
2. Data privacy:
Different regions have different regulations concerning the handling of personal data, which is generally characterised and often includes information such as an individual’s name, email, location, online identifier, IP address, home address, and so on, whether in a work or domestic setting. These regulations cover the rights granted to individual data subjects to the personal data stored, such as the right to prior notification of what the data will be used for, how the data will be handled, and when it will be deleted. Certain data privacy regulations must be followed depending on the region in which you operate.Business conducted in Europe is subject to the General Data Protection Regulation (GDPR), a regulation in place throughout the European Economic Area (EEA) that improves the degree of control that EEA and UK citizens/residents have over their data while also presenting a more unified environment for international business across Europe.
3. Consumer security:
Because new payment technology necessitates new payment security, various regions have enacted regulations to safeguard consumers against fraud and theft. The Revised Directive on Payment Services (PSD2), enacted by the European Parliament to better protect consumers when they pay online, is one of the more significant security measures. PSD2 is one of the most important EU regulations for merchants to be aware of it because it mandates Strong Customer Authentication (SCA) through three levels of identification for every transaction, ranging from card number verifications to texts with authorization codes.PSD2 and SCA apply to all online payments that pass through the European Economic Area (EEA) or the United Kingdom (UK). If you’re a European merchant who isn’t PSD2 compliant, any payments processed through the EEA may be declined — so you’ll need a payment processor that supports PSD2 compliance with features like 3-D Secure. Our NetRemit fully complies with PSD2 Open Banking regulations offering Strong and multi-layer security and offered through mobile with Strong Customer Authentication following PSD2 and GDPR regulatory requirements. Moreover, Macro Global offers Tavas – Open Banking Product Suite and Solutions for banks and financial institutions.
4. Payment Card Industry Data Security Standards:
A Data Security Standard (DSS) is a set of standards established by major card companies to ensure that all businesses that process, store, and/or transfer credit and debit card details maintain a secured infrastructure.These standards assist in defending against cyber-attacks, data hacks, as well as other security breaches, which can result in significant costs for lost business, credit monitoring, post-breach audits, and security updates.
5. Tax collection:
Tax obligations for businesses are determined by several factors, including sales revenue, transaction volume, and location of sales. Aside from the specific local tax laws, the payment model you use has an impact.
6. IT security:
The threat of cyber-attacks and data breaches puts businesses at risk of costly damage from data theft, ransomware attacks, and reputational damage. Cybersecurity regulations have been drafted to cover elements such as data centre redundancy, data storage, data recovery, and other security investments to ensure that businesses are protected from hackers.
Payment regulations differ depending on the location and payment method of a transaction. And, for cross-border payments, your payment provider must be familiar with each region of the world. 3-D Secure 2, for example, is a global specification designed to meet the PSD2 mandate for SCA. It is a sophisticated authentication solution that reduces fraud by determining a cardholder’s identity in real-time, thereby preventing unauthorised card use and protecting the seller from fraud.
When your payment provider offers built-in, out-of-the-box support for integrating 3-D Secure, it’s easy to ensure that you’re compliant with PSD2 regulations if you’re a business in the EU or UK. Macro Global’s Open Banking API supports 3-D Secure, PCI Compliance, and other regional regulations. Working with a payments partner who understands tax and regulations is the simplest way to ensure that you are properly managing all tax and regulatory issues when looking to optimise cross-border transactions.
Inequities, barriers, and issues in cross-border payments – complexity and risk
Historically, cross-border payments were hampered by high levels of complexity and risk. For example, frequent fluxutation in exchange rates, as well as instances when payment providers’ money does not reach its destination due to human error. Businesses, too, have seen international transactions decline and have had to wait weeks or months for payment for goods. There’s also a high risk of fraud and data loss in international transactions.
In terms of cost, speed, access, and transparency, cross-border payments lag behind domestic payments. Making a payment from one country to another is typically more difficult than making a similar payment within the same country. A cross-border payment can take several days and cost up to ten times more than a domestic payment in some cases.
The reality is that significant improvements are needed, particularly for SMEs, which are still hampered by slow procedures and high fees. With big improvements to be made, it stays their top priority.
When compared to large multinational corporations, the magnitude of the challenges around cross border payments becomes clear. There are dedicated in-house treasury teams in charge of all financial transactions and managing end-to-end cross-border payment requirements. SMEs, on the other hand, have historically not had access to this level of support, leaving them to struggle with opening and managing multiple bank accounts, as well as dealing with inflated costs.
Since then, many banks and other financial institutions have taken steps to close the gap, but many cross-border payment systems continue to face the same challenges:
- 1. High exchange rates
- 2. Slow transactions due to multiple intermediaries
- 3. Security issues
- 4. A lack of transparency
High exchanges rates
Cross-border payments are extremely expensive due to the numerous intermediaries involved in transferring money from one country to another, each of whom charges a fee for their services. Regulatory fees will also be charged, as well FX fees when converting one currency to another.
What implications this has for businesses, banks, as well as other financial institutions?
Because of the increase in overseas workers and international businesses, the cross-border payment space has become increasingly crowded. When retail and consumer customers choose a service provider, price will always be an important factor. Customers will shop around if the financial institutions they use do not provide a competitive rate and a reasonable charge.
Slow transactions due to multiple intermediaries
Cross-border payments via traditional bank transfer typically take two to five days to process which is a long time when compared to instant online domestic payments. This is due to the large number of entities involved in a single transaction. For example, if a Spanish wanted to send money to India, it might have to go through intermediaries in Germany or Dubai, then India. Cross-border payments are frequently delayed because of the lengthy series of steps required.
What implications this has for businesses, banks, and other financial institutions?
In a world where everyone wants the quickest and most convenient services, a slow and prone to delays cross-border payment system will not suffice. Businesses and consumers must conduct international transactions, and they must choose between old, slow, and expensive bank transfers and new payment service providers that provide an instant, less expensive alternative. While international transactions are undeniably more complex, organisations must strive to reduce processing time to meet their customers’ expectations.
Security Challenges
Consumers, like banks, want to know that their money is secure when making international transactions. There is no guarantee that a bank will be able to recover stolen funds if a hacker snuck money from a cross-border payment pathway. Such losses can be extremely expensive. Unfortunately, high-level security breaches in cross-border payment systems are common. Because each country follows its own regulations, the cross-border payment system is vulnerable to hacking whenever money enters a country with lenient security and access policies.
What implications this has for businesses, banks, and other financial institutions?
Cybersecurity is a major concern for any person or business making international payments. They’ll be much less inclined to do so using systems that aren’t consistently regulated and lack the best security and risk management procedures. This, however, is a major concern for financial institutions as the reputational risk can be enormous. Banks that are trying to cut costs and retain customers do not need to refund lost money, pay fines, or receive negative press.
Lack of Transparency
The lack of transparency in cross-border payment systems is a common complaint from both businesses and consumers. In fact, according to a 2017 SWIFT and EuroFinance survey, 64% of corporations would like to have real-time payment tracking solution, while 47% want better visibility into to the costs and deductions involved. This transparency is essential for organisations and consumers who want to avoid incurring hidden costs.
What implications this has for businesses, banks, and other financial institutions?
Increased transparency benefits all types of organisations. With these insights, they are not only provide better services to their customers, but also understand and improve errors that impact their profitability. Learning why certain payments are turned down or necessitate investigation, for example, will benefit from improving their processes, save time, and cut costs and resources.
What can the industry do to reduce complexity and risk?
Reducing the complexity and risk of cross-border payments is critical for increasing global trade and facilitating economic recovery. The payments industry should prioritise reducing the complexity of sending and receiving payments across borders and providing people with assurance that their transactions will be processed quickly and reliably in all markets. Transparency on upfront costs and greater predictability for fund delivery are the vital elements for success.
Our NetRemit – Cross Border Payment suite enables the financial institutions to deliver funds in real-time to bank accounts, cards, and cash. We’ve also made better use of technology to combat crimes such as money laundering, giving customers greater confidence when making international payments, as we know that the risk of fraud is the major concern when making cross-border payments.
Through NetRemit, you can establish a single connection to the entire world by collaborating with banks, non-banking financial institutions, and other digital platforms. NetRemit eliminates the barriers to cross-border payments so that people can focus on what matters most: supporting their loved ones and growing their businesses.
Understanding Cross-Border Payments: A Definitive Guide
What are cross-border payments?
Cross-border payments are cash payments in which the payer and recipient are in different countries. They include both wholesale and retail payments, as well as remittances.
During the pandemic, cross-border payment services saved many lives and enabled others, including small business owners, to pursue new opportunities. With immigration restrictions, more people send money overseas electronically, and many businesses have gone online, sourced international suppliers, and decided to embrace new ways of reaching customers all over the world.
Whether it’s a small business owner receiving payment from a customer on another continent or a migrant worker sending money home to family, increased people are making and receiving cross-border payments. People have understandably come to expect them to be as quick, simple, and dependable as domestic transactions.
There are several methods for making cross-border payments. Bank transfers, credit card payments, and alternative payment methods such as e-money wallets and mobile payments are the most common methods of transferring funds across borders at the moment.
Cross-border payments are categorized into two types:
1. Wholesale cross-border payments: These are typically made between financial institutions to support the customers’ or the financial institution’s cross-border activities (such as borrowing and lending, foreign exchange, and the trading of equity and debt, derivatives, commodities and securities). Governments and larger non-financial corporations also use wholesale cross-border payments for large deals created by the import and export of goods and services or financial market trading.
2. Retail cross-border payments: These are generally made among individuals and businesses. Person-to-person, person-to-business, and business-to-business are the three main types. They include remittances, most notably money sent back to migrants’ home countries.
What is the significance of cross-border payments?
40% of the people are sending and receiving more cross-border payments than before the pandemic. And most businesses planned to do more international trade in the future by capitalising on new opportunities and mitigating risk by not relying on a single supply chain or market.
Increased international mobility of goods and services, capital, and people have contributed to the rising economic significance of cross-border payments over the last few decades. Bank of England stated that the value of cross-border payments is expected to rise by more than $250 trillion by 2027.
Recent years have seen an increase in the following factors:
Manufacturers expanding their cross-border supply chains
International asset management and global investment flows
International trade and e-commerce
Migrants transferring funds via international remittances
These developments have expanded the market for cross-border payments, combined with the ability for end-users to have direct exposure to cross-border payment services that are as secure and efficient as comparable domestic services.
Remittances, in specific, are crucial in low and middle-income economies, and in certain cases are the prime source of development finance. Competitive interest in this market is also being driven by growth and revenue expansion. As a result, creative and unique new business models and participants are arising.
How do cross-border payments work?
Currency exchanges are closed-loop systems. Domestic payment systems are not conventionally tied directly with those of other countries, so the currency is not physically transferred overseas while transferring between two jurisdictions.
International banks, on the other hand, provide account regulations for foreign counterparts and maintain their accounts with their foreign counterparts, allowing banks to make payments in foreign currency. The funds are not transferred across borders; rather, accounts are credited in one jurisdiction and debited in the other. This interbank network is also used by Fintechs and money transfer agents to provide payment services to businesses and individuals.
International Wire Transfers:
An international wire transfer is a bank service that allows you to transfer money electronically from one bank account to another in another country. The average transfer time is 1-2 business days, with a cross-border fee. Because of the associated fee and the fact that routing rules vary by country, this international payment method is not suitable for large payment volumes or B2B transactions.
Credit Card Payments:
Consumers can use credit cards easily; all they need to do is enter their card information. Cross-border payments, on the other hand, necessitate the acquiring bank converting between the two currencies for the merchant with a merchant account. As a result, this method incurs cross-border fees at various points along the payment chain.
Bank Transfers:
International bank transfers allow money to be transferred from one bank account to another. Most international bank transfers are processed via the SWIFT network. The SWIFT network is a secure messaging system that ensures your payment reaches its intended recipient. One disadvantage of this method is that most banks only keep a limited number of currencies in stock. If the currency you need is not in stock, the bank will depend on their international banking partners to facilitate the transaction where more fees added in the conversion chain.
eWallet:
E-Wallet is also known as a digital wallet which is a software-based electronic payment method that enables customers to pay for online or in-store transactions. These are accessible via mobile or web apps on smart devices, where customers can securely store their payment cards. PayPal, Alipay, Apple Pay, and Google Pay are all popular eWallets.
Some eWallets enable customers to transact in multiple currencies and place orders across borders. Although wallet-to-wallet transactions do not technically qualify as cross-border payments, they do help to facilitate the transaction. A cross-border payment occurs when funds are withdrawn from an eWallet and transferred to the merchant’s bank account with origination and payment on contra currencies.
A period of transition, with international trade accelerating and customer, demands shifting.
Businesses are keen to capitalise on the potential benefits of cross-border payments. As a fintech industry player, we can build a simpler, less risky system that not only supports them but also boosts global trade and commerce – something critical as the world’s economies prepare for the post-pandemic era.
We’ve already seen a slew of payment-related innovations that are reducing complexity. Breakthroughs in networking technologies have sped up and streamlined processes and distributed ledger technology allows transactions to be recorded in multiple locations at the same time.
The world’s most vibrant financial markets are desperate to make progress in this area. The G20 nations have made improving cross-border payments as a priority, and the next steps on the roadmap will be laid out in 2022. Cooperation between national authorities and private sector providers will be vital to success, but the benefits of reducing complexity and increasing transparency are already visible.
Picking the right payment processing technology provider is the first step for success:
It is critical to find a global payments processor that accepts a wide range of localised payment methods. It is also critical to select one that accepts payments in multiple currencies. You can streamline the entire cross-border payment process, improve tax compliance, and payees will appreciate the simple registration process with a SaaS-based payment solution.
There are several crucial factors to consider before jumping on the mass global payments processing bandwagon.
How to find the right partner for processing International Payments?
It’s critical to understand your business’ needs: will you work globally and require cross-border payments, or will local currency suffice for in-country operations? Always remember that your service charges should be simple and affordable for customers regardless of where they are.
Once you’ve formed a partnership with a technical solution provider or payment processing companies, you must agree on how payments will be made. Several factors influence payment method choice, including:
Your cash flow requirements(how soon can you make the payment?).
The economic conditions in your country as well as the country from which you are sourcing.
The nature of the product being sourced.
Complicated banking systems.
Adjustable currency conversion rates.
Your creditworthiness; and
Your requirement for the product.
Choosing a payment technology partner can be a challenging task. The only way to avoid getting lost in the sea of options is to first understand your company’s needs and how a chosen payment technology provider can meet them!
A sneak peek about our NetRemit – Cross border payment suite:
NetRemit is a secure online remittance product available as a web and mobile application with a user-friendly interface facilitating a seamless cross-border remittance process.
NetRemit is a highly scalable solution that can handle transactions of any volume and is flexible enough to be customised for any currency corridor across the globe.
NetRemit comes with an intuitive admin centre allowing remittance providers to offer an easy onboarding process, handle customers & transactions data, and manage the entire remittance operations in a unified platform.
NetRemit has been white labelled to 4+ banks, serving 250K customers and handling 50 million GBP worth of transactions annually.
The contemporary infrastructure of NetRemit helps money to flow seamlessly between countries through technology innovations like digital identity validation and Open Banking integration.
NetRemit improves continuously through market adoption from a business and technology standpoint with our strategical goal of conquering the cross-border payments ecosystem globally by 2025.
To discover more about NetRemit, please click here.
What are cross-border payments?
Cross-border payments are cash payments in which the payer and recipient are in different countries. They include both wholesale and retail payments, as well as remittances.
During the pandemic, cross-border payment services saved many lives and enabled others, including small business owners, to pursue new opportunities. With immigration restrictions, more people send money overseas electronically, and many businesses have gone online, sourced international suppliers, and decided to embrace new ways of reaching customers all over the world.
Whether it’s a small business owner receiving payment from a customer on another continent or a migrant worker sending money home to family, increased people are making and receiving cross-border payments. People have understandably come to expect them to be as quick, simple, and dependable as domestic transactions.
There are several methods for making cross-border payments. Bank transfers, credit card payments, and alternative payment methods such as e-money wallets and mobile payments are the most common methods of transferring funds across borders at the moment.
Cross-border payments are categorized into two types:
- Wholesale cross-border payments: These are typically made between financial institutions to support the customers’ or the financial institution’s cross-border activities (such as borrowing and lending, foreign exchange, and the trading of equity and debt, derivatives, commodities and securities). Governments and larger non-financial corporations also use wholesale cross-border payments for large deals created by the import and export of goods and services or financial market trading.
- Retail cross-border payments: These are generally made among individuals and businesses. Person-to-person, person-to-business, and business-to-business are the three main types. They include remittances, most notably money sent back to migrants’ home countries.
What is the significance of cross-border payments?
40% of the people are sending and receiving more cross-border payments than before the pandemic. And most businesses planned to do more international trade in the future by capitalising on new opportunities and mitigating risk by not relying on a single supply chain or market.
Increased international mobility of goods and services, capital, and people have contributed to the rising economic significance of cross-border payments over the last few decades. Bank of England stated that the value of cross-border payments is expected to rise by more than $250 trillion by 2027.
Recent years have seen an increase in the following factors:
- Manufacturers expanding their cross-border supply chains
- International asset management and global investment flows
- International trade and e-commerce
- Migrants transferring funds via international remittances
These developments have expanded the market for cross-border payments, combined with the ability for end-users to have direct exposure to cross-border payment services that are as secure and efficient as comparable domestic services.
Remittances, in specific, are crucial in low and middle-income economies, and in certain cases are the prime source of development finance. Competitive interest in this market is also being driven by growth and revenue expansion. As a result, creative and unique new business models and participants are arising.
How do cross-border payments work?
Currency exchanges are closed-loop systems. Domestic payment systems are not conventionally tied directly with those of other countries, so the currency is not physically transferred overseas while transferring between two jurisdictions.
International banks, on the other hand, provide account regulations for foreign counterparts and maintain their accounts with their foreign counterparts, allowing banks to make payments in foreign currency. The funds are not transferred across borders; rather, accounts are credited in one jurisdiction and debited in the other. This interbank network is also used by Fintechs and money transfer agents to provide payment services to businesses and individuals.
International Wire Transfers:
An international wire transfer is a bank service that allows you to transfer money electronically from one bank account to another in another country. The average transfer time is 1-2 business days, with a cross-border fee. Because of the associated fee and the fact that routing rules vary by country, this international payment method is not suitable for large payment volumes or B2B transactions.
Credit Card Payments:
Consumers can use credit cards easily; all they need to do is enter their card information. Cross-border payments, on the other hand, necessitate the acquiring bank converting between the two currencies for the merchant with a merchant account. As a result, this method incurs cross-border fees at various points along the payment chain.
Bank Transfers:
International bank transfers allow money to be transferred from one bank account to another. Most international bank transfers are processed via the SWIFT network. The SWIFT network is a secure messaging system that ensures your payment reaches its intended recipient. One disadvantage of this method is that most banks only keep a limited number of currencies in stock. If the currency you need is not in stock, the bank will depend on their international banking partners to facilitate the transaction where more fees added in the conversion chain.
eWallet:
E-Wallet is also known as a digital wallet which is a software-based electronic payment method that enables customers to pay for online or in-store transactions. These are accessible via mobile or web apps on smart devices, where customers can securely store their payment cards. PayPal, Alipay, Apple Pay, and Google Pay are all popular eWallets.
Some eWallets enable customers to transact in multiple currencies and place orders across borders. Although wallet-to-wallet transactions do not technically qualify as cross-border payments, they do help to facilitate the transaction. A cross-border payment occurs when funds are withdrawn from an eWallet and transferred to the merchant’s bank account with origination and payment on contra currencies.
A period of transition, with international trade accelerating and customer, demands shifting.
Businesses are keen to capitalise on the potential benefits of cross-border payments. As a fintech industry player, we can build a simpler, less risky system that not only supports them but also boosts global trade and commerce – something critical as the world’s economies prepare for the post-pandemic era.
We’ve already seen a slew of payment-related innovations that are reducing complexity. Breakthroughs in networking technologies have sped up and streamlined processes and distributed ledger technology allows transactions to be recorded in multiple locations at the same time.
The world’s most vibrant financial markets are desperate to make progress in this area. The G20 nations have made improving cross-border payments as a priority, and the next steps on the roadmap will be laid out in 2022. Cooperation between national authorities and private sector providers will be vital to success, but the benefits of reducing complexity and increasing transparency are already visible.
Picking the right payment processing technology provider is the first step for success:
It is critical to find a global payments processor that accepts a wide range of localised payment methods. It is also critical to select one that accepts payments in multiple currencies. You can streamline the entire cross-border payment process, improve tax compliance, and payees will appreciate the simple registration process with a SaaS-based payment solution.
There are several crucial factors to consider before jumping on the mass global payments processing bandwagon.
How to find the right partner for processing International Payments?
It’s critical to understand your business’ needs: will you work globally and require cross-border payments, or will local currency suffice for in-country operations? Always remember that your service charges should be simple and affordable for customers regardless of where they are.
Once you’ve formed a partnership with a technical solution provider or payment processing companies, you must agree on how payments will be made. Several factors influence payment method choice, including:
- Your cash flow requirements(how soon can you make the payment?).
- The economic conditions in your country as well as the country from which you are sourcing.
- The nature of the product being sourced.
- Complicated banking systems.
- Adjustable currency conversion rates.
- Your creditworthiness; and
- Your requirement for the product.
Choosing a payment technology partner can be a challenging task. The only way to avoid getting lost in the sea of options is to first understand your company’s needs and how a chosen payment technology provider can meet them!
A sneak peek about our NetRemit – Cross border payment suite:
NetRemit is a secure online remittance product available as a web and mobile application with a user-friendly interface facilitating a seamless cross-border remittance process.
NetRemit is a highly scalable solution that can handle transactions of any volume and is flexible enough to be customised for any currency corridor across the globe.
NetRemit comes with an intuitive admin centre allowing remittance providers to offer an easy onboarding process, handle customers & transactions data, and manage the entire remittance operations in a unified platform.
NetRemit has been white labelled to 4+ banks, serving 250K customers and handling 50 million GBP worth of transactions annually.
The contemporary infrastructure of NetRemit helps money to flow seamlessly between countries through technology innovations like digital identity validation and Open Banking integration.
NetRemit improves continuously through market adoption from a business and technology standpoint with our strategical goal of conquering the cross-border payments ecosystem globally by 2025.
To discover more about NetRemit, please click here.
