Cross-border payments are the lifeblood of global trade, connecting businesses and individuals across borders and fuelling economic growth. With global payments expected to reach a staggering USD 290 trillion by 2030, the need for fast, secure, and efficient cross-border transactions has never been greater.
Yet navigating these transactions is no small feat. Differences in regulatory frameworks, multiple currencies, and stringent security requirements make cross-border payments inherently complex.
One of the most transformative trends shaping this space is the rise of near real-time payments. By 2023, over 70 countries had implemented real-time payment systems, while ACI Worldwide reported 195 billion real-time transactions in 2022 – a jaw-dropping 63% increase from the previous year.
In this guide, we’ll unpack the intricacies of cross-border payments, explore the impact of instant payment systems and interbank networks, and highlight strategies for managing currency risk – all to help businesses navigate the global payments landscape with confidence.
Topics covered include:
- What are cross-border payments?
- Types of cross-border payments
- What are cross-border payments used for?
- How do cross-border payments work?
- Benefits and challenges of cross-border payments
- Currency risk management – what is it and why does it matter?
What are cross-border payments?
Cross-border payments are financial transactions where the payer and the recipient are in different countries. They’re the backbone of international trade, enabling businesses to operate globally and individuals to send and receive money across borders with ease.
These payments don’t just move money: they connect economies, support global trade, and open new opportunities for business growth. From bank transfers and credit card payments to emerging digital payment methods, cross-border transactions come in many forms, each with its own advantages and challenges.
Types of cross-border payments
There are two main categories of cross-border payments: wholesale and retail.
Wholesale cross-border payments usually take place between financial institutions. These transactions support everything from customer activities to the institutions’ own cross-border operations, including borrowing and lending, foreign currency exchange, and trading in equities, debt, derivatives, commodities, and sometimes securities. Governments and large corporations also rely on wholesale payments for high-value transactions, such as importing and exporting goods or settling trades in financial markets.
Retail cross-border payments, on the other hand, involve everyday transactions between consumers and businesses. This category includes person-to-person transfers, business-to-consumer payments, and business-to-business transactions. A key component of retail payments is remittances, the money that migrants send back to their home countries – an essential lifeline for families and economies worldwide.
Other types of cross-border payments include:
- B2B Transactions: Payments between businesses for goods and services. For instance, a UK company is purchasing raw materials from a supplier in Germany.
- B2C Transactions: Payments from businesses to consumers, often seen in e-commerce.
- C2C Transactions: Payments between individuals, such as remittances, sent by migrant workers back to their families in their home countries.
- C2B Transactions: Consumer payments to businesses, including online shopping and bill payments. These transactions typically include payments for subscription services.
Cross-border payment methods
There are many forms of cross-border payments, each offering different levels of speed, cost, and convenience. Here’s a quick overview of the most common methods:
- Bank transfers: The traditional route for moving funds between accounts. Secure and reliable, but often slower and more expensive due to fees and exchange rates. Still a go-to for large B2B transactions.
- Account-to-account (A2A) payments and open banking: Leveraging open banking, A2A payments are faster and more efficient than traditional bank transfers, with lower fees and real-time reconciliation. They are transforming remittances and cross-border transactions.
- Credit and debit cards: Widely used for online and in-person payments, cards offer convenience and broad acceptance. For example, over 90% of US flight tickets sold in 2023 were paid with a credit or debit card – despite higher fees.
- Cryptocurrencies: Offering speed and low transaction costs, crypto provides a decentralised alternative to traditional banking. However, regulatory uncertainty and volatility remain key challenges.
- Digital wallets: Platforms like PayPal, Alipay, and WeChat Pay make cross-border payments seamless and user-friendly. In 2023 alone, Alipay and WeChat Pay handled over $7.5 trillion in digital wallet transactions in China.
Cross-border instant payments
Cross-border instant payments are revolutionising the way money moves across borders. These transactions enable immediate or near-real-time transfers, powered by advanced technologies like account-to-account (A2A) systems – for example, Brite’s instant payments.
Speed is everything
Instant payments drastically reduce transaction times, improving liquidity and cash flow for businesses and individuals alike. According to the G20 Roadmap for Enhancing Cross-Border Payments, by 2027, 75% of all cross-border payments – including remittances, retail, and wholesale – are expected to be completed within an hour, with the rest processed within a single business day. This near-instant settlement is especially valuable for time-sensitive transactions.
Transparency builds trust
Real-time updates and confirmations give senders and recipients immediate visibility into the payment’s progress. This reduces uncertainty, improves record-keeping, and increases confidence in the process.
Better customer experiences
In sectors like e-commerce and remittances, fast, reliable payments meet growing expectations for efficiency and convenience. Customers value instant access to funds, enhancing satisfaction and loyalty.
APIs make it seamless
Application Programming Interfaces (APIs) enable integration between different financial systems, allowing real-time processing of cross-border payments. Brite’s Instant Payments Network, for example, consolidates multiple bank APIs into a single, streamlined solution, simplifying the payment process while ensuring speed and reliability.
In short, cross-border instant payments deliver faster settlements, greater transparency, and improved customer experiences, making them a cornerstone of the modern global financial landscape.
Cross-border interbank payment systems
Cross-border interbank payment systems enable banks in different countries to transfer funds securely and efficiently. By connecting national payment networks, these systems make it possible for money to move seamlessly across borders. A prime example in Europe is the Single Euro Payments Area (SEPA).
SEPA standardises and simplifies cross-border payments in euros, allowing consumers, businesses, and public administrations to send and receive funds under the same conditions, no matter where they are in Europe. This harmonisation makes cross-border transactions almost as straightforward as domestic payments, improving both speed and security.
Brite’s Instant Payments Network leverages SEPA to deliver rapid A2A payments. By consolidating multiple bank APIs into a single, streamlined solution, Brite ensures real-time processing of cross-border transactions. Bo Liljefors, Chief Product Officer at Brite Payments, notes:
‘With our solution, consumers benefit from instant settlement between bank accounts and a frictionless payment experience.’
In short, interbank payment systems like SEPA form the backbone of secure and efficient international transactions, using technology and integrated networks to keep global funds moving seamlessly.
What are cross-border payments used for?
Cross-border payments power the global economy, enabling businesses, individuals, and organisations to move money across borders quickly and securely. They’re used for a wide range of activities:
- International trade and commerce: Businesses rely on cross-border payments to import and export goods and services, keeping global supply chains running smoothly. For example, a company in Germany might pay a supplier in Italy for raw materials.
- Investment and financial markets: Investors and multinational corporations use cross-border payments for buying and selling securities, managing foreign investments, and funding global operations.
- Remittances: Migrant workers often send money home to support their families. These remittances provide vital income that sustains households and local economies, especially in developing countries. Read more about remittances.
- Tourism and travel: Tourists use cross-border payments to pay for accommodation, meals, and other travel expenses, supporting the travel industry and fostering global connectivity.
- E-commerce: Online shopping across borders is growing rapidly. Cross-border payments allow consumers to purchase goods from international retailers, helping businesses reach a global audience.
- Corporate transactions: Large companies use cross-border payments for mergers, acquisitions, joint ventures, and other strategic initiatives that drive growth and market expansion.
- Charitable donations and international aid: NGOs and governments rely on cross-border payments to deliver aid, fund development projects, and support humanitarian efforts around the world.
By enabling fast, secure, and reliable transfers, cross-border payments connect economies, support families, and drive growth on a global scale.
How do cross-border payments work?
Sending money from one country to another may seem straightforward. But behind the scenes, cross-border payments involve a series of steps designed to ensure security, compliance, and smooth processing.
They also involve the following key players:
- Payers and recipients: Individuals or businesses sending and receiving funds.
- Banks and financial institutions: Facilitate transfers, handle currency conversions, and ensure regulatory compliance.
- Payment service providers: Offer platforms and technologies that simplify processing, manage compliance checks, and efficiently track transactions.
Here’s a breakdown of how cross-border transactions typically unfold:
1. Initiation
The process begins when the payer sets the payment in motion through a bank or payment service provider. This involves providing key details, including the recipient’s information and the transfer amount.
2. Processing
Once initiated, the transaction undergoes processing. This includes compliance checks like anti-money laundering (AML) and know your customer (KYC) procedures to verify legitimacy. If the payer and recipient use different currencies, this is also when currency conversion takes place.
3. Settlement
After processing, funds move through intermediary banks or payment networks. These intermediaries help navigate regulatory requirements and international standards, ensuring the payment reaches its destination safely. Modern solutions, like account-to-account (A2A) payments powered by open banking and offered by providers such as Brite Payments, can streamline this step, making transfers faster, more transparent, and easier to reconcile for businesses.
4. Completion
Finally, the funds are credited to the recipient’s account, and both parties receive confirmation with transaction details, including the transaction ID and the final amount received. This step ensures transparency and trust for all involved.
Benefits and challenges of cross-border payments
Cross-border payments open up exciting opportunities for businesses, but they also come with unique challenges. Understanding both sides is crucial for anyone operating in international markets.
Benefits of cross-border payments:
- Global market access: Cross-border payments let businesses expand beyond domestic borders, reaching new customers and unlocking international growth opportunities.
- Broader customer base: Accepting payments from overseas customers boosts satisfaction, loyalty, and ultimately revenue.
- Economic growth: By enabling the flow of goods, services, and capital, these payments play a vital role in driving international trade and investment.
- Currency diversification: Holding multiple currencies can help businesses manage exchange rate fluctuations and protect profit margins.
Challenges of cross-border payments:
- Complex regulations: Different countries’ rules and compliance requirements can make international transactions tricky and time-consuming.
- Higher costs: Currency conversion and transaction fees often make cross-border payments more expensive than domestic transfers.
- Longer processing times: Payments can take longer due to differing banking systems, time zones, and verification steps.
- Currency volatility: Exchange rate fluctuations can affect payment values, making effective currency risk management essential.
Weighing the benefits against the challenges allows businesses to navigate cross-border payments more strategically, maximising growth opportunities while minimising risks in the global marketplace.
Currency risk management – what is it and why does it matter?
Cross-border transactions open businesses to the opportunity of global markets – but they also expose them to currency risk, the potential losses that arise from fluctuating exchange rates. Managing this risk is essential for financial stability, cost control, and protecting profit margins.
Why currency risk management matters:
- Financial stability: Effective currency management shields businesses from sudden, unpredictable exchange rate swings that could otherwise cause significant losses.
- Cost control: By mitigating adverse currency movements, companies can maintain predictable transaction costs—essential for accurate budgeting and planning.
- Profitability: Protecting against unfavourable rate changes helps businesses maintain consistent revenues and avoid unexpected hits to profit margins.
Strategies to manage currency risk:
- Hedging: Using tools like futures, options, or swaps, companies can lock in exchange rates for future transactions, removing uncertainty and stabilising financial obligations.
- Diversification: Spreading investments across multiple currencies and markets balances potential losses in one currency with gains in another, reducing overall exposure.
- Forward contracts: Agreements to exchange currency at a predetermined rate on a future date provide certainty for future cash flows, enabling precise planning and budgeting.
Optimising cross-border payments with Brite
Cross-border payments are integral to global commerce and economic integration. Implementing effective strategies and leveraging advanced technologies, such as instant A2A payments powered by open banking, can boost the efficiency and reliability of these transactions.
Brite Payments delivers seamless, secure, and efficient cross-border payment solutions designed for businesses and consumers alike. With real-time processing, advanced risk management, and a focus on customer satisfaction, Brite helps you stay ahead in the fast-moving world of global payments.
Ready to simplify international transactions and give your business a competitive edge? Get in touch with one of our payments experts today and see how Brite can transform the way you move money across borders.
