The Evolution of Cross Border Payments
With the increasing involvement of globalisation with everyday operations of business and in the financial sector, the role of international payments is becoming increasingly crucial. The increased number of international payments or cross-border payments are because of today’s developing worldwide trade, whether it’s sending money back home or signing international business contracts. Manufacturers spreading their supply chains across borders, global investment flows, international trade, and e-commerce are all factors that have aided the rise of cross-border payments.
What do Cross-Border Payments mean?
Cross border payments take place when the payee and the recipient involved in a transaction are based in different countries. This type of transaction can take place between individuals, companies, or even financial institutions who are willing to transfer funds across borders. For businesses that have an international customer base, it is important that they are able to accept payments from their customers based in all the countries they have their market in.
Types of Cross-Border Payment Methods
Every day, the cross-border payments sector uses a variety of payment methods to support international payments, including credit cards, cross-border payment gateways, wire transfers, e-wallets, distributed ledger technology, APIs, and so on. Continue reading to know more about the different types of cross border payments methods.
- Wire Transfers
Wire transfers, or international bank transfers are one of the oldest methods of initiating a cross border transaction. This is a form of electronic transfer of money, where the money is ‘wired’ from one bank to another. Although this method of making an international payment is very convenient, wire transfers can also be slow and expensive. Banks usually charge a fee, which can mount up if a business or individual makes regular international payments. Sometimes, cash flow issues can also occur, since this method can take upto 5 days to complete the transaction.
- Payment Service Providers (PSPs)
Payment service providers (PSPs) are critical components of the payment ecosystem, allowing you to accept cross-border payments via debit or credit cards as well as Direct Debit. PSPs handle the whole payment process and let you take as many different forms of payments as possible, allowing you to reach a wider audience. PayPal, Shopify, Stripe, and iZettle are some of the most popular PSPs.
eWallets or Digital wallets are a type of virtual wallets that store a customer’s money and other personal information, like credit/debit card numbers, bank details, etc. Some commonly used digital wallets are PayPal, Alipay, Apple Pay and Google Pay. Some eWallets provide the facility of conducting cross border transactions, making this method one of the easiest and cheapest modes of international payment.
- International ACH
An international ACH, also known as a global ACH, makes it easier to send payments to foreign suppliers and affiliates. Global ACH payments can be made using a variety of channels, including SEPA, BACS, and local banks, but they are not processed through a card network. They are low-cost and highly practical.They are great for making huge amounts of payments because of their cheap transaction fees, and they are very easy to set up on a regular basis. Global ACH payments’ sole drawback is that they might take several days to process.
Role of Fintechs in Cross Border Payments
Migrants from all over the world rely on cross-border payments to support their livelihoods and economies. Furthermore, they have been linked to global trade, and fintechs have seen this sector as an opportunity owing to the huge volume of transactions that come with it. They’ve figured out how to provide contactless, quick solutions that eliminate the need for a middleman.
Fintechs’ arrival has been a game-changer in the field of international transactions. Inter-country transactions are now 100 percent digital, consistent with rules, quick, cost-effective, and transparent. Cutting-edge technology like Swift GPI, the availability of the proper APIs, and creative business models have made this possible by providing fast and secure global payments, but they need to be more widely adopted before their true potential becomes clear.
Why are fintechs preferred over banks, which have traditionally served as the channel for money transfers between countries? It’s because fintechs have a number of advantages that make them adept at cross-border payments. Fintechs, with their cutting-edge technology, are able to complete transactions faster than traditional banks, since their applications are designed to reduce the time spent waiting. Fintechs have the competitive advantage of delivering better exchange rates to their end customers due to the elimination of various fees that are involved in a typical bank transfer.
The borders between countries are becoming increasingly blurred as new fintechs join the international payments market. With the introduction of new technologies, transactions in this sector will become cheaper, quicker, safer, and more transparent. Cross-border payments are no longer a time-consuming and labor-intensive procedure. We may also expect a slew of new technologies to make cross-border payments more safe and transparent.
It is important for international business owners that they are well informed about cross border payments. Merchants are advised to keep themselves up to date with the latest innovations in the fintech and payment industry so that they can provide the best payment experience to their customers. In case you face any difficulties in finding the best payment provider for your business, or if you cannot decide which method will be best suited for you, feel free to contact PSP Academy! We are experts in this industry, and we will make sure you have a seamless payment experience.