What are cross-border payments?
Cross-border payments are financial transactions where the payer and the recipient are located in different countries.
These payments are made in different forms, for example, sending money abroad, making and taking payments, managing currency risks and fluctuations, and many more.
How do cross border payments work?
Cross border payments, especially for businesses, can be very complex and involve many steps due to the various financial systems, currencies, regulations, and financial institutions involved.
In a traditional sense, here’s how a cross border payment would work:
Initiation: The sender starts a payment through a bank or payment service provider, entering the amount, currency, and recipient’s details.
Currency conversion: If needed, the money is converted into the recipient’s currency at a set exchange rate, often with an added margin.
Routing: The payment travels through a network of banks or financial intermediaries, sometimes using correspondent banks.
Compliance checks: The payment undergoes regulatory checks like anti-money laundering (AML) and sanctions screening.
Fee deduction: Fees are deducted at various points, including transfer fees, currency conversion fees, and service charges.
Settlement: The funds are delivered to the recipient’s bank and credited to their account in the local currency.
Notification: Both the sender and recipient are notified of the payment status.
This process is slow, expensive, and can become very complex as your business needs grow.
To solve this problem, companies like Wie, Revolut, GoCardless, and many others, bypass traditional banking networks and directly connect accounts across borders.
This is how the process would look like when using Wise:
Initiation: The sender creates a payment on Wise’s platform, entering the amount, currency, and recipient’s details, along with their own bank account or card information.
Local transfer in: The sender transfers money to Wise’s local account in their own country and currency (e.g., USD to Wise’s U.S. account). This is a domestic transfer, often with low or no fees.
Currency conversion at Mid-Market Rate: Wise converts the funds using the real, mid-market exchange rate (the rate you see on Google) without hidden markups, only charging a conversion fee (clearly displayed before the transfer). Because Wise uses its local accounts to send and receive funds, there are no intermediaries involved, avoiding extra fees and delays.
Local transfer out: Wise pays the recipient from its local account in the recipient’s country and currency (e.g., from Wise’s Euro account to the recipient’s Euro account). This means the money never actually crosses borders.
Compliance checks: Wise performs necessary regulatory checks for anti-money laundering (AML) and compliance, but the streamlined process often makes this faster.
Settlement and notification: The recipient receives the money in their local currency, usually within a few hours or a day.
This method bypasses the traditional international banking system, reducing fees, speeding up the process, and providing clear, upfront information on the total cost of the transfer.
What are the types of cross border payments?
There are many types of cross border payments. Here’s a summary of key types of cross border payments:
Business-to-Business (B2B) Payments
Transactions between companies in different countries, often for the purchase of goods, services, or raw materials.
Business-to-Consumer (B2C) Payments
Consumer-to-Business (C2B) Payments
Consumer-to-Consumer (C2C) Payments
Government-to-Business (G2B) and Government-to-Consumer (G2C) Payments
International Trade Payments
Blockchain and Cryptocurrency Payments
What are the ways of making cross border payments?
There are many ways to make cross border payments. Each comes with its benefits and drawbacks and the one you pick heavily depends on your business needs.
Here’s a roundup of all the different ways you can make cross border payments:
International Bank Transfers (Wire Transfers)
The traditional method of sending money from one bank to another internationally, often through SWIFT or SEPA networks.
Money Transfer Services
Credit and Debit Cards
Digital Wallets and Mobile Payment Apps
Blockchain and Cryptocurrencies
International Prepaid Cards
Letters of Credit and Documentary Collections
Currency Brokers (Forex Brokers)
Peer-to-Peer (P2P) Payment Services
Payment Gateways
Multi-Currency Accounts
How to accept international payments?
Depending on your needs, there are a few ways to accept international payments.
Payment Gateways
Use services like Stripe, GoCardless, or Zen to accept payments online. These gateways integrate with your website and support multiple currencies, providing a secure and easy payment solution.
Multi-Currency Accounts
Credit and Debit Card Payments
Invoicing Software
Currency Brokers
Local Payment Methods
Marketplaces and Platforms
Cryptocurrencies
What are the fees for making cross border payments?
There are fees involved in making cross border payments. However, these will depend on your needs and the service you use. In general, fees can be broken down into:
Conversion fees (also known as the exchange rate markup)
Conversion fees apply when currencies are converted from one to another. Companies will add a percentage to the real exchange rate to make a profit from each transaction.
There are exceptions. Some companies will give you the mid-market rate (also known as the real rate), however, they will charge you a fee for making a transfer.
Transfer fees
Transfer fees are usually associated with the process of making a transfer. These fees are charged for the provided service and can either be fixed or variable.
Often, companies will advertise low or no fees. However, they are likely to add a higher percentage to the exchange rate to make the difference.
Account fees
Account fees vary from company to company and are usually associated with account maintenance. Some examples include opening an account, minimum balance, monthly account fee, etc…
Here are a few examples of fees to expect when using international payment services:
Service | Conversion fees | Transfer fees | Account fees |
|---|---|---|---|
Money transfer companies | Most companies will apply a small markup of 0-2% to the exchange rate. | Most money transfer companies will have a small transfer fee. | Most money transfer companies have no account fees. |
Currency brokers | Currency brokers will apply a markup to the FX rate, however, it is usually negotiated and tailored to your needs. | Usually, currency brokers do not have transfer fees and make most of the profit from the conversion fees. | Most currency and forex brokers have no account fees. |
Multi-currency accounts | Usually no, most multi-currency accounts do not charge conversion fees. | Some multi-currency accounts will charge a fee. | Some multi-currency accounts will have a fee associated with opening an account or getting a card. |
Payment gateways | Payment gateways usually partner with third-party services to convert currencies and will apply a small conversion fee. | Payment gateways usually charge a small transfer fee. It can be either fixed or variable. | Payment gateways usually charge a fee for the account. It can range from card fees to opening and maintaining the account fees. |
How long do cross border payments take?
The speed of cross border payments heavily depends on the transfer method, currencies and countries involved, and the amount sent.
When making a cross border payment, you will need to check the timings quoted by each company on a per-transfer basis. Usually, you can expect a transfer to settle within 1-5 days.
International payments and transfers can be delayed by weekends and national holidays.
Are there any risks of cross border payments?
Cross border payments carry a few risks, including currency fluctuations, regulatory challenges, fraud, delays, and high fees.
Managing these risks involves choosing secure payment methods, working with reliable partners, and implementing risk mitigation strategies like currency hedging, compliance checks, and fraud prevention measures.
Many services we review, will offer dedicated support and custom strategies to minimize these risks.
Who benefits from cross border payment solutions?
Cross border payment solutions are beneficial to many, including businesses, consumers, freelancers, SMEs, global corporations, and nonprofits.
These solutions help reduce costs, improve transaction speeds, and enhance global financial accessibility, enabling smooth and efficient international operations for all stakeholders involved.
If you want to know more about the benefits of cross border solutions and how they can help you, we recommend reading our use cases and guides:
Are cross border payments regulated?
Cross border payments are highly regulated to ensure the security, legality, and efficiency of international transactions.
Regulations vary by country and region but generally, these aim to combat financial crime, protect consumers, and maintain the integrity of the global financial system.
Here are a few regulatory examples that apply to cross border payments:
Anti-Money Laundering (AML) Regulations
Aim to prevent money laundering by requiring financial institutions to conduct due diligence (KYC), monitor transactions, and report suspicious activities. AML is regulated by bodies like FATF, FinCEN (USA), and FCA (UK).
Counter-Terrorism Financing (CTF) Regulations
Sanctions and Embargoes
Data Privacy and Security Regulations
Payment System Regulations
Foreign Exchange Controls
Consumer Protection Regulations
Licensing and Registration Requirements
What is Cross Border Payment Solutions?
At Cross Border Payment Solutions we review, compare, and guide cross border payments.
We aim to help businesses make informed decisions when it comes to moving money between borders.
Is Cross Border Payment Solutions free to use?
Yes, Cross Border Payment Solutions is 100% free to use.
We may receive a small commission when you click on the services we advertise (including yellow buttons and links within the paragraphs). This allows us to continue providing our services for free.
The commission we may earn does not affect the exchange rate or fee you pay, and the recommendations we provide.