Cross-border payment refers to financial transactions such as purchases, remittances, and payments made across international borders.
Transactions between different countries can be complex because it involves multiple currencies and intermediaries such as payment providers, and banks. Applicable rules and regulations also vary.
International networks of vendors and customers have globalized the breadth of payment flows, generating a worldwide marketplace. Increased e-commerce activity and global trade have boosted transaction volumes in cross-border payments.
From 2017 to 2027, forecasts estimate the value of cross-border payments will increase from $150 trillion to $250 trillion. As the volume of international transfers increases, companies struggle with completing cross-border transactions successfully for various reasons, including:
Before executing cross-border payments, businesses need to verify transaction validity, often by matching invoices to purchase orders. Non-PO invoices also need to be reconciled with expense documentation before payment. Accounts payable teams that use manual processes find invoice matching and reconciliation time-consuming and costly.
Businesses without payment automation rely on manual intervention required to complete payments, which can include validating transactions, providing payment details over the phone, and reconciling payments manually.
Individuals, businesses, and financial institutions carry out cross-border payments using international checks or electronic means like wire transfers or cards. For example, banks commonly use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network to communicate financial transactions. Payments may be supported by a correspondent banking system where a local bank becomes an intermediary for a foreign bank.
Common ways to perform cross-border payments include the following:
Credit card merchant fees usually range from 1.5 to 3.5% for each transaction, and debit card processing fees may be lower. Actual fees for each card vary across payment networks like American Express, Mastercard, and Visa.
Businesses can electronically transfer payments through banks or agencies by submitting financial information through a network such as SWIFT. Transactions are shifting to a new ISO 20022 financial messaging standard that will require compliance by 2025. Fees associated with the payments vary depending on the institution.
Automated Clearing House (ACH) uses a central clearing house to support payments between banks primarily within the United States. International ACH allows some banks to send ACH transfers globally. Common uses for this payment method include:
Dealing with international vendors and employees requires a reliable way to pay. Unfortunately, larger enterprises with complex AP processes often struggle with finding a reliable cross-border payment solution. Common business challenges include:
Improving visibility into transactions with international partners is a priority for organizations today. Paying on time opens the door for early payment discounts that provide further cost savings.
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