How can start-ups minimize risks in cross-border payments?

With the rise in export business and global funding, the need to streamline cross-border payments is rapidly evolving. The pressure is building, especially for funded start-ups transferring funds in India to manage costs and time and secure transactions.

As start-ups increasingly expand their operations and customer base internationally, managing cross-border payments becomes crucial to their growth strategy. However, navigating cross-border transactions comes with its own set of risks, including currency fluctuations, compliance issues, and fraud.

In this feature, we will discuss some key ways start-ups can effectively reduce risks associated with cross-border payments.

To succeed in global markets, start-ups must adopt smart strategies to minimize these risks and ensure smooth payment processes:

1. Partner with reliable payment providers

Selecting the right payment provider is one of the most critical decisions for any start-up venturing into international markets. While using traditional payment methods like SWIFT is an option, new-age tech solutions are designed to make cross-border seamless–addressing the challenges posed by traditional methods. Payment providers with a strong global presence often offer benefits such as faster settlement times, competitive exchange rates, and transparent pricing. Choosing a provider with experience in the specific countries or someone that offers a Virtual Bank Account Number (VBAN), ensures start-ups and exporters have the flexibility to opt for local payment preferences–making transactions faster and more affordable. 

2. Stay compliant with regulations

Cross-border payments are subject to various financial and tax regulations. For instance, FEMA defines the guidelines for foreign exchange transactions in India. It helps keep things in order. For instance, if you're a software company in a Bangalore-based funded start-up and are looking to transfer funds from your global HQ to India, you need to comply with the said framework to receive payments in dollars and convert them to rupees.

Start-ups must ensure they comply with these rules to avoid hefty fines, legal challenges, and operational disruptions. Each country may have specific reporting requirements, anti-money laundering (AML) regulations, or data protection laws that businesses must adhere to. For example, in the European Union, the General Data Protection Regulation (GDPR) sets strict guidelines for handling customer data. At the same time, countries like the US have complex tax reporting regulations for international transactions. As a cautionary step, start-ups should work with legal and financial experts to ensure they remain compliant with evolving regulations in the countries they serve.

3. Understand FX costs and other charges to reduce currency risks

Currency fluctuations are a significant risk for businesses engaged in cross-border transactions. Sudden shifts in exchange rates can lead to financial losses if not properly managed. To minimize exposure to currency volatility, start-ups can work with financial service providers that offer up-front pricing and even pure FX rates like mid-market rates to ensure savings on transferring funds. Further, some providers can lock in FX for a certain period. These simple steps help reduce the impact of currency fluctuations on the bottom line.

4. Diversify payment methods

Offering customers their preferred payment option helps reduce dependency on any single payment system. Different markets have different payment preferences. For instance, it is ACH in the US or SEPA in the EU and more. By supporting multiple, and local payment methods, start-ups can improve the customer experience and reduce the likelihood of failed transactions or delayed payments due to system limitations.

Additionally, enabling payments using local methods can help build trust with customers and reduce confusion related to currency conversions. A diversified payment strategy ensures that international customers can choose the method that works best for them, leading to higher conversion rates and lower payment failure rates.

5. Leverage technology for automation

Modern payment platforms leverage automation to streamline cross-border transactions. For instance, start-ups can automate compliance documentation, currency view, third-party integrations, invoice generation and resources while improving the accuracy of transactions.

Additionally, technology solutions can simplify managing multiple currencies and payment channels, making it easier for start-ups to scale their operations globally. By adopting modern payment solutions and tools, start-ups can enhance the speed and save costs on their cross-border payments.

Customer-first is at the heart of the Xflow. Here is how Xflow helps manage all the risks related to cross-border payments.

1. Transparent pricing with zero hidden fees

Xflow provides upfront and clear pricing. Businesses don’t face any unexpected charges or hidden fees with their transactions. Instead, they can see their costs on Xflow Dashboard at the time of withdrawal. 

2. Fast settlements

Xflow reduces the risks of delayed payments by offering settlements within 1 business day. This helps users predict their cash flows and manage their business operations efficiently.

3. ISO certification and SOC 2 compliance 

Xflow has completed the  Service Organisation Control (SOC) 2 audit to get its ISO certification. This compliance ensures that businesses can handle their customer data securely. It guarantees the secure management of the clients’ data while promoting trust and integrity. 

Here is how SOC 2 compliance and the ISO certification help businesses mitigate their risks - 

• Privacy: The PII or personally identifiable information of the business remains safe from unauthorized access due to strict adherence to privacy principles, access control through Identity and Access Management (IAM), and complete data encryption. 
• Data security: Xflow protects sensitive information from unauthorized access by implementing strong security measures that include intrusion prevention, firewalls, and access controls. 
• System behavior: Businesses can get reliable system behavior from Xflow without facing unexpected glitches. This is a result of continuous performance monitoring and thorough quality assurance processes that make the system work effectively. 

4. Safe and secure transactions

Xflow has partnered with AD-1 authorised banks to ensure secure transactions. This ensures that the business's payment data is handled with the utmost care and confidentiality.

There are many risks related to cross-border payments, and these will continue to evolve and grow. What businesses can do is adopt a robust solution that covers all their transactional needs with the highest levels of security and safety controls, which can help manage a large portion of these risks. Xflow takes the stress out of managing cross-border payments, allowing the enterprise to focus on what’s most important – growing the business.

To learn more, visit here:

More articles:

1. What is the role of brc in cross border payments
2. Strategies to avoid transfer pricing challenges in international payments
3. Comprehensive guide on Purpose Codes