The ultimate guide on cross-border payments

As more shoppers become international digital buyers, cross-border eCommerce is a global retail strategy that’s here to stay. As Juniper Research reports, the value of this form of online sales amounted to US$1.9 trillion as of 2022, and it’s projected to hit US$2.1 trillion in 2023. There’s no doubt that selling overseas in key markets and building a loyal customer base can unlock the potential of maximised sales revenue.

However, accepting international payments can be time-consuming and costly, requiring more resources than their domestic counterparts. Working with the right payments partner can help you remove the roadblocks from online global payment processing and scale your business internationally.

In this article, we unpack all you need to know about cross-border payments and how to accept them efficiently for enhanced payment acceptance rates and increased profitability.

What are cross-border payments?

Also known as international payments, cross-border payments are transactions where the payer (customer) and the recipient of the transaction (merchant) are not based in the same country. Such payments can be performed among individuals and companies to name a few who are looking to transfer funds across territories.

If your eCommerce brand operates away from your home country, it becomes vital that you accept payments across all the markets you’re after. We’ve created an explainer video with insights about cross-border payments so you delve deeper into the global payments ecosystem.

Why use cross-border payments?

The shift to eCommerce, as accelerated by the Covid-19 crisis, has forever altered the way consumers around the world shop and pay. This continues to offer multinational online retailers the golden opportunity to attract new customers. For your digital business to thrive in your desired geographies, however, you must first research the needs and expectations of their target digital shoppers or risk losing out to a competitor.

Payments are a key indicator of preferences in your sought-after regions, yet you need to be aware that they differ significantly from one market to the next. For example, it can be market-specific local payment methods (also referred to as alternative payment methods) such as the Austrian real-time bank transfer service, EPS, or internationally accepted brands such as PayPal.

Merchants who have optimised their payment strategies and provide a localised offering to what their target audience know and trust are better placed to enhance the customer experience while increasing their payments acceptance and revenue (more of this below).

Three key challenges of cross-border payments

Cross-border payments can be intimidating due to their perceived complexity and the fact that higher costs can be tied to them — from foreign transaction fees to taxes among others.

In this section, we dive into some of the most common challenges that online merchants wishing to extend their reach abroad may encounter.

Higher costs

Cross-border transactions are normally pricier than domestic ones due to the costs involved in transferring funds across geographies. Some of these costs may include currency exchange costs, regulatory costs, and intermediary charges – namely, the fee each participant in the transaction flow charges for their services.

Slower transaction processing

International bank payments typically take up to five days to process and clear, which is a slower turnaround time than near-instant domestic payments.

Keeping up with local payment regulations compliance

Localisation is more than translating your website and communication channels. To facilitate cross-border payments, online sellers need to ensure compliance with the regulatory requirements in each country their business is selling to. For instance, if you’re selling to European customers, you need to apply Strong Customer Authentication (SCA) as per the revised Payment Services Directive 2 (PSD2) guidelines. You also need to comply with local laws and PCI DSS rules when collecting, storing and processing the sensitive payment data of your customers (If you want to dig deeper into PCI DSS, check our video).

Another example is 3D Secure 2.0 (3DS2), which is a globally accepted security authentication protocol and the enhanced version of 3DS1. 3DS2 is supported by major international card schemes (e.g., Visa and Mastercard) and is designed to protect payment card information from fraudulent use online. This is because consumers need to complete an additional two-factor authentication (2FA) step with their card issuer to verify the payment after entering their card details, thereby proving their identity through something they know, own, or are (e.g., password, fingerprint, etc.). Implementing 3DS2 can facilitate speedier and frictionless transaction processing across different countries and devices.

A knowledgeable and dedicated payment service provider can help you keep up with the legislation and compliance requirements relevant to the jurisdiction you're after.

How to make international payments work for your business

As explored in emerchantpay’s latest eBook, Expand beyond India with localised payments, if you’re a digital merchant who wants to give your overseas customers a level of trust and ease in doing business with you, partnering with an experienced payment service provider is a must.

This is because the right payment partner will have an extensive grasp of local consumer and payment trends while staying up to speed with the ever-evolving regulatory environment of your target regions.

Below we share some of our top tips for nailing your cross-border strategy.

Offer popular local and global payment methods

Being global means being local to an extent, and the right payment types can help you establish your business in your market of choice. Some of these alternative payment methods, which go beyond cash and credit/debit cards issued by a major international card scheme (e.g., Mastercard, Visa, etc.), include:

Many consumers choose to use a debit, credit, or prepaid payment card online because they're familiar with the steps required to complete a transaction online. Typically, this entails entering their payment card information and waiting until the transaction gets approved.

When it comes to cross-border transactions and ways you can yield higher conversion and payment acceptance rates, domestic card schemes may be something you want to consider offering. As the name indicates, local card schemes operate and are highly popular within the country in which they’re issued. For example, Bancontact is a must-have debit card payment method in Belgium. At the same time, if you want to do business in Brazil, Elo is one of the major domestic credit and debit card schemes just as RuPay is a widely used local payment card among Indian consumers.

Transferring funds from one account to another is an equally easy and convenient way to initiate cross-border payments. All that’s required is the merchant’s IBAN and BIC for the consumer to send the money required to cover the amount of the sale. In many instances, the payment is sent to the IBAN of the merchant's payment service provider who will then settle it to the merchant.

Accepting bank transfer payment options which are trending in your target market is imperative if you want to earn the trust of locals and encourage them to shop from you again. Some examples of the dominant bank transfer payment solutions across Europe are EPS in Austria as well as P24 in Poland, Multibanco in Portugal and Mybank in Italy to name a few. Pix in Brazil and PSE in Colombia are well-known real-time bank transfers deployed in Latin America (LATAM), while UPI is favoured by many Indian consumers.

Commonly available through apps for smart devices, eWallets allow users to securely store their preferred payment cards and pay for their items. It should be noted that through some eWallets, consumers can move money to the merchant’s bank account across countries in multiple currencies.

While eWallets such as Google Pay™, Amazon Pay and PayPal are widely used on a global scale, there are also regionally based versions of digital wallets. For example, Alipay is the leading payment platform in China and accounts for 54% of the market share in the country.

As the name indicates, buy now pay later (BNPL) enables buyers to purchase goods and/or services while paying for them at a later time rather than upfront. An example of the BNPL service is PayPal Pay in 3 – an interest-free payment solution which allows customers to repay their digital purchases in three instalments.

With this payment solution, customers receive a scannable voucher with a transaction reference number that they can bring to a bank, ATM, or convenience store to complete the payment in cash. Consumers tap into voucher-based payments on a local level, say in LATAM via Mexico’s OXXO and SPEI, Brazil's Boleto Bancário, or Chile’s Servipag. However, there are payment methods of this kind which are enabled on a global scale such as Neosurf — a prepaid voucher that's available in hundreds of thousands of online and physical stores worldwide and spread across dozens of countries.

You can find all you need to know about local and global payment methods in our article.

Optimise payments acceptance with local payment methods and acquiring

While delivering a localised checkout experience with the preferred payment types of your key regions is vital for successfully growing your online brand overseas, some payment solutions can, by their flow, result in higher payments acceptance and sales volumes. This is the case with eWallets like Google Pay or Apple Pay which help in improving acceptance rates thanks to their use of 2FA.

Local acquiring is another efficient way to maximise payments acceptance. The reason behind this is the fact that the merchant can process and route transactions with an acquiring bank that operates in the same geography as the cardholder and their respective issuing bank.

Moreover, the settlement – that is when the business receives the funds from the customer payment – of international transactions can become quicker with a local acquirer which can, ultimately, help digital merchants better control their cash flow. From a pricing perspective, processing payments with a local acquirer can benefit your business immensely, as you won't need to pay card fees arising from international card schemes. The same goes for your customers, as they won't incur additional cardholder surcharges.

Access to local acquiring can be achieved through a payment gateway that can enable you to integrate directly with domestic financial institutions, payment types, and currencies which are most favourable for your business and customers.

Reduce costs of international payments

Merchants may be charged foreign exchange (FX) fees when the settlement currency they received their funds is not the same as the currency in which the payment was processed.

To a certain degree, the right payment service provider can help you access competitive and transparent FX rates, thereby cutting down on expenses associated with global payment acceptance.

How to enable smooth and fast international payments with emerchantpay

Understanding how cross-border transactions work, including any infrastructure developments and current regulations attached to them, is integral to successfully expanding your global footprint. However, international payments can be complicated when a business manages them by itself, so it’s worth getting a reliable and dedicated payment partner on board to ensure you're keeping your acceptance rates high and your overheads low.

emerchantpay is a payment service provider, global acquirer, and payment gateway with over 20 years of experience in online payment processing. Through strategic data-driven advisory and a product offering combining features such as fraud prevention tools as well as local and global payment options among others, we help you overcome any obstacles impeding your road to mastering cross-border payments and conquering your desired markets.

Want to learn more about implementing a future-proof global payments strategy? Get in touch with our team of payment experts today.

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