The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
Cross-border payments are financial transactions between a sender in one country to a recipient in another. They allow businesses to pay suppliers, receive payments from customers, and manage finances across different countries.
In an era where global commerce is the norm, understanding cross-border payments is no longer optional — it’s essential.
In fact, we surveyed UK consumers and found that 80% make online purchases from international retailers.1
Cross-border payments involve financial exchanges between individuals or businesses in different countries, driving international trade. They facilitate everything from businesses paying overseas suppliers to individuals making e-commerce transactions.
In this guide, we’ll explore various cross-border payment solutions, their benefits and challenges, and provide a clear path for sending money internationally.
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Cross-border payments are essential for businesses that need to send or receive foreign money. There are two main types of cross-border payments:
Wholesale cross-border payments: These involve large-value transactions typically between financial institutions or large corporations. They often use financial networks like the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to achieve timely international trade.
Retail cross-border payments: These are smaller-value transactions between individuals or small businesses. Examples include remittances, online purchases from international retailers, and payments to overseas freelancers.
Banks, cross-border payment processors, and other intermediaries are crucial in enabling these transactions. They often rely on relationships with correspondent banks, which facilitate fund transfers between different countries on behalf of domestic banks.
Here's a breakdown of who commonly uses cross-border payments and for what purposes:
Mid-market and large enterprises | International trade, supply chain management, global expansion |
Small and micro-businesses | E-commerce exports, paying overseas freelancers, receiving payments from international clients |
Individuals | Remittances, international travel and services, online shopping |
Investors | Purchasing stocks, bonds, real estate, and other assets in foreign markets |
Educational institutions | Receiving tuition from international students |
Charities | Receiving international donations |
In general, cross-border payments are more complex and take longer to process than domestic payments. Here's how they work:
The payer initiates a transaction to a recipient in a different country. They can do this through various payment methods, depending on what the recipient accepts.
If the payer’s bank doesn't have a direct relationship with the recipient's bank, it will facilitate the transfer by routing the payment through an intermediary — or correspondent — bank. Compliance and fraud checks happen at each transfer. Some online payment processors help speed up the transaction by working with one multinational bank to perform these checks only once.
The receiving or intermediary bank exchanges the sender's currency to the recipient's currency.
Finally, the payment reaches the recipient's bank deposits into their account.
The ideal payment method often depends on transaction size, speed, cost, and security requirements. Here's an overview of some of the most common cross-border payment methods.
Online payment solutions offer a convenient way to send and receive international payments. These platforms often provide user-friendly interfaces, multi-currency support, and fraud protection. They offer fast transactions, competitive rates, and low fees.
Wire transfers are a type of electronic funds transfer (EFT). This e-payment method transfers funds from one bank account to another, often for large-value transactions. Geographic areas and amount limits can vary due to wire network limitations.
The Automated Clearing House (ACH) is a domestic network, specific to the United States, and ACH transfers are another type of EFT. International ACH transactions extend this system across borders, offering a cost-effective option for certain types of payments like smaller, one-time purchases.
Businesses can purchase and send international money orders, which are paper-based payment instruments, to recipients in other countries. Unlike wire transfers, they're typically for smaller transactions and can take longer to process than electronic methods.
Prepaid debit cards or credit cards are widely accepted payment methods that offer convenience. However, they may involve foreign transaction fees and exchange rate markups.
While less common today, paper cheques can still be used for cross-border payments. However, they are slow, prone to delays, and carry a higher risk of loss, theft, or payment reversals.
Cross-border payments are more crucial than ever, with experts forecasting that the cross-border payments market will reach US$320 trillion by 2032 — up from US$194.6 trillion in 2024.2
Here's how capitalising on that market can help businesses:
Expand market reach and access new customer bases: By accepting payments from customers in different countries, companies can transcend geographical boundaries and tap into new markets. Businesses looking to attract and serve a global customer base should ensure that offering cross-border transactions is on their online marketplace checklist.
Reduce costs: Some cross-border payment methods may offer more cost savings than others through lower fees or more favourable exchange rates.
Improve revenue: By expanding into international markets and accessing new customer bases, it’s possible for businesses to significantly boost their revenue.
Enhance flexibility: Cross-border payment capabilities provide businesses with greater flexibility in how they conduct their operations. They can seamlessly pay suppliers, freelancers, and collaborators in different countries, without the limitations of geographical constraints.
Increase business credibility: Customers often perceive businesses that facilitate international transactions as more established, reliable, and trustworthy. This increased credibility can lead to stronger customer relationships and brand loyalty.
While cross-border payments offer numerous benefits for businesses that implement global payment integration strategies, they also come with their own set of challenges. Navigating these complexities can help ensure smooth and successful international transactions.
Here are some of the key challenges businesses may encounter:
Currency exchange rate fluctuations: Currency exchange rates are constantly changing, which can impact the final amount a payee receives. This can make it difficult to predict costs and profits, adding an element of financial risk.
Regulatory complexities: Cross-border payments are subject to various international and local regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements. Compliance with these regulations can be time-consuming and require specialised knowledge to adhere to all applicable laws in the countries they operate in. Consulting with a financial advisor can help navigate these complexities.
Transaction fees: Cross-border transactions often involve various fees, including currency conversion fees, transfer fees, and intermediary bank fees. These cross-border fees can add up and impact profitability.
Operational delays: Cross-border payments can sometimes take longer to process than domestic payments due to factors like time zone differences, banking holidays, and intermediary bank processing times. These delays can affect cash flow and customer satisfaction.
Security and fraud risks: International transactions may carry a higher risk of fraud and security breaches. Businesses need risk management strategies like implementing secure payment gateways, verifying customer identities, and monitoring transactions for suspicious activity.
Sending cross-border payments may seem daunting, but with the right approach, it can be a smooth and efficient process. Here's a guide to help you navigate the process of cross-border payment optimisation effectively.
Selecting the appropriate payment method is the first step in sending cross-border funds. For instance, wire transfers might be suitable for large amounts requiring high security, while online payment platforms may be better for smaller, quicker transactions.
When considering payment methods, compare factors like:
Fluctuations in currency exchange rates can affect the final cost of sending a payment. It's important to monitor exchange rates and understand how they may impact transactions.
Consider using hedging strategies or fixing exchange rates in advance to mitigate currency volatility risks. Many payment providers offer tools and services to help manage exchange rate risks effectively.
Cross-border payments are subject to various international and local regulations, like Know Your Customer (KYC), Anti-Money Laundering (AML) requirements, and data privacy regulations. Consulting with a financial advisor or using a reputable payment provider can help navigate these complexities.
Accuracy is key when sending cross-border payments. Verify the following to help avoid delays:
After sending, most payment providers will provide a tracking or reference number. Use this number to track the payment's progress and identify any potential delays. Keep the recipient informed about the transaction details and tracking information to ensure transparency and a smooth process.
Businesses can expand into global markets with cross-border payments, reaching new customers, suppliers, and contractors who were previously out of reach. For businesses looking to simplify their cross-border payment processes, leveraging a trusted platform can significantly reduce friction.
In the UK, card processing authorisation rates for cross-border transactions through PayPal Checkout are up to 7 per cent higher than the market average for small and medium-sized businesses.2
Start accepting international payments with PayPal and expand into the global market today.
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