The Challenges of Cross-Border Payments

Businesses have come up against the friction of cross-border payments for years, but the pandemic truly changed the game. By pushing consumers to purchase online instead of in-store, the pandemic removed the geographical boundaries that usually confine B2C commerce. As a result, according to McKinsey, cross-border E-commerce transactions grew by 17% in 2020. Consumers now easily buy from overseas companies that provide a positive purchasing experience.

It’s not just consumers who are getting in on the action. Companies understand that the shift to remote work is not a temporary reality with FlexJobs finding that 97% of employees want either a fully-remote or hybrid job. This can mean working for an employer in another country where the paycheck must be sent across a border. Then there are the B2B relationships, many of which became international to remedy supply chain issues.

Today, many different types of monetary transactions cross national borders – payments that are crucial for both independent and commercial livelihood. As a result, the financial industry has had to reassess the current infrastructure for cross-border payments, which could prove a huge opportunity for revenue growth if the process can be streamlined.

The Top Challenges for Cross-Border Payments

Here are some of the top cross-border payments challenges:

High Costs

Every transaction incurs a fee, but cross-border payments frequently incur several. This is because more players are involved in an international transaction than a domestic one, and they all want to be paid for their services. Depending on the geographic region, a single transaction may have to travel to three or four countries. With each region governed by its own laws and restrictions, there is also a myriad of currency conversion fees and regulatory fees. Navigating these different protocols adds up and someone must bear the cost, either the provider or the customer.

Slow Transactions

A multi-stage transaction necessarily takes longer than a simple direct transfer. As cross-border payments involve multiple entities, each of which must process the payment — these transactions can take several days to complete, leaving the recipient waiting on the payment to go through. This prolonged process is inconvenient at best and unsustainable at worst, especially for small businesses or when transferring large sums of money.

A Lack of Transparency

Unfortunately, cross-border payments lack both speed and transparency. Multiple intermediaries, geographical distance, and differing regulations can create a complicated transaction path. Then there are the extra fees, some of which are necessary but cannot be traced, leaving customers to wonder what they’re paying for.

Security Issues

Security is paramount for all financial transactions, especially when dealing with cross-border payments. When institutions or individuals transfer money between countries, they risk encountering weak security protocols or inferior cyber protections. Businesses want to guarantee the safety of their international transactions, but that guarantee isn’t always possible since they are not solely responsible for the transfer. Should a cross-border transaction be intercepted, the security breach could be especially costly, both in dollars and in customer loyalty.

Solving Cross-Border Payment Problems

To solve the problems with cross-border payments, the whole outdated system must be overhauled. Inefficient technology has been built around a crumbling framework, creating a frustrating process for all parties involved. The system needs a modern, digital upgrade and the support of the international community.

With the right technological support, such as a third-party provider, merchants and customers can benefit from expert guidance. These providers can handle regulation compliance, currency conversion, and other cross-border complications. They’re also more likely to have direct relationships with providers in other regions, minimizing the necessary stages in the transaction journey. The shorter the journey, the quicker and less expensive it is.

Lastly, a collaboration between international entities is critical to the success of cross-border payments. For example, they can agree to keep markets open during the most popular times for transactions, ensuring all desired transfers are processed efficiently. With the support of the government for faster and more efficient transfers, new payment rails can be built, and regulations can be adapted to meet a universal standard. This infrastructure can ultimately lead to greater innovation within the cross-border payments space.

The Global Road Map

The journey to seamless cross-border payments will not be easy. There are so many factors and players involved that a transformation will take time, but the good news is that a transformation is very much possible. With the right infrastructure, regulatory landscape, and standards in place, cross-border payments are poised to evolve.

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