Asia-Pacific has grown into the world's largest market for cashless transactions. Find out what are the top APMs here.
Globalization and digitization have had a significant impact on the way people carry out transactions. For example, merchants can now enter new markets and tap into new customers without having physical addresses. Likewise, consumers can shop for items thousands of miles away and have them delivered to their doorstep. In addition, cross-border payments enabled by various online payment methods have been at the heart of fueling a truly global marketplace.
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What are Cross Border Payments
Cross-border payment refers to transactions between individuals, financial institutions and businesses in different countries. In this case, the payer and the payee are located in different countries.
Cross-border payments are designed to help merchants enhance their global commerce strategy. Additionally, they help consumers get hold of items that are not available in their domestic markets. By offering different online method of payments, merchants enhance customer experience allowing them to tap into new revenue streams.
Merchants in the US wishing to grow their European customer base can offer payment options that allow customers to pay for goods and services. Consequently, the payment method acts as an intermediary between the buyer and the seller in facilitating cross-border payments.
Likewise, European customers who wish to purchase US items can make payments through any of the available online method of payments, such as PayPal. Xanpay is another popular online payment gateway that allows people to pay for items purchased through various e-commerce platforms.
How do Cross-Border Payment Work?
The basic framework of cross-border payments is simple. First, merchants set up websites with checkout pages. The checkout page comes with a popular online method of payment that customers can use to pay for the goods or services they are to purchase.
A customer looking to purchase a service or an item has to visit the checkout page, select their preferred online payment method and finish the transaction. The transaction will be completed regardless of where the payer and the payee are located.
The cross-border payment process is far more complex on the backend, given the currency conversion process that comes into play. In addition, whenever a customer makes a payment using credit or debit cards, interchange fees are usually incurred.
Merchants looking to maintain a competitive edge must offer various online method of payments that customers can use to complete cross-border payments. In this case, they would want to settle on payment gateways that would appeal to the target market.
For instance, credit and debit cards tend to be more popular for consumers in North America, while digital payment wallets such as PayPal and Xanpay appeal to customers in Europe and Asia.
Learn about the payment trends for 2023 with our detailed guide.
Steps of Sending Cross Border Payments
The following are the steps to sending cross-border payments regardless of the online payment method.
1. Purchasing
When sourcing items globally, cross-border payments are the only way a purchase can be made. One must locate the supplier likely to supply preferred items at affordable prices. If you are purchasing via an e-commerce site, you must select items in the shopping cart and then direct to the payee's checkout page to make payment.
If you are purchasing via phone, a sales representative will contact you and initiate the checkout process, from where you will be presented with the payment options.
2. Preparing for cross-border payments
While looking to make payments to finalize cross-border transactions, you will have to supply unique information depending on the country you are sending the amount. Additionally, not all payment methods are available. Therefore, you will have to consider the available options.
Platforms like XanPay make cross-border payments easier and simpler.
3. Routing and Processing
Once you initiate the process, the payment will be sent via an encrypted gateway. In return, you will obtain authorization to deduct funds from the account. If you intend to make regular payments to an entity setting up recurring payments is an excellent way to negotiate pricing discounts.
On the other hand, merchants must resort to a payment gateway connected to multiple banks around the globe to improve the chances of payments being processed the first time around. A global payments network can automate the payment process, whether one-time or recurring.
4. Payment Approval or Denial
Payment may be approved or denied due to various reasons not limited to insufficient funds. Verification usually takes place to ensure there are sufficient funds and also to validate the payment information.
5. Payment Confirmation
Once a cross-border payment is approved, the payee will receive a confirmation affirming a successful transaction. If it is declined, one will receive a return code signaling why it was declined. Once an online payment is approved, an order goes into fulfillment.
6. Settlement
Depending on the online payment method used to finance the cross-border payment, there is a good chance the funds might still appear in the payer's account and not the payee, it normally takes two to three days for cross-border payments to go through, depending on the payment method used.
Types of Cross-border Payments
There are multiple payment methods used to enable cross-border payments. Merchants and global suppliers select and add support to various payment methods depending on their target market.
International Wire Transfer
It is a global payment method mainly used to enable payments from banks. While the method provides an immediate exchange of funds, it usually comes with a financial service fee exceeding $50. Due to the high transaction costs, it is not an ideal payment method for anyone looking to make large payment volumes. Additionally, the method comes with limited traceability.
International ACH
International ACH is designed to make payments to overseas suppliers and affiliates easier and simple. It enables payments via various entities, including SEPA BACS and local banks. However, it does not support card networks. It is an ideal payment method as it is inexpensive and extremely convenient. However, it can take several days to process payments.
Due to the low transaction fees, International ACH is commonly used in making large volumes of payments.
Prepaid Debit Cards
Also known as cash cards, prepaid debit cards make it easy to make international payments as funds are automatically deducted from the account and transferred to the payee's debit card. In addition, debit card payments are processed over the card network and provide real-time payment immediacy.
Digital Wallets
Digital wallets are increasingly taking over as revered payment methods, given their convenience. Wallets like Xanpay and PayPal use encryption to guarantee users' security and privacy. Additionally, they make it easy to make payments at a touch of a button. They also stand out due to their low transaction fees.
The Benefits of Using Cross-Border Payments
Cross-border payments allow merchants to capitalize on the ever-growing business-to-consumer market projected to be worth $4.19 billion by 2027, tapping into new revenue streams by targeting a broad customer base.
Consumers can now access various items that are typically unavailable in their domestic markets. In addition, purchasing items across borders allows customers to benefit from plenty of options making it easy to settle for the highest quality and affordable items.
Cross-border payments have helped enhance personalized customer experience by allowing merchants to present consumers with their preferred payment method.
Most cross-border payment platforms are mobile-enabled. Consequently, merchants can pay for invoices from any device and location. Likewise, consumers can shop and pay for items while on the go from any device. These capabilities allow consumers to shop more widely, and merchants can tap into the broader customer base.
Localization in payments help businesses thrive and access a broader customer base. Learn how GoZayaan - a travel platform from Bangladesh - localized payments through XanPay. 
Cross-Border Payment Draw Backs
Studies show that 73% of companies in the US regularly rely on cross-border payments. However, cross-border payments also come with their fair share of challenges that affect merchants' ability to generate optimum profits while affecting customers' ability to shop efficiently. The costs associated with most online payment methods that facilitate cross-border payments are usually high. Foreign transaction fees, interchange fees, and taxes increase costs, making items costly.
The ability to predict settlement times with some payment methods to enable cross-border payments is a big challenge. While some payments are processed instantly, others can take two to three days, causing significant inconvenience for merchants and suppliers.
Exchange rates involved in cross border payments may also need to be clarified to consumers, which can deter them from completing purchases. Therefore, merchants must select the right payment methods to reduce card abandonment risk.
Bottom Line
Cross-border payments are expected to increase amid the digital revolution as the world becomes a digital village. The proliferation of effective and efficient online payment methods continues to fuel cross-order payments making it easy for consumers to buy and pay for goods and services thousands and miles away.
XanPay provides a simple, fast, and easy way to make international payments. You can send or receive payments through XanPay's infrastructure to more than 15 countries.
Asia-Pacific has grown into the world's largest market for cashless transactions. Find out what are the top APMs here.
Asia-Pacific has grown into the world's largest market for cashless transactions. Find out what are the top APMs here.