Cross-border transactions refer to sending or receiving payments in different countries. Cross-border transactions are not as simple as domestic transactions; many challenges and complexities like currency conversions, regulatory compliance issues, unfavourable exchange rates, lengthy settlement procedures, and security issues surround them. Cross-border transactions are everyone's need, whether for international trade, commerce or personal requirements, but …
Cross-border transactions refer to sending or receiving payments in different countries. Cross-border transactions are not as simple as domestic transactions; many challenges and complexities like currency conversions, regulatory compliance issues, unfavourable exchange rates, lengthy settlement procedures, and security issues surround them. Cross-border transactions are everyone’s need, whether for international trade, commerce or personal requirements, but these obstacles make international payments arduous. For years cross-border payment platforms, with the help of digital transformations, have been trying to delve into these challenges and find potential solutions to overcome these hurdles. This blog will explore the intricacies of international payments examining solutions to overcome them and pave the way for a more efficient and secure global payment system.
One of the biggest challenges in the cross-border payment system is currency conversions. Converting one currency to another involves transaction costs, which can vary significantly between banks and payment providers. Currency conversions are often costly, time-consuming, and rapid fluctuations in the exchange rate make it more complicated, affecting both the payer and payee. Sometimes you might encounter a deficit if the exchange rate changes between the time of initiation and settlement of the transaction. Additionally, this exchange rate volatility results in uncertainty, potentially impacting the final amount received by the beneficiary. To tackle this challenge, financial institutions are leveraging technology to offer customers competitive exchange rates and transparency.
Complying with the diverse regulatory framework is another significant challenge related to cross-border transactions. Due to the risks associated with cross-border transactions, every country has its own regulations regarding anti-money laundering procedures, financial crime, fraudulent activities, sanctions and data privacy. These regulations are made to protect the payer and payee; however, meeting these requirements is time-consuming and costly. And your payment can be declined due to these compliance issues creating more complications in the process. To address this challenge, international payment platforms are increasingly adopting advanced identity verification technologies and taking help from regulatory experts to ensure compliance while streamlining the payment process.
Cross-border transactions are prone to security threats and fraudulent activities due to the involvement of multiple parties and complex payment networks. All financial institutions, businesses, and consumers’ most significant concerns in international transactions are these security concerns, and this fear of security breaches significantly impacts foreign remittances. Financial institutions are investing in robust security measures to tackle this challenge, including multi-factor authentication, encryption, and fraud detection systems.
Banks can update balances only for a limited period when settlement systems are available. In most countries, these hours are aligned with the usual business hours, which creates huge differences in different time zones. This discrepancy can cause delays in initiating or receiving payments, leading to inconvenience and potential disruptions in business transactions. Financial institutions are implementing digital payment platforms that run round-the-clock and let consumers send and receive cross-border transactions at their convenience to lessen this problem.
Cross-border transactions have relatively high transaction costs as compared to domestic payments. Cross-border transactions include costs like intermediary bank fees, currency conversion fees and correspondent bank fees. The complexity of the process increases if multiple parties are involved in the transaction. To address this challenge of high transaction costs, digital platforms offer lower costs, improved transparency, and seamless processing.
Unlike domestic transactions, international transactions and payment settlements suffer from extended time, ranging from several days to weeks. Settlement time increases if your cross-border transactions have to use multiple intermediary banks, as each one has its own operational process, which further contributes to the delay. Furthermore, factors like compliance verifications, manual processing, time zone differences, public holidays, currency conversions, availability of currency, market conditions etc., also contribute to delays in initiating and settling overseas transactions.
Despite these challenges, cross-border transactions are evolving due to technological improvements and the advent of creative payment alternatives. In order to address concerns with currency conversion, regulatory compliance, settlement delays, transaction costs, and security threats, all the financial institutions, fintech firms, and regulators are working together.
If you want to send or receive cross-border transactions, contact our team at Linea Global, where it is done seamlessly with complete compliance and transparency.
