Cross-Border payments

Everything You Need to Know About Cross-Border Payments

Leverage local payment methods to support commerce strategy in the global marketplace

 What are cross-border payments?

A cross-border payment refers to any transaction in which the payer and the payee are located in different countries; these transactions can take place between individuals, companies and banking institutions. Global cross-border payment flows are expected to reach $156 USD trillion by 2022, making it one of the fastest growing segments within the global payments ecosystem.


Why use cross-border payments?

Globalization, digitalization and the rise of eCommerce have changed the way consumers around the world shop, creating a truly global marketplace. In this environment, merchants have the opportunity to enter new markets and access new customer bases — but in order to take advantage of that opportunity, they must first understand the nuances and expectations of consumers in different regions.

For example, merchants who wish to grow their customer base in Europe would do well to offer SOFORT, an online payment system that acts as an intermediary between buyers and merchants. Owned and operated by Klarna, SOFORT is widely used throughout Germany, Austria, Belgium, the Netherlands, Poland, Italy, Spain and Switzerland. Merchants hoping to do business in Latin American will similarly want to support PayPal, which is one of the most popular payment methods in the region, as well as voucher-based payments such as Boleto in Brazil, OXXO in Mexico and Via Baloto in Colombia.

The entire purpose of cross-border payments are to help merchants adapt their global commerce strategy to local markets; by offering consumers in different regions payment options familiar to them, merchants can both enhance the customer experience and capitalize on new revenue streams.


What are some examples of cross-border payments?

Cross-border payments take many forms, including (but not limited to):

  • Bank transfers
  • International wire transfers
  • Electronic funds transfers
  • Credit card payments
  • Debit card payments
  • Prepaid debit card payments
  • Global ACH payments
  • Digital currencies
  • Digital wallets
  • Mobile wallets
  • Buy now, pay later
  • Blockchain-based payments
  • Voucher-based payments
  • Cash-based payments
  • Paper checks

The popularity of these payment types varies by region.

For example, mobile wallets are the fastest growing payment methods in Southeast Asia, where the total number of mobile wallets is expected to increase 311 percent from 2020 to almost 440 million by 2025. In North America, credit cards are the preferred payment method and account for 47 percent of all eCommerce transactions. Though cash-based transactions — such as cash-on-delivery payments — remain the most popular payment method in Africa, mobile money transfer service M-Pesa has seen significant uptake, with a reported 48 million customers. Originally launched in Kenya, M-Pesa now operates in Tanzania, South Africa, Afghanistan, Lesotho, the Democratic Republic of Congo, Ghana, Mozambique, Egypt and Ethiopia.

Certain companies and platforms also have a stronger presence in some regions than others. For evidence of this, look no further than buy now, pay later (BNPL): While Klarna is the dominant BNPL service provider throughout Europe and the U.K., Afterpay drives the BNPL market in Australia and New Zealand and Affirm is an important player in North America. When developing a cross-border payments strategy to support global commerce, it’s imperative that merchants take these regional preferences into considerations.


How do cross-border payments work?

The general concept behind cross-border payments is fairly simple: You set up a website with a checkout page and, on that checkout page, offer various payment options to customers. A customer making a purchase can select their preferred payment method and finish the transaction, often after completing some sort of identity authentication.

A graphic with three rectangles that shows how cross-border payments work, from a person in the US wanting to buy something in the UK, to adding the item to their cart to a thank you message where cross-border difficulties do not interrupt the purchase flow.

On the back end, the situation is far more complex. International payment processing typically involves a change in currency, which means merchants have to navigate exchange rates, taxes, foreign transaction fees and bank accounts in each currency. If the consumer makes a payment using a credit or debit card, there are also interchange fees to contend with.

Merchants must also be pragmatic about which cross-border payment methods they configure and make available to customers. Naturally, they’ll want to select payment methods that appeal to their target market — for example, credit and debit cards for customers based in North America and Latin America, digital wallets for those in the Europe and Asia-Pacific regions and so on. Regardless which payment method(s) a merchant chooses to configure, they must be visible in the technical connection in the payments processing gateway.

From there, merchants must decide whether to implement localized or global fraud prevention and authentication strategies and whether to create a single or multi-acquirer setup. Additionally, if a merchant wanted to use a local acquirer in a shopper’s country of origin, they would need to register as a local entity in that country. In order to achieve all of this, merchants require a cross-border payments platform capable of recognizing the consumer’s origin source, applying the appropriate configuration to payment connectors, utilizing the appropriate authentication method and generating business analytics for payments optimization. This last item is especially important, as performance metrics are essential to merchants adapting their cross-border payments strategy for the future.


What are the benefits of using cross-border payments?

There are numerous benefits to developing a cross-border payments strategy:

  • Cross-border payments enable merchants to capitalize on the rapidly growing global cross-border B2C eCommerce market, which is projected to be worth $4,195.4 billion by 2027, with a compound average growth rate of 28.4 percent from 2020 to 2027.
  • Cross-border payment options allow for a more personalized customer experience by enabling merchants to present consumers with their choice of popular regional payment methods.
  • Most cross-border payment platforms are mobile-enabled, so merchants can pay invoices for suppliers from any device and any location; intelligent scheduling also makes it so that merchants can schedule invoice payments. These capabilities enable merchants to expand their supplier and affiliate bases — in addition to their customer base — on a global scale.
  • Cross-border payment systems process domestic and international money transfers using a single platform, enhancing accounts payable efficiency and transparency.
  • Cross-border payment platforms enable merchants to connect to multiple acquirers, including local acquirers, which results in higher bank approval rates, lower interchange costs and greater risk diversification. In fact, merchants using multiple acquirers are found to have acceptance rates up to 16 percent higher than those using a single acquirer setup.
  • Cross-border payments increase merchants’ ability to customize authentication and fraud rules using configurable workflows and risk management options.
  • The impending global adoption of ISO 20022 will create international cross-border message standards and enhance cross-border payments efficiency. 

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Are there any challenges associated with cross-border payments?

Despite the benefits they offer, some merchants find cross-border payments intimidating due to their perceived complexity and the fact that costs associated with them — foreign transaction fees, interchange fees, taxes and so on — can be high. It can also be difficult to predict settlement times on cross-border payments and challenging to reconcile multiple currencies for revenue accounting. End consumers may find exchange rates confusing, which can deter them from completing a purchase, and merchants must ensure that they select the right payment methods for each market.

There is also the matter of regulatory compliance. Almost every region has its own set of regulations pertaining to the transfer of financial data, such as APEC’s Cross-Border Privacy Rules (CBPR) and Europe’s Payment Services Directive 2 (PSD2). Certain countries even have their own regulations, such as Germany’s Bundesdatenschutzgesetz (BDSG), or unique versions of existing regulations, such as Commission nationale de l’informatique et des libertés (CNIL), France’s interpretation of the General Data Protection Regulation. Finally, there are regulations that apply to specific cross-border payment types, such as the Payment Card Industry Data Security Standard (PCI DSS), a set of policies and procedures designed to promote credit card payments security.

Depending on which cross-border payment options they offer and which markets they operate in, merchants need to be cognizant of various regulations in order to ensure that their international payment processing systems are compliant. Fortunately, these compliance concerns — as well as concerns related to cost and complexity — can be resolved by choosing the right cross-border payments platform.


How does ACI Worldwide support cross-border payments?

ACI Worldwide offers global connectivity via a single API and payment orchestration based on customer journeys; this enables us to automatically convert transactions so that they align with local payment options, customs, acquirers, fraud strategy and authentication. We’re constantly adapting to changes in the market and supporting emerging payment types, such as BNPL and digital currencies, to help merchants take advantage of new technology, close payment gaps and seize new revenue growth opportunities. All of our solutions are tightly integrated, which means ACI customers are able to easily switch on new solutions as needed, enabling them to break into new global markets at speed.

Contact us today to learn more about ACI Worldwide’s cross-border payment processing solutions.

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