Remittance payments 101: How to Receive Funds Across Borders

With over $900 billion sent across the globe as remittances in 2024, we can safely say that remittance payments play a major role in driving the global economy. In fact, over 77 countries rely on remittances for around 3 per cent of their GDP, making them a key force in driving corporate growth and supporting families worldwide. 

But the problem is there are multiple factors that throw a wrench in this drive towards growth like complex regulations, logistical barriers, and unpredictable currency fluctuations.

The solution? Modern remittance service platforms that enable a fast, secure transfer of funds.

In this article, we’ll discuss what remittance payments are, how they work, and how to manage them effectively while staying compliant.

• Remittance is the money sent across borders from one party to another. Most often, it is sent by migrant workers supporting their families back home. These payments can  reduce poverty and strengthen economies worldwide.

• The process of cross-border remittance transfer includes initiation, exchange, transfer, and then settlement to recipients. The payment is usually processed through banks, wire transfers, money transfer apps, or cryptocurrency transfers. 

• The key to good remittance management is having accurate knowledge of transaction fees, maintaining compliance with regulations (AML, KYC), and proactive handling of currency fluctuation risks. 

Remittance payments refer to international money transfers between individuals or organizations. They are mostly sent by immigrant workers to their families back in their home country. 

These transfers are either personal or business transfers, and they are crucial in sustaining households and strengthening economies in developing countries.

There are several reasons why remittance payments matter:

1. Global impact: The size of remittances to emerging economies is huge, crossing over billions of dollars, as was the case in 2023, with $656 billion transferred as remittances, benefiting millions of people and their families.
2. Poverty reduction: The funds received through remittances can be utilized by families for fulfilling their essential needs like food, housing, healthcare, and education. This way, remittances help in reducing poverty and creating opportunities within the host communities.
3. Corporate relevance: Corporations also transfer trillions of dollars annually through remittance channels but quite often have to face high transaction costs and complex compliance requirements.

The processing of cross-border remittance payments involves a series of steps - starting from initiation, transfer, and then settlement through various channels. 

Let’s see how this process works:

1.Initiation: The sender of remittance initiates the fund transfer through a bank, a money transfer service, or a digital payment platform like Xflow, Wise, or PayPal.

2.Transfer: The chosen service provider processes the transfer. The money can go through third-party banks or correspondent banking networks, which can increase the fee and may cause delays.

3.Currency exchange: The funds are converted into the receiver’s currency at the current foreign exchange rate.

4.Settlement: The recipient receives payment through bank deposit, cash, or mobile wallet.

The payments can be transferred instantly through digital applications or take several days through traditional channels. The process also involves adherence to essential laws that one has to take care of, particularly in the case of growing organizations.

The key stakeholders in the remittance payments ecosystem play a vital role in ensuring remittance transfers remain safe, timely, and compliant. These include:

1.Remitters: People or companies who transfer funds overseas, usually consisting of migrant workers or small businesses across the globe. 

2.Beneficiaries: The recipients of the funds.

3.Banks: Offer accounts, clearing, and settlement services for international transactions. 

4.Money transfer operators (MTOs): Non-banking institutions like Western Union, Wise, or Xflow that specialize in quick cross-border payments. 

5.Central banks & regulators: Oversee compliance, enforce KYC/AML rules, and maintain financial system integrity. In India, these regulations are governed under the Foreign Exchange Management Act (FEMA).

Cross-border money transfers can be classified into inbound remittances (receiving money from overseas) and outbound remittances (sending money overseas). 

Here are the key differences between inbound and outbound remittance:

Remittance channels refer to the payment methods or systems used in sending money across the border. Here are some examples:

1.Wire transfers: Direct bank-to-bank wire transfers are secure and fast, hence ideal for sending inter-border payments that have a high value.

2.International checks: Physical checks drawn on the local overseas bank are slower; however, they are accepted as formal payment methods and might be required for record-keeping purposes.

3.Forex brokers: Specialized companies offering currency exchange and transfers that are particularly useful for bulk or recurring payments, with cheaper rates and better fees than leading banks.

4.Money transfer apps: Cross-border payments are easily made via money transfer software like Xflow, Wise, or PayPal. They offer a convenient user experience and relatively lower transaction costs than other processes.

5.Cryptocurrency transfers: Digital currency transfers allow low-cost and high-velocity international payments across borders without going through the bank, but have varying levels of acceptance and regulation.

6.International money orders: Prepaid paper-based channels can be used for transfer of small amounts like sending gifts to relatives who may not have bank accounts or the facility to use digital payment methods.

7.Global payment networks: Internationally recognized networks like SWIFT enable secure, standardized bank-to-bank transactions. They are mostly used for institutional or business payments that need global reach, reliability, and regulatory compliance.

While both remittance payments and international wire transfers involve moving money across borders, they do differ on several factors. 

Let’s look at this table to understand what those factors are. 

The following are some of the applications of international remittance payments across various industries:

1. Global procurement: Businesses rely on international payments to obtain goods and services from global suppliers.

2. Workforce compensation: Organizations pay their employees or contractors abroad, allowing them to hire worldwide and offering better remote-working opportunities.

3. Cross-border investments: Companies purchase physical properties or other businesses in different countries through global money transfers.

4. Financial obligations: Corporations pay dividends, interest, and overseas corporate travel expenses through international transactions.

5. Exporters and freelancers: Exporters receive shipment payments, and freelancers get paid by their international client through cross-border money transfers.

6. SaaS providers: Software service companies can accept international payments from their subscribers. This also gives them an opportunity to scale their business and diversify their revenue stream.

Receiving remittance payments can provide stakeholders with multiple benefits, including cash flow management, business scalability, financial stability, and maximized returns due to favorable forex rates. Let’s see how. 

1. Financial stability: Remittances are a stable source of income for the families of remitters, covering their essential needs and providing financial security.

2. FX gains: Favourable exchange rates may increase the value of foreign remittances, so businesses or recipients could make maximum returns.

3. Global expansion: International payment also allows local businesses to grow into international business establishments, as it opens doors to new market suppliers and customers.

4. Better cash flow: Households and businesses have better cash flow to make regular payments on bills, investments, and stabilize operations.

Despite multiple benefits, the full potential of cross-border payments can’t be realized because of high transaction fees, complex regulatory expectations, volatile currency exchange rates, and slow processing times. 

Here’s a detailed look at these challenges. 

1. High fees: Standard remittance payment channels usually charge high fees and include unseen expenses in the payment process, which leaves the receipt with a lesser amount.

2. Conversion delays: The processing time when exchanging currency slows the speed of overall transfers, particularly when transfers are conducted via numerous intermediary banks or clearing systems.

3. Regulatory barriers: Complying with laws related to AML and KYC norms can create complexities in the process, leading to further delays.

4. Currency fluctuations: Volatility in exchange rates can create uncertainty and sometimes reduce the actual amount beneficiaries receive due to unfavorable rates.

Remittance fees vary widely, depending on various providers. According to the IMF, the average remittance fee across multiple providers is 10%, but in smaller migration corridors, it can even reach up to 15-20%. 

Charges on international wire transfer can be up to 65 USD, while international ACH transfer charges are between 15 and 50 USD. Other remittance payment service providers may charge a fixed fee plus an additional percentage of the transfer amount. The exact fee structure depends on the service provider, the destination of the payment, and the currency in which the payment is being processed.

Receiving remittances involves more than just collecting funds; it requires awareness of security issues, transaction cost, and compliance factors. 

Here are some best practices to stay safe and vigilant while receiving your remittance transfers:

1. Understand all fees: To avoid surprises, find out the full transaction cost, hidden charges, and intermediary fees.

2. Monitor exchange rates: Keep yourself updated on the latest exchange rates to minimize loss and maximize remittance value.

3. Ensure regulatory compliance: Follow local and international laws regularly to avoid penalties, sanctions, or administrative delays.

4. Keep detailed records: Maintain records of all transactions, including rates, amounts, and dates, in a detailed manner to ensure transparency. One may also receive payment remittance advice for reference.

5. Use secure channels: Rely only on trusted and secure payment channels to stay fraud-free and mitigate risks.

Integrating remittance workflows with your accounting and ERP systems helps you automate data flow, minimize manual errors, and improve visibility. It also allows significant cost savings, better control, and scalability for a growing business by eliminating the need to depend on third-party payment platforms.

Moreover, the real-time insights you gain through integration can help you with better decision-making and compliance, and even prevent fraud. With such integrations, any payments you receive gets instantly recorded in your workflow, which increases transparency and gives you the visibility for better financial management.

Remittance facilitating institutions must meet strict regulatory guidelines for transparent and legal transfers. These regulatory requirements also demonstrate their credibility and safeguard their customers. 

The key frameworks to be followed are:

1. AML/CFT norms: Associated with money laundering and combating terrorist activities, these norms detect and prevent illicit financial activity.
2. KYC check: These checks are required to verify customer identities to reduce the risk of financial fraud.
3. Data privacy laws: With cybersecurity threats constantly evolving, privacy laws like GDPR protect sensitive customer information from unauthorized access. 

In addition to these, regulations like the Liberalised Remittance Scheme (LRS) in India and the US Remittance Transfer Rule also require clear fee disclosures and support consumers’ right to accurate transaction information and error resolution mechanisms.

Key trends in the remittance payment industry include:

1. Instant payments: Global adoption of faster payment networks for near-instant cross-border settlements are on the rise. The G20 has even set a target to ensure that by the end of 2027, 75% of cross-border remittance payments reach recipients within one hour.

1. Decentralized settlement models: Decentralized finance (DeFi) models use blockchain technology and cryptocurrencies to process remittances without the need of any intermediaries. These models will increase transparent transactions and border-less transfers, that too at minimal costs. 

2. Lower costs: Increased competition among fintech companies and regulatory reforms are bound to lower transaction charges, minimize hidden costs, and make remittance payments more affordable.

3. Enhanced compliance: As threats evolve, KYC and cybersecurity requirements will continue to tighten for safer and smoother transfers worldwide.

Managing remittance payments can be challenging due to delays in cross-border transfers and limited visibility, coupled with compliance complexities. A business dealing with incoming remittances in India requires a quick and highly scalable solution. That is where Xflow helps it stay ahead.

Xflow simplifies remittance processing by offering smooth systems integration, fair and easy-to-understand prices, and compliance-ready products designed with Indian businesses in mind.

Key features of Xflow include:

• Transparent flat-fee pricing with no surprise charges 
• Free e-FIRA issued within 24 hours of every withdrawal 
• Settlement in just 1 business day
• Unlimited transaction size 
• Payment processing in 25+ currencies from 140+ countries 
• Fast and paperless digital KYC onboarding 
• Seamless API integrations with accounting tools like Zoho