Cross-Border Payments

Doing business in a global economy means making deals and selling products to partners and customers that could be located anywhere in the world. The internet makes these connections possible, but money doesn’t travel as easily as data. To send and receive funds, businesses need to engage in cross-border payments.

With various complications to deal with, including currency exchanges, unfamiliar payment platforms, and a plethora of regulations, negotiating an international transaction can be more challenging than it appears at first glance. What do merchants need to know about cross-border payments in today’s interconnected global marketplace?

1. What are Cross-Border Payments?
2. How Do Cross-Border Payments Work?
3. Which Cross-Border Payment Platforms Should Merchants Use?
4. What are the Benefits of a Cross-Border Payment Strategy?
5. Conclusion

One of the great things about e-commerce is that anyone can become your customer, whether they’re down the street or on the other side of the world. More than $155 trillion in payments will flow from one country to another this year, and though much of this is fueled by high-value B2B transactions, many e-commerce retailers have a loyal customer following outside of their home country. More than ever, merchants are recognizing the importance of accommodating these customers and taking their needs into account.

The catch is that it can take a lot of work behind the scenes to provide a seamless, user-friendly cross-border purchasing experience for your international customers. You have to be able to accept the customer’s local payment method, convert their currency, and follow the many laws and regulations that govern cross-border commerce. You also have to stay vigilant about fraud, which often originates from countries other than the merchant’s own.

The easier you make it for buyers to send cross-border payments, the more you can expand your customer base and increase your sales revenue. With so many options and regulations in play, it’s a good idea to develop a cross-border payment strategy to guide you.

A cross-border payment simply refers to any payment transaction in which the payer and the payee are located in different countries. If you’re a US-based merchant and you sell to a customer in Mexico, that’s a cross-border payment.

Cross-border payments may be utilized by e-commerce retailers, B2B companies, financial institutions, or individuals. Traditional cross-border payment methods include wire transfers, ACH payments, credit or debit cards, paper checks, and vouchers, but in recent years new payment technologies have greatly expanded the options for consumers and merchants alike.

For the customer, the ideal cross-border payment experience should be barely noticeable. They see prices displayed in their local currency, they get offered their preferred payment method at checkout, and the transaction gets seamlessly processed in real time.

To create this kind of experience, merchants need to do a fair amount of preparatory work on the back end. Much of this will often involve working with your payment gateway to set up dynamic currency conversion or some other method of exchange, figuring out when and how to charge required taxes and fees, and selecting the payment options you want to offer.

As important as it is to make payments easy for the customer, it is equally important to implement authentication and fraud detection tools to keep transactions safe.

Fraudsters frequently target victims in different countries, knowing it makes it that much harder to track and prosecute them. Opening up your international payment options without adding commensurate security improvements can put you at a much higher risk of seeing your fraud and chargeback rates go up.

With so many international payment platforms to choose from, it really pays to know your audience. Prioritize acceptance of the payment methods preferred by the customers who are most likely to purchase from you.

Different regions have different payment preferences. Credit cards may be the standard in North America and the UK, but mobile wallets are rapidly taking over the Southeast Asia market, and many South American countries use voucher-based payments systems that have been adapted to e-commerce. Buy Now, Pay Later services are popular in Europe and Australia, and in Africa cash-on-delivery is widely used.

Some payment methods, such as credit cards, PayPal, and BNPL services like Klarna, are readily accessible to a wide range of global customers, but not necessarily in the emerging markets that some merchants want to reach. To provide those customers with their preferred payment options, merchants may need to work with an international payment gateway or a local acquiring bank.

One way to manage the complexity of cross-border payments is to follow a well thought-out strategy. By identifying your sales objectives, your target markets, and your regulatory and logistical challenges, you can identify the most secure and cost effective cross-border payment solutions for your needs.

Regulatory compliance is one of the top challenges of cross-border payments, and the penalties for breaking the rules can be harsh. In addition to well-known regulations like the Revised Payment Services Directive and PCI DSS, you have to be aware of each country’s individual payment rules. A good strategy will list all of the compliance scenarios you might be subject to and outline the procedures you need to follow in order to stay compliant.

A strategy can also help you manage currency conversion issues, which can be a sore point for customers when handled carelessly.

Using dynamic currency conversion services without the customer’s explicit consent can open you up to chargeback liability.

Following a comprehensive strategy can also help you take advantage of the lower processing costs and higher approval rates that can come from using local acquirers and other on-the-ground resources in the countries you’re focusing on. You may also find opportunities to try out new open-source, blockchain-based payment systems that come with fewer costs and regulations.

Conclusion

When you’ve got a world full of potential customers, it makes sense to make your products and services accessible to as many potential buyers in as many different regions as you can. With a smart strategy and the right partners, you can provide a welcoming customer experience and easy cross-border payments.

Just make sure to put up sufficient fraud protections and follow all applicable regulations carefully, or you could end up with something no merchant wants to see: cross-border chargebacks.

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