The push to make cross-border payments faster, cheaper, and easier has reached critical mass. Learn more about the unique challenges and considerations companies face.

Cross-border payments are not new, but the push to make them faster and cheaper is reaching a tipping point. As the pandemic has worn on, it has only fueled the growth of E-commerce, removing geographical boundaries across the globe for consumers and businesses alike. As a result, recent data from Juniper Research shows that the total value of B2B cross-border payments will grow by 30% between 2020 and 2022, reaching $35 trillion.

As cross-border payments continue to ramp up, many organizations are becoming all too familiar with the unique set of challenges these payments present. Between the cost and administrative burden of facilitating cross-border payments, many companies must reevaluate their processes to forge a path to cross-border success.

The Differences Between Domestic & Cross-Border Payments

Sending payments internationally is more complicated than sending money domestically. It is not possible to simply scale up existing payment strategies; instead, companies must create an entirely new game plan that addresses the differences across various regions.

Because the payee and the transaction recipient are based in separate countries, they will likely (although, not always) use different currencies, deploy different payment methods, and adhere to different payment regulations. Managing the process requires a degree of sophistication that not all organizations have in place currently.

Facilitating safe, secure, and reliable payment transfers across borders is complex. Payment must be converted from one system to the other. To guarantee security throughout this process, companies may need more support in the form of payment service providers that are experienced in global transactions. Otherwise, they face a unique set of challenges.

The Unique Challenges of Cross-Border Transactions

There are many ways for a company to send money internationally, the most common being a credit card or bank transfer. Each of them can come with unique challenges if they aren’t conducted in partnership with a global payments provider.

Credit cards can seem like the easiest option, especially with the main vendors being used internationally already. Having said that, although the consumer interface is simple, the backend of the transaction is a lot more complex than for a domestic transfer. Due to the conversion of currencies, there must be additional verification layers conducted by the credit card networks and acquiring banks. This usually results in extra fees that trickle down the payment chain, cutting profit from the original payment and damaging bottom lines.

Alternatively, wire or bank transfers have fewer unexpected fees, but costs can still add up. On top of that, there may be delays for the recipient, particularly when dealing with less popular currencies; banks only keep a limited number of currencies “in stock,” meaning that they may need to use other international partners to facilitate the payment — often requiring additional costs and processing time.

Due to the unreliability and lack of transparency surrounding these processes, there is also the danger of manual processing errors and short payments. This occurs when the payee is unaware of all the additional costs and underpays the total sum, requiring a second payment. In addition to losing the extra fees incurred from multiple payments, receiving less than the agreed amount may damage customer satisfaction and erode loyalty in the long term.

Regardless of which format is used, these cross-border payments can lead to difficulties with cash flow. This is especially impactful for smaller businesses, which are more vulnerable to liquidity problems and less likely to have an established international presence. Without consistent and reliable processing times, it can be challenging for any company to create a financial strategy as they can’t know when to expect payments to arrive or exit accounts.

The Administrative Burden

When working within multiple geographic regions, it is incumbent on the company to be aware of any local regulations. These can vary radically depending on the market, so businesses must do their due diligence to explore all relevant restrictions before they start processing transactions — or they will expose themselves to penalties. This process can be a burden both operationally and economically, reducing the overall revenue of any new international channels.

There is also the administrative investment of establishing financial relationships with local vendors. While this can be a smart decision in the long term, the time and cost required to build these partnerships can detract from a company’s core focus and take important resources away from key areas of the business in the near term.

Forging a Path to Cross-Border Success

Though the complexities of cross-border payments present challenges, the opportunities to grow into new markets and international regions are vast. Partnering with the right payment service provider can streamline the process and offer true transparency, eliminating some of the more serious obstacles that stand in the way.

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