Today’s e-commerce world is global in scope. Payments, transfers, and purchases often require a cross-border money exchange. Cross-border payments are defined as funds paid or received from different countries, so the place where the merchant is registered is different from the country where the customer’s card was issued.
Faster, cheaper, more transparent and inclusive cross-border payments would have far-reaching benefits to support economic growth, international trade, global development, and financial inclusion. Given the cross-border nature of these issues, coordinated international action will be crucial to address these issues, and we also need close cooperation with the private sector.
With a strong international payments strategy, companies can achieve a higher return on investment, dedicate fewer operational resources to accounts payable (AP), gain greater control over international transactions, use advanced reporting tools, and increase the security of payments.
How do Cross Border Payments work?
When someone makes a purchase, there is a system that transfers money from the buyer’s account to the merchant’s account. It gets more complex with cross-border payments. International transactions require currency exchange, foreign transaction fees, and an exchange rate. To navigate these channels, a banking system manages the money.
With each cross-border payment, banks and a group of various national entities work together to transfer funds. When a buyer makes a purchase, the correspondent bank or the entity requesting the money communicates with the buyer’s bank, which represents the entity that is buying something.
Types of Cross Border Payments
It is an electronic money transfer in which money is “transferred” from one account to another. When you initiate a domestic transfer, this is known as a “wire transfer.” In the case of international payments, the electronic transfer is alternatively called “remittances”. It is the oldest method of initiating an international payment.
It is a reliable payment method when you travel abroad. A credit card eliminates the need to carry cash. They also offer attractive benefits such as interest-free loan periods (starting at one month), reward points, gift certificates, shopping offers, simple EMI options, travel insurance benefits, and more.
Many banks and financial institutions offer Forex cards designed specifically for globetrotters. You can send money to multiple countries with a single card. It helps users avoid exchange rate fluctuations by blocking fees upon receipt of the card.
Open banking API
The Open Banking Application Programming Interface (API) aims to simplify the complicated procedures involved in international payment transactions. By democratizing customer data and access, it will be easier for fintechs and other financial institutions to develop products that match their target demographic version of the international payments application.
Decentralized Ledger Technology (DLT)
DLT, a term popularized by blockchain technology, can be applied to the three most difficult aspects of international payments. They are backend processes, compliance and as a means of payment. DLT can speed up the backend process and provide transparency at every step of the transaction. You can also reduce compliance-related costs and introduce a completely new payment method.
Steps for sending international payments
Processing domestic and international payments comprise seven steps. There are additional factors to consider when making international payments.
When shopping around the world, you can find an international supplier to shop for. When shopping online, you will be taken to the payee’s payment page to complete your payment. If you are shopping over the phone, a sales representative will place the order. In any case, payment options will be shown.
If you’re shopping online, the checkout page ideally offers a localized experience; H. shows his native language. The recipient will use your URL to determine which language they want the payment page to appear in and hopefully offer local payment methods you are familiar with.
2. Routing and processing
Once you enter your payment information, it will be sent through an encrypted portal to obtain authorization to withdraw funds from your account. Here’s the catch: if you’re using a global payments platform that’s only connected to one bank, the transaction can be flagged. Using a platform connected to multiple banks around the world increases the chances of your payment being processed for the first time.
Whether you’re paying publishers or setting up a new supply chain, you want to ensure that all payments are made without errors. A global payment platform can automate the payment process for you, whether it’s a one-time or recurring transaction.
3. Approval or denial of payment
Your payment has been approved or declined. A check will be carried out to ensure you have sufficient funds in your account, and, if necessary, a currency conversion will be carried out. This only applies if you are sending US Dollars to an account that accepts another currency and the recipient has requested a different currency.
Hopefully, international payments will benefit from banks that support international payments. In that case, the transaction is more likely to be approved. A global payment platform is characterized by intelligent payment routing through a bank, which is more likely to approve the transaction.
4. Confirmation (approval or rejection) and compliance
You will receive confirmation that the transaction has been approved or declined. If it is rejected, you will receive a return code that explains why it was not processed. If approved, your order will be processed.
At this point, depending on the type of international payment you are using, the funds will likely still appear in your account, not the recipients. It takes two to five days to reconcile a Global Automated Clearing House (ACH) payment.
6. Follow up
You will receive a reconciliation report from each bank you work with. This can be extremely confusing and is an ineffective way to keep track of your international payments. With a global payments platform, you can get a consolidated reconciliation report that shows all payments across all banks and which transactions were reconciled and which were not.
The ease and simplicity of cross border payments is a result of innovative financial technologies. Technologies like artificial intelligence and blockchain are expected to further simplify cross border payments and make them easy for users in all demographics. The purpose of fintech technologies is to make payments and international transactions simpler and convenient than ever.