Cross-Border Payment Processing: A Guide for Expanding Your Business Globally
Cross-border payment processing has become a cornerstone for businesses looking to expand their reach globally. And because its technical aspects are relevant, we’ve compiled this comprehensive guide aimed to shed light on the specifics of cross-border transactions, to help you navigate this complex landscape beyond the buzzwords.
According to Nasdaq, Q4 of 2023 was a solid quarter for Visa, partly due to the increased volume of cross-border transactions, a trend that is here to stay.
Although the largest share in international payments is currently in the B2B sector, B2C transactions are booming and projected to grow to $4,195.4 billions by 2027, as explained by DroomDroom. At the same time, 49% of online purchases worldwide leverage digital wallets – making it the #1 payment method internationally.
FXC Intelligence predicts that ‘cross-border B2B ecommerce is expected to grow by 120% between 2023 and 2030 to reach a total addressable market of $22tn by 2030 – and 2024 will be a critical year for this growth’.
What Are Cross-Border Payments?
Cross-border payments are transactions where the payer and recipient are based in different countries. These payments typically involve currency exchange and are regulated by a variety of international and local laws. For businesses, this means additional considerations for fees, exchange rates, and settlement times.
Why Are Cross-Border Payments Relevant?
In today’s global market, the ability to process cross-border payments efficiently is a competitive advantage. The digitalization and the rise of eCommerce have significantly changed the behavioral patterns of shopping - more and more people prefer online shopping, which reduces geographical boundaries and is a real step towards a real global marketplace.
Whether you're an online retailer, a travel agent, a service provider, or a B2B vendor, cross-border payments enable you to tap into new markets, diversify your customer base, and optimize revenue streams.
Easy Checklist for Cross-Border Payments
To make the most of cross-border payments, your business should:
- Get familiar with the multi-acquirer approach and the advantages it brings to your organization’s operations;
- Look for providers that offer a multi-acquirer approach, ensuring access to local payment methods and currencies;
- Make sure you understand settlement and foreign exchange rates - from fluctuations to transparent fees.
- Choose a payment service provider with a strong international network and expertise in foreign exchange management, and make sure you understand fee structures;
- Consider the technological infrastructure needed to support international transactions, such as secure payment gateways and fraud prevention systems;
- Stay informed about regulatory changes in the regions you operate in to maintain compliance and avoid disruptions;
Key Things To Consider In Cross-Border Payments
Utilize A Multi-Acquirer Approach
Using a multi-acquirer approach allows your business to process payments locally, even when operating on a global scale, which makes it increasingly locally relevant.
A multi-acquirer setup in the context of payment processing is a configuration where you, as a merchant, work with a payment service provider that partners with multiple acquiring banks or financial institutions to process your payment transactions. This approach offers several advantages ranging from risk mitigation and improved success rates, to global expansion and regulatory compliance.
This strategy can help you with better transactions, as it may offer lower settlement fees and provide access to local payment methods, which can boost conversion rates for your business. For example, we at CatalystPay have partnered up with a French acquirer, to offer the Cartes Bancaires payment method, which is essential for tapping into the French market with local relevance.
Fee Structure for Cross-Border Transactions
Understanding the fee structure for cross-border transactions helps you streamline international operations from a costs perspective. Cross-border fees can inflate the cost of goods you’re selling, and negatively impact profitability. It's relevant to work with a payment service provider that offers transparency in their pricing model, providing a clear breakdown of transaction fees, currency conversion charges, and any additional costs associated with international settlements.
When processing international payments, settlement—the actual transfer of funds from the acquiring bank to the merchant’s business account—can be complex. Exchange rates fluctuate constantly, and businesses must navigate these changes to ensure profitability. Engaging with a payment service provider that offers favorable foreign exchange rates and transparent fee structures is crucial.
Merchant Account to Business Account Settlement Fees
Fees associated with transferring funds from the merchant account to a business account can vary, especially in cross-border transactions. Your business must consider these costs when choosing a payment service provider, as they can significantly impact the overall cost of international sales.
These fees are often overlooked but can eat into profit margins if not managed carefully. They depend on several factors, including the payment service provider's policies, the countries involved in the transaction, and the currency exchange rates applied during settlement.
A clear understanding of these fees can help your business forecast expenses more accurately and choose a provider whose fee structure aligns with their financial strategy. It's essential to scrutinize the fine print of service agreements and ask providers about all potential fees, not just the headline transaction costs, to avoid any unwelcome surprises that could affect your bottom line.
Access to Local and Regional Payment Methods
The variety of payment methods you offer can be the difference between a sale and an abandoned cart, particularly when selling internationally. Consumers have different preferences and trusts in payment methods depending on their country or region. While credit cards are widely accepted, in many areas, alternative methods like e-wallets, direct bank transfers, mobile payments, or even cash-based digital payment options are the norm.
Having access to local and regional payment methods is vital for businesses aiming to provide a localized experience to customers. This includes traditional payment methods like credit cards but also e-wallets, bank transfers, and other payment solutions preferred in specific regions.
Providing these options can dramatically increase your conversion rates by aligning with local purchasing habits. Additionally, some payment methods are quicker than others, which can affect the speed of funds reaching your account.
International Network and Foreign Exchange Management
Selecting a payment service provider with a robust international network is highly relevant if you’re operating across borders. These providers are equipped with the knowledge and systems to help you deal with foreign exchange management, mitigating the risks associated with currency fluctuations. On top of this, they can offer competitive exchange rates and strategies to lock in prices, reducing the unpredictability of operating costs and protecting profit margins.
Technological Infrastructure for International Transactions
The technological infrastructure supporting international transactions is the backbone of a secure and efficient global e-commerce operation. Your payment service provider should offer robust payment gateways that facilitate transactions in different markets, as well as advanced fraud prevention systems to protect against the increased risk of cybercrime associated with international sales.
This infrastructure should include tools for real-time transaction monitoring, secure data encryption, and compliance with global security standards such as PCI DSS.
Regulatory Compliance Across Regions
It’s almost intuitive why you should stay on top of regulatory landscape in the regions where your business operates, especially since non-compliance can lead to heavy fines, legal challenges, and damage to your brand's reputation.
This might include data protection regulations, anti-money laundering (AML) requirements, and payment processing rules. A proactive stance on regulatory compliance helps to mitigate risks and positions a business as a responsible and trustworthy entity in the global marketplace.
Conclusion
Tapping into new markets and leveraging local payment methods go very well hand in hand as a global growth strategy for a business in the digital economy, since establishing yourself as an industry leader is much more of a fluid process than it was a decade ago.
However, finding the right payment orchestrator to help you deal with the challenges of local regulations and compliance policies has become crucial for the process. On top of this, partnering with a provider that offers a wide range of payment methods can make the difference in the ease of adoption when you’re tackling new markets, especially since these trends still tend to differ a lot from one country to another.
At CatalystPay, we’re all about transparency and nurturing a partnership for your benefit. So make sure to get in touch with us for any questions you might have.