Effortless international payments: Reducing barriers for cross-border money transactions

With the rise of businesses expanding their global reach and offering services across international markets, the value of cross-border payments is set to soar, potentially reaching $290 trillion by 2030.

While it’s a positive sign leading to potential growth for exporters in India, they still have to face the challenges of cross-border payments–costs, slow processing times and more.

There’s a solution. In this article we’ll cover how exporters can choose local payment methods to ensure fast and affordable cross-border payments. We’ll cover topics like what are local payment methods, types of methods and how to choose the most suitable option for your business.

At the heart of payments are the system or rails that facilitate transfer of money from th sender to the receiver. It is one of the core elements that connects businesses, individuals, and financial institutions, whether transactions occur domestically or internationally.

International businesses rely heavily on these payment methods to process cross-border payments efficiently. These methods handle a variety of payments, including traditional bank transfers, credit cards, and modern online transactions.

Every country has these local payment methods to initiate the transaction. In recent years, there has been a trend toward using local payment methods instead of international network to transfer funds. The reason for this shift is largely because local payment methods are faster and more cost-effective. Also, they are the preferred choice of payment for more businesses. Local payment methods often offer lower transaction fees and faster processing, helping businesses reduce cross-border costs and strengthen their financial stability.

When a payment is initiated, the payment method facilitates the process, including validation, processing, approval, clearing, and settlement.

Each payment method has its own set of protocols and security standards to ensure the safe and accurate processing of cross-border transactions. Understanding these different systems can help businesses make informed decisions when selecting the right financial solution for their unique requirements.

Integrating local payment methods into your business strategy offers numerous advantages, including:

Supporting multiple currencies and payment systems

Various forms of currency and methods of payment are crucial for foreign commerce. Local payment methods correspond to local economic systems, which allow the business to pay for the services in the local currency. This eliminates the cost of paying for currency exchange and improves the overall transaction experience.

1. Minimizing friction in transactions

Reducing barriers to successfully completing a financial transaction is critical in foreign commerce, as well as locally. In order to avoid customers abandoning their shopping carts, it is necessary to ensure that payment methods are simple and user-friendly. Businesses can improve sales and customer satisfaction by minimizing available payment options to those more relevant to a specific area.

1. Cultural relevance and trust

When payment options are tailored to users, the likelihood of them engaging with the platform increases. Seamless transactions build trust and that helps to retain customers.

1. Regulatory compliance 

Operating a global business necessitates adherence to the payment regulations specific to each country. For instance, in the United Kingdom, businesses must comply with the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 whereas in the United States, adherence to the Electronic Fund Transfer Act, Anti-Money Laundering (AML) policies, and Consumer Financial Protection Bureau (CFPB) regulations is mandatory. Non-compliance with these regulations can lead to legal penalties and reputational harm. 

1. Reduced fraud risk 

Conducting international transactions increases the chances of facing fraud, especially if you are sharing your financial information with a lot of people. However, having a local payment method reduces the risk by minimizing the number of intermediaries involved and reducing the chances of fraud, breaches, and errors.

Listed below are some top payment methods that have helped make the payment process seamless for users.

1. SEPA | Europe

In Europe, a locally used payment service known as the Single Euro Payments Area (SEPA) allows people to make cashless Euro transactions when purchasing goods and services. Funds can be settled by way of either direct debit or credit transfer from anywhere in the European Union. An important feature of SEPA is that it covers 38 countries, some of which do not belong to the EU or the Eurozone. This payment system enables people within Europe to send and receive money in a single currency seamlessly. 

1. ACH | USA

ACH payments are popular in the USA since they are inexpensive and quick, with a 6.7% increase in payments processed from 2023 to 2024, reaching more than USD 33.6 billion in 2024 alone. ACH is often utilized as a payment method for same-day transactions. While many transfers are done at no cost, a few may require minimal payment. Efforts by NACHA have improved ACH payments through the 1-2 Business Day Rule, which guarantees settlement within one or two business days. The stability of this payment option is appealing to many businesses and customers, especially those looking for affordable options with set cut-off times.

3. CHAPS | UK

The Clearing House Automated Payment System (CHAPS) is a same-day payment system in the United Kingdom used for frequently occurring high-value transactions, including property purchases or other time-critical supplier payments. From 6 am to 6 pm on business days, CHAPS guarantees real-time transfer and settlement of funds which is beneficial for both businesses and individuals. Payments initiated before cutoff times are usually completed the very same day, which makes CHAPS perfect for urgent financial matters.

By providing cost-effective, fast, and secure solutions for international transactions, these local payment systems help businesses navigate the complexities of the global marketplace while offering their customers an improved payment experience. For companies aiming to expand globally, embracing local bank transfers and leveraging the benefits of various regional payment systems is a crucial step in staying competitive and driving international growth.

References:

1. https://www.euromoney.com/article/2e9hpg96ccbw571663lz4/treasury/jpmorgan-on-innovating-real-time-cross-border-payments#:~:text=As%20the%20global%20cross%2Dborder,while%20building%20blockchain%2Dbased%20solutions

More articles:

1. Comprehensive guide on Purpose Codes
2. How start-ups can minimize risks in cross-border payments
3. Simplifying international payments for ITeS and start-ups