If you are a business that is looking to expand into international markets, you must have the ability to make and receive cross-border payments. Whether it be taking payments from buyers for goods and services sold, or paying vendors, suppliers, or staff in other countries. Old-school methods like physical cheques tend to be slow, not to mention the risk of getting lost or stolen. This means significant payment uncertainty and an unpredictable cashflow.
For a small business, this can have a serious impact on day-to-day operations. Plus, manual methods are slow and expensive, and tracking and matching your payments can become a tough task.
But there’s hope. Digital cross-border payment methods promise to make things faster, easier, and more secure. Read on to know more.
How Can Your Business Make or Accept Cross-Border Payments?
You can accept or make cross-border payments through digital means, like cards, digital wallets, or real-time fund transfers. Below, we have listed the best options available today:
1. Real-Time Payments
Real-time payments are instant and cash-free payments that can be made 24×7 round the year. An example of this is a SEPA Instant Credit transfer, which lets you transfer up to €100,000 at a time, within seconds. The development of open banking rails in Europe have made them a reality today.
Real-time payments are quick, secure, and simple. This makes them a great choice for cross-border commerce. Users can transfer money quickly and easily between bank accounts or make retail payments within one country or across borders. Plus, real-time transfers do not come with card processing and interchange fees, which makes them a more cost-effective option than cards.
Examples of real-time payment networks in Europe are SEPA, TARGET Instant Payments Service (TIPS), Faster Pay in the UK, and P27 for the Nordics.
2. Digital Wallets for Cross-Border Payments
Digital wallets are a quick and secure way of making cross-border payments. You can use international digital wallets to make cross-border payments without additional fees or processing times. Hence, they turn out much cheaper. B2B payments through e-wallets are a boon, especially for smaller merchants, as it helps them to receive payments in real-time and smoothens up their cash flow.
E-wallet usage is booming throughout Europe. Over 44% of people prefer to pay with digital wallets. Reports predict that Europe’s mobile wallet transactions will increase by 277% from $188 billion in 2020 to $708 billion in 2025. Digital wallets are secure, flexible, and convenient, hence their broad appeal.
Apple Pay, Google Pay, and PayPal are the top most-widely used e-wallets across Europe.
3. SWIFT payments
SWIFT payments are the global standard for cross-border payments. They are secure, and clear quickly. Last year, a new version called SWIFT gpi was launched in Europe, which clears funds more quickly and is more transparent. But SWIFT cross-border payments are very expensive, especially if you need to convert money from one currency to another.
4. Credit, Debit, and Virtual Cards
Credit or debit cards are easy to use and secure, making them a very popular choice for international payments in some European countries. But card payments take time to clear, which can be frustrating if you are the recipient of the finds. Debit card payments are faster, but they often come with limits on how much money can be transferred. Card payments also carry higher fees, along with additional charges and FX conversion fees for cross-border payments.
Virtual cards are an alternative form of payment that is gaining popularity, though usage is limited. They are single-use only cards, which reduces the risks associated with traditional cards, such as card loss, theft, or data fraud. They also make auditing and compliance fast and easy.
5. Escrow Accounts for Cross-Border Payments
Escrow accounts are ideal for businesses that deal with high-value goods like property, yachts, electronics, fine art, property, and cars. They allow both parties to make and receive large payments in a secure and hassle-free manner. Escrow services are managed by a third-party (usually a payment service provider, or PSP) for two business parties. When a buyer makes a purchase, they pay the third party rather than the seller. The third-party provider receives and disburses money on behalf of the transacting parties based on mutually-agreed terms.
The funds are kept in a government-licensed escrow account. This reduces the potential of risk and provides a more secure buying experience for all. The third-party PSP takes care of all KYC and verification processes so that payments are 100% secure and guaranteed.
Things to Know When Choosing a Cross-Border Payment Method
But there are some things you need to consider when you make or accept international payments.
- Cost and speed – faster the payment method, the better. Also, lookout for processing fees and FX charges, so that there are no surprises later. Choose methods that are faster and cheaper. For example, digital wallets or real-time payments are faster and cheaper than card payments. Lower the fees, lesser your customers pay.
- Customer Preference – the methods you choose must align with customer preferences. Do your homework, understand what ticks locally. Leverage local knowledge and trends and choose methods that offer the best UX.
- Regulatory Compliance – the methods you use must align with local laws to avoid disruption, expensive fines, and penalties. For example, in the EU, adherence to laws such as PSD2, PCI DSS, etc. are a must. Hence, use methods that comply with cross-border payments regulations.
- Security – the payment methods you use must be 100% secure. This means using modern tech such as multi-factor authentication (MFA), 3D Secure 2, and AI-based risk management tools.
- Payment Configuration – the payment methods you choose must be easy to add to your existing setup, and must be easy to troubleshoot. Choose methods that improve transparency and help in easy payment tracking and reconciliation.
Businesses are calling out for modern payment solutions, and digital tech has enabled many industries to overcome the challenges of cross-border trade. And the entire payments ecosystem has taken many steps to speed up cross-border payments. From new payment messaging standards such as ISO 20022 to SWIFT gpi, which improves predictability and transparency in digital payments.
Europe has enough scope for digital B2B cross-border transactions to emerge more strongly as smart payment solutions continue to grow. The availability of data provides a fertile ground for new, intelligent payment solutions to emerge in future.
How Can Novalnet Help?
A global PSP like Novalnet can advise you on what steps you need to take and help you address your cross-border payments-related challenges. We are a trusted partner for global brands. Our state-of-the-art technologies – from instant payment plug-ins to AI-based risk management tools – have been helping Europe’s leading brands solve complex payment challenges and delight customers.
Reach out to us today to know more.
Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.