Online businesses fueled the growth of cross-border payments. Consumers from different parts of the world can shop online without worrying about geographical boundaries. Although this means more business for e-commerce ventures, it also comes with various payment processing issues. How can you facilitate cross-border transactions and deal with the challenges efficiently?
What are Cross-Border Payments?
They refer to transactions where the payee and recipient are in different countries. Wholesale and retail make up the bulk of these payments. However, they also include living expenses, education, and gifts. Not so long ago, cross-border transactions were mainly between businesses and banks, but the internet made personal payments possible. As a merchant with offerings in different countries, you have to provide suitable payment options. Your checkout page should give customers payment methods available in their regions. Cross-border transactions require high-risk merchant accounts due to the complications they come with. However, finding a merchant account provider that suits your business is only part of the job. You need a cross-border payment strategy that addresses the different issues.
Top Challenges of Cross-Border Payments
If you conduct business outside your country, then you need a solid plan for cross-border payments. When done right, cross-border banking solutions provide opportunities to expand in the global market. However, failing to account for the various cons of these payment options can cripple your business. Watch out for the following common problems.
High Transaction Costs
You incur more costs with cross-border payments than with domestic transactions. Accepting credit card payments on your e-commerce site means dealing with several intermediaries. As a transaction passes through an intermediary, it collects the corresponding fees. These include taxes, foreign transaction charges, and interchange fees. You also have to worry about compliance and regulatory costs.
Cross-border transactions can take several days or even weeks to process. Again, the payment processing involves multiple stages with entities that have to carry out their own procedures. One issue that affects the payment speed is the lack of standardization across different infrastructures. In some cases, banks in certain regions don’t have cross-border payment systems in place, thus slowing down the turnaround time. Delays in processing can create serious cash flow issues that impact the entire enterprise.
Fraud and Security Threats
Safety is one of the biggest concerns when accepting cross-border payments. Online transactions already face numerous security threats, including data theft and fraud. International transactions multiply these dangers. All it takes is one of the banks or payment service providers to expose a vulnerability. Merchants can’t be sure that every entity involved employs the required security measures or complies with local regulations. It’s why businesses have to use high-risk merchant accounts for processing.
Lack of Transparency
As a merchant accepting payments in different countries, you never have the full picture. You can’t be sure how the various intermediaries process transactions. Therefore, you have to make do with the information provided, including the fees involved. Because such payments make it hard to access all the threats, you are forced to bear the costs of running high-risk merchant accounts. The poor transparency in cross-border payments can eat into profits, consequently denting your bottom line.
How to Overcome the Challenges?
Whether you support virtual wallets or credit card payments, you should try to make processing as painless as possible. For one, improve speeds by providing fast payment methods. The advent of e-wallets meant businesses didn’t have to restrict buyers and other payees to wire transfers. Besides the speed, some digital wallets support multiple currencies, thus, simplifying cross-border payments. Research the prevalent payment options in the regions you are serving and choose the fastest ones. Note that the methods you accept influence the type of merchant account to get.
The ability to track payments is one solution fintech offers in the current payment ecosystem. You can boost transparency by setting up a multi-currency international account in your company’s name, giving you access to useful data. Working with a local partner is another approach that gives you an edge because you can grasp the local legislation, logistics, and infrastructure better.
The Future of Cross-Border Payments
Cross-border transactions continue to surge, which forces the fintech sector to keep re-evaluating the solutions available to users. The goal of improving the efficiency of international payments is one many industry players share. SWIFT GPI is an example of a solution that aims to solve the transparency challenge in transactions by enabling information and fee monitoring. Digital innovation is also enhancing efficiency by optimizing cross-currency processing. The objective of real-time cross-border transactions is not very far, as the payment industry works tirelessly to improve user experience. Current and future digital trends are focusing on faster, safer, and more transparent transactions, which will pave the way for new solutions.
As globalization creates more business opportunities, the need for seamless cross-border payments has never been greater. Enterprises that cater to customers across borders, shared or not, should be able to process transactions safely, affordably, and fast. Advances in technology will hopefully improve the cross-border payment infrastructure to facilitate smooth payment processing in various regions.