Cross-Border Payments 

In our global, mobile world, advances in cross-border payments are critical to supporting international trade, business transactions and individuals who send remittances across borders. As businesses expand beyond domestic markets and workers move for new opportunities, the demand for fast and cost-effective cross-border payment solutions continues to grow. In this guide, we explore the evolving landscape of cross-border payments, examining current and emerging technologies in the payments industry that empower businesses and consumers to expand their global reach. 

What is a cross-border transaction? 

A cross-border transaction is a financial transaction involving the movement of money across national borders. These international money transfers can occur between businesses, individuals or governments located in different countries. Typically, a cross-border payment requires the exchange of currencies. For instance, say a person working in the U.S. needs to send money to family members in India. Besides transferring funds from one party to the other across borders, this transaction would require the exchange of U.S. dollars (USD) to Indian rupees (INR).  

How do cross-border payments work? 

Cross-border payments involve a complex network of financial institutions, regulatory frameworks, and technology to facilitate transactions between parties in different countries. Here’s how the process typically works: 

1. Cross-border payment initiation 

The process begins when a sender initiates a payment to a recipient in another country. Reasons for the transaction may include purchasing goods or services, sending money to family members abroad (remittances) or making an investment. 

2. Currency conversion 

When sending payments between countries that use different currencies, the transaction typically requires currency conversion. This is the process of converting the sender’s currency into the recipient’s currency at an agreed-upon exchange rate. Banks, currency exchange services or financial institutions facilitate this conversion. 

3. Facilitation by intermediary or correspondent banks  

Sending funds across borders often involves one or more intermediary or correspondent banks that help transfer funds between the sender’s bank and the recipient’s bank. Banks use a global messaging network—most commonly, SWIFT (Society for Worldwide Interbank Financial Telecommunication)— to securely exchange information and instructions for international transactions. Financial institutions must also verify the identities of the sender and recipient. Cross-border payments are typically subject to international regulations, including anti-money laundering (AML) and Know Your Customer (KYC) requirements. 

4. Settlement  

Settlement is the final step of the cross-border payment process. The time it takes for a cross-border payment to reach the recipient can vary widely depending on factors such as the banking systems involved, the currencies used, and regulatory requirements. Many online cross-border payment platforms and banks offer tracking, so the payer can view the status of their transaction and ensure their recipient receives the funds. 

What are cross-border payment methods? 

Money can be sent across borders through various payment methods. Each method has its own processes, costs and timeframes. Here are some common ways money is sent internationally:  

• Bank Wire Transfers: This is a direct electronic transfer from one bank account to another. Wire transfers are a secure way to send funds and may be a good choice for transferring larger amounts. However, both the sender and recipient need bank accounts. An international wire transfer also takes one to five days to process, so it is not an instant payment method. 

• Online Money Transfer Services: A variety of services may offer international transfers. These options can be faster than traditional bank transfers. However, they sometimes have higher fees and may be less secure than a bank wire transfer. 

• International Money Orders: Money orders are physical documents, issued by financial institutions, that can be cashed in other countries. They are safer than cash but come with downsides, such as high fees and less favorable exchange rates.  

• Cash Transfers: Services like Western Union or MoneyGram allow individuals to send cash that can be picked up in another country. This option is useful for those who need to send or receive physical cash, and funds could arrive as quickly as in minutes. However, such services may not always offer the lowest fees and exchange rate markups. 

• Cryptocurrency: Some people use cryptocurrencies like Bitcoin for cross-border transfers. Blockchain cross-border payments may offer potential benefits including eliminating intermediaries, reducing transaction costs, and getting funds to recipients faster. However, this option is not practical for many consumers, due to the risk and regulatory uncertainty surrounding cryptocurrencies. 

• Prepaid Cards: Card solutions such as Onbe’s offer advantages in many situations—such as for international workers who need a way to spend and transfer their earnings. The card can be loaded and used anywhere in the world, and cardholders can deposit funds in their international bank account or add recipient accounts for easy transfers.   

For businesses seeking solutions to pay workers and other stakeholders across borders, many factors will determine what option is best. Each method has its advantages and considerations such as fees, exchange rates, speed, and accessibility. In addition, the typical payment size and volume of payments could help to determine what a business should be looking for in a disbursement solution with global payout capabilities. 

How much does it cost to send a cross-border payment? 

Completing a cross-border transaction could involve a variety of costs, including transaction fees, bank fees, foreign currency conversion rates, and exchange fees. According to the most recent data from The World Bank (December 2023), sending an international remittance costs an average of 6.39 percent of the amount sent. So, a $100 transfer would cost $6.39. Keep in mind that costs vary widely by cross-border transaction method. The World Bank notes that banks were the most expensive way to make a cross-border payment, with an average cost of 11.99 percent of the transaction value. Mobile payment providers were the least expensive, at 4.35 percent. 

What are the benefits of global payment capabilities? 

Global payment capabilities play a crucial role in fostering economic integration, promoting financial stability, and enhancing opportunities for businesses and individuals. When serving customers and workforces around the world, offering cross-border payment options can help businesses stand out and better meet their stakeholders’ needs. Some key benefits include: 

• Financial inclusion. Global payment capabilities help promote financial inclusion for individuals and businesses in underserved regions. Digital payment solutions enable easier access to funds and financial resources. 

• Market expansion. Access to global payment capabilities allows businesses to expand into new markets, utilize international vendors, partners and workforces, and reach a broader customer base. Being ready to transact across borders fosters business growth opportunities and diversifies revenue streams. 

• Innovation. The evolution of global payment capabilities is driving innovation in financial technology (fintech), blockchain, and digital currencies. These innovations contribute to the development of more efficient and secure payment infrastructures around the world. 

•  Sustainable development. Access to reliable cross-border payment capabilities helps support economic growth, international trade and sustainable development goals by facilitating cross-border investments, remittances, and development aid payment flows to regions in need. 

•  Improved payment experience. Whether your business needs to transact with workers or customers, seamless cross-border payment solutions enhance the experience by providing choice and convenience. Workers can send money back home easily and cost-effectively. Consumers can easily purchase goods from around the world. The result is increased satisfaction, loyalty and retention. 

The current state of cross-border payments 

Global payments are on the rise, with cross-border transfers expected to increase five percent per year until 2027. Global remittance flows reached USD 857 billion in 2023. Additionally, the global B2C cross-border e-commerce market is projected to reach a value of USD 7.9 trillion by the year 2030 as purchasing products from other countries keeps increasing in popularity. And according to Onbe + NRG’s 2024 Payouts Landscape, the ability to send funds outside of the U.S. is important to nearly half of American consumers. 

To meet demand, businesses and financial institutions are exploring ways to extend modern cross-border payment capabilities to their customers, partners and other stakeholders. Advances in technology and international cooperation continue to shape the cross-border payments landscape, aiming to make transactions faster, more transparent and cost-effective for all parties involved.  

One important development is the recent introduction of ISO 20022, an international standard for financial messaging, which promotes interoperability among financial institutions. ISO 20022 supports the sending of detailed information, including the parties involved and payment purposes. It surpasses previous standards and facilitates seamless data exchange, reducing errors and enhancing transparency in cross-border transactions. ISO 20022 is set to become the global standard by November 2025. 

There also has been progress in leveraging advances such as blockchain, Central Bank Digital Currencies (CBDCs) and real-time payments (RTP) to improve the cross-border payment experience. These and other innovations could help further streamline processes, reduce costs and enhance transparency. 

What are the key challenges of cross-border payments? 

Cross-border payments come with challenges that may impact banks, financial institutions and businesses as well as senders and recipients:  

• High costs and fees. The cost of cross-border transactions can be prohibitive for senders and recipients. Various transaction fees are charged by multiple parties throughout the transfer, including sender and recipient banks, intermediary banks, and currency conversion services. These fees can add up, reducing the value of the transaction. Exchange rate fluctuations can also have an impact on the final amount received by the recipient.  

• Speed of transactions. Traditional cross-border transactions can be slow compared to domestic payments. Factors such as multiple intermediary banks, different time zones, and regulatory requirements can contribute to delays in processing, tracking and settling the transaction.  

• Regulatory complexity. Cross-border payments must comply with a range of domestic and international regulations, including anti-money laundering (AML) and counter-terrorism financing (CTF) requirements. Meeting these regulatory standards can add complexity, cost and time to the cross-border payment process. 

• Fraud & security risk. Cross-border payments involve sensitive financial information and are susceptible to payment fraud, hacking, data breaches and other threats. Robust security protocols are essential to protect participants' funds and personal data but require significant resources and may contribute to delays in payment processing. 

• Lack of transparency. Making a cross-border payment can be a confusing process. Senders may find it difficult to understand the fees deducted at various stages or predict when funds will reach the intended recipient. Real-time tracking may not be available, leaving senders and recipients in the dark about when the funds will arrive. 

• Access challenges. Convenient and cost-effective cross-border payment services are not available to everyone. In some regions, particularly in developing countries, there may be limited access to banking services and infrastructure, hindering financial inclusion and economic development.  

Ongoing efforts and advances in technology, such as digital payment platforms, are helping to address these and other challenges. As a result, the efficiency, cost-effectiveness and transparency of cross-border payments continue to improve. 

What are some recent cross-border payment innovations? 

Recent innovations in cross-border payments have been driven by advances in technology and a growing demand for faster, more cost-effective solutions. Here are some notable developments that are enhancing cross-border payments: 

• Blockchain technology. Blockchain and distributed ledger technology (DLT) are being explored as a promising option to reduce costs, enhance security and improve the transparency of international payments.  

• Artificial intelligence (AI). New advances in artificial intelligence are transforming how organizations manage the complexities of processing international payments. For instance, AI-powered screening systems can analyze transactions against watch lists and detect fraudulent activities, helping to mitigate risk. 

• Digital wallets and mobile payments. Solutions that are popular for making domestic mobile payments are now increasingly used for cross-border financial transactions, too. These platforms offer convenient and instant transfer capabilities at consumers’ fingertips. 

• Central Bank Digital Currencies (CBDCs). A CBDC is a form of digital currency, like cryptocurrency. However, unlike cryptocurrencies, CBDCs are issued by a country’s central bank. CBDCs have the potential to streamline cross-border transactions, reduce costs and improve financial inclusion. 

• Application Programming Interfaces (APIs). APIs enable financial institutions and fintech companies to integrate their cross-border payment systems. So, it’s faster and easier to add new capabilities and payment options. 

• SWIFT Global Payment Innovation (GPI). SWIFT GPI is a set of rules and standards that aims to enhance cross-border payments by providing end-to-end tracking, fee transparency and faster settlement times.  

• Fintech innovations. In recent years, payment providers have introduced innovative solutions to improve cross-border payments, such as peer-to-peer (P2P) platforms, remittance services and digital currency exchanges. These platforms often offer lower transaction fees to help consumers save money, as well as faster processing times compared to traditional banks. 

These and other innovations are reshaping the cross-border payments landscape and providing widespread benefits, including making transactions faster, more secure and more accessible to businesses and individuals around the world. As technology continues to evolve, further advances in payment technology are expected to improve cross-border payments efficiency and reduce barriers to international trade and finance. 

Using a single global payments platform 

Consolidating all cross-border payments onto a single platform streamlines processes and reduces complexity. Businesses can manage and track transactions as well as access reporting tools, security features and more. A unified payments platform often reduces transaction fees and currency conversion costs compared to using multiple providers or traditional banking channels. Bulk processing capabilities and competitive exchange rates may contribute to overall cost savings. 

With a cross-border payments platform, businesses can scale their payment operations globally without the complexity of accounting for different regional systems or currencies. The platform will typically support various payment methods, as well as multiple currencies. Ideally, it will integrate seamlessly with existing financial systems, further improving the experience for businesses and their customers or workforce. Users benefit from a seamless payment experience with consistent service levels across different regions. 

Global payments platforms also typically adhere to stringent security standards and regulatory requirements, including anti-money laundering (AML) and Know Your Customer (KYC) regulations. This mitigates risk and ensures international payments are handled securely and compliantly.    

Overall, leveraging a single global payments platform may empower businesses to expand their global reach without the high costs and risk, while also delivering a superior payment experience to those who rely on their services.  

Evaluating cross-border payment solutions 

When evaluating cross-border payment solutions, consider several key factors to find an option that meets your business needs: 

• Purpose. Businesses that employ workers from around the world may need the option of paying team members in multiple currencies and enabling cost-effective global remittances. On the other hand, e-commerce companies may be looking for a secure and efficient way to accept retail cross-border payments from international customers. Look for a payment platform or solution designed for your specific purposes: making, accepting, or facilitating cross-border transactions. 

• Speed and cost efficiency. Compare transaction fees, currency conversion rates, and any hidden costs associated with using the payment solution. Look for options that offer competitive pricing as well as price transparency. Don’t forget to assess how quickly payments can be processed and settled. Real-time or same-day settlement options are attractive options but may come at higher costs.  

5. Security and compliance. Verify that the payment solution complies with international regulations—and look for a partner with expertise in this area. Robust security measures, such as encryption and fraud detection systems, are crucial to protect sensitive financial data. 

6. Accessibility and coverage: Ensure your payment solution supports the countries and currencies relevant to your business and audience. Look for payments systems and providers with a broad network of banking partners and global reach to facilitate seamless transactions worldwide. 

7. Integration options: Ideally, your payment solution will integrate smoothly with your existing financial systems and workflows. Learn about Onbe’s flexible integration options. 

8. Customer support and service level agreements (SLAs): Evaluate the quality of customer support offered by your prospective payment provider. Look for service agreements that guarantee timely resolution of issues and provide sufficient support during peak times. 

9. User experience: Making international money transfers is notoriously complex. Provide a better user experience—and reduce complaints and customer service calls—by looking for a solution with popular payment options, intuitive navigation, transparency, and other user-friendly features.  

10. Scalability and flexibility: Choose a payment gateway that can scale with your business and adapt to your changing needs. Look for solutions that can support in-demand payment types (e.g., bank transfers, credit cards, digital wallets) and accommodate growing transaction volumes, which can help accommodate future expansion. Also assess the provider’s commitment to innovation and staying ahead of payment industry trends. 

By evaluating these and other factors, you can select a cross-border payment solution that aligns with your business objectives, enhances operational efficiency, and ensures the best possible use experience. 

As businesses expand beyond domestic markets and individuals pursue opportunities abroad, the demand for efficient, secure, and cost-effective cross-border payment solutions is projected to keep growing. Navigating the complexities of the cross-border payments market involves addressing challenges like high transaction costs, regulatory compliance and the need for seamless integration across diverse financial systems. With the availability of modern payment solutions, businesses are now better prepared to streamline their operations, mitigate risks and capitalize on global opportunities—supporting economic growth and financial inclusion in the markets they serve. 

To learn more about Onbe’s cross-border payout capabilities, contact a payments expert.