Cross-Border Payments: Challenges and Opportunities for Businesses
In today’s increasingly globalized economy, businesses of all sizes are looking across borders to purchase products, hire remote workers and teams, and serve global customers. But one of the biggest hurdles of the global economy is cross-border payments. Unlike domestic payments, cross-border transactions present numerous challenges including slow processing times, high fees, regulatory roadblocks, and a lack of transparency.
Luckily, fintech companies are addressing these issues with new technologies and innovations that make cross-border payments faster, cheaper, and easier to manage on a global scale. In this blog article, we’ll explore the challenges and opportunities of cross-border payments for businesses, and what we expect international payments to look like in the future.
How do businesses use cross-border transactions?
Cross-border transactions play an important role in international trade. Here are just some ways businesses rely on global payments:
- Paying for international goods and services: Many businesses purchase products, materials, or services from suppliers overseas. Cross-border payments make it possible to pay these suppliers in their local currencies.
- Managing global supply chains: Running an international business means dealing with shipping fees, customs charges, warehousing, and logistics partners from around the world. Cross-border payments are used to settle these costs and keep international supply chains moving.
- Paying remote employees or contractors: Remote work is becoming increasingly common and more businesses are working with people in different countries. Cross-border payments make it possible to pay these global workers’ salaries, wages, or contractor fees quickly and securely.
- Investing in foreign markets: Companies often invest in foreign businesses, real estate, or infrastructure, all of which are facilitated by cross-border transactions.
- Repatriating profits: When international branches in foreign markets earn revenue, businesses use cross-border payments to transfer that money back to their home countries.
- Settling financial transactions: Companies also use cross-border payments for things like repaying international loans, paying dividends, or handling licensing and royalty fees.
- Donating to charities: Businesses sometimes use cross-border transactions when making donations to international charities and nonprofit organizations.
Similar Reading: Cross-Border B2B Payments: A Guide for Businesses
Challenges of cross-border payments
Even though businesses across the world rely on cross-border transactions to support international operations, it’s not always a simple process. Below are some key challenges companies face when sending money across borders:
Complex and slow processing times
Cross-border payments can take two to five business days to settle, especially when processed through traditional banking channels. This is because they often pass through multiple intermediaries – correspondent banks, clearinghouses, and local financial institutions – each of which adds more time and cost to the transaction.
For businesses, these delays can disrupt cash flow, slow down vendor payments, and complicate supply chain management. It can be especially problematic for small and mid-sized businesses (SMEs) who often have tighter cash reserves and require access to funds quickly.
High and unpredictable transaction fees
Sending money across borders often comes with a mix of hidden and visible costs. These might include currency conversion markups, intermediary bank charges, and service or transfer fees.
According to World Bank data, the average global cost of a cross-border transaction is around 6.6% of the transaction value, but it can be even higher for developing regions or smaller transfers. These costs eat into a company’s profits and can make it more difficult for SMEs and startups to enter and compete in global markets.
Currency fluctuations
Exchange rates can move quickly, and even small shifts can impact the final amount a business pays or receives in a cross-border transaction. This is known as foreign exchange (FX) risk.
Larger companies often hedge against FX risk using forward contracts or options, but these tools can be complex and expensive for smaller firms. Without this protection, fluctuating rates can make a business susceptible to losses on international transactions.
Lack of transparency
One of the main complexities of managing cross-border transactions is tracking these payments. When multiple banks are involved, it’s often tricky to know where a payment is, how long it will take to process, or what fees have been deducted along the way.
This lack of transparency makes it difficult for a business to manage cash flow, budget accurately, or keep international partners and suppliers updated on a payment status.
Regulatory hurdles
Cross-border payments are subject to a range of complex regulations. Each country has its own set of rules for Anti-Money Laundering (AML), Know Your Customer (KYC), Counter-Terrorism Financing (CTF), and sanctions compliance.
Meeting these regulations takes time and effort, and sometimes third-party support is needed. This isn’t something businesses can gloss over either, as failing to comply often leads to legal penalties or delays in payment processing.
Security risks and fraud
International transactions involve moving sensitive data across borders and systems, leaving financial information exposed to cyber threats, fraud attempts, and unauthorized access. Businesses need to safeguard payment processes and customer information at every step, but many traditional banking channels often lag behind when it comes to emerging security threats.
Technology gaps and system incompatibility
Different banks use different systems, and not all platforms can ‘talk’ to each other seamlessly. These tech mismatches can slow things down and require manual intervention, which increases the risk of errors. Some companies also struggle to integrate modern payment solutions with outdated internal systems, which adds cost and complexity to upgrades.
Access barriers in developing regions
In some parts of the world, recipients may have limited access to formal banking services. This makes it harder to accept payments internationally, leaving businesses reliant on slower and less secure alternatives.
Read More: How to Make International Wire Transfers
Opportunities and innovations in cross-border transactions
With every challenge comes an opportunity, and fintech companies are stepping in with smart, tech-driven solutions that address the many issues with international transactions. Here’s a look at the key opportunities and innovations making international payments faster, more affordable, and easier to manage.
Blockchain and distributed ledger technology
The decentralized nature of blockchain technology is changing how money moves across borders. By cutting out the intermediaries, blockchain-powered platforms like RippleNet allow businesses to settle transactions almost instantly – and often at a fraction of the cost of traditional cross-border payment systems.
Ripple’s On-Demand Liquidity (ODL) uses its cryptocurrency, XRP, to serve as a bridge between currencies. This allows businesses to move funds without needing multiple currency pairs or correspondent banks. It’s a faster and more transparent system that’s already being used by major payment providers like American Express and Santander.
Multicurrency wallets and digital accounts
Some fintech platforms, like ZEN.COM, offer digital wallets that allow businesses to hold, send, and receive funds in multiple currencies without having to go through a traditional bank. These accounts simplify foreign exchange with real-time conversion rates, helping avoid currency fluctuations, reduce international transaction costs, and provide better visibility over international cash flow.
Multi-currency business accounts can be especially useful for SMEs, freelancers, and global e-commerce sellers who need to transact across different markets quickly and cost-effectively. Learn more about ZEN business multi-currency accounts here.
Keep Reading: Multicurrency Business Accounts – The Basics: What They Are And How They’re Used
Peer-to-peer (P2P) payment platforms
P2P platforms help users bypass traditional banking channels altogether. These services use decentralized networks to match senders and receivers directly, avoiding the need for international wire transfers. The result is faster transactions, lower fees, and more competitive exchange rates.
AI for risk and compliance
AI and machine learning are making cross-border payments safer and more reliable. These tools can analyze transaction data in real time to detect fraud, flag unusual behavior, and automate compliance with regulations like AML and KYC.
One of the greatest benefits of AI for fraud detection and risk management is the accuracy and speed at which it works. This not only helps businesses improve transaction security, but also reduces the time and cost of regulatory compliance.
Real-time payment networks
Real-time payment networks help move money across the globe faster. These networks, like Visa Direct and Mastercard Send, use existing card infrastructure to enable near-instant global transfers.
For e-commerce businesses, freelancers, and gig economy workers, the ability to settle payments in near-real time means faster access to funds and greater control over finances.
API-driven payment platforms
Application Programming Interfaces (APIs) connect financial systems in real time to help businesses automate cross-border transactions directly within their existing workflows. This can simplify data exchange, speed up reconciliation, and improve end-to-end payment visibility. The result is less friction, reduced human error, and less time spent managing payments.
Embedded finance
Embedded finance brings payment capabilities directly into non-financial platforms, like ERP systems, marketplaces, or accounting tools. This means businesses can make or receive cross-border payments without logging into a separate banking platform, reducing the number of steps involved and improving operational efficiency.
Cryptocurrency for global transfers
Digital currencies like Bitcoin, Ethereum, and stablecoins offer a decentralized and cost-effective way to make cross-border payments. By eliminating the need for intermediaries, businesses can use cryptocurrencies to move funds across borders quickly and without the same regulatory bottlenecks as fiat currencies.
Even though cryptocurrencies are still in their early days, some payment processors, like ZEN’s payment gateway, are already accepting cryptocurrencies as a form of payment.
Future trends in cross-border payments
The innovations we outlined above are just the beginning of how fintech companies are reshaping the global payments landscape. Here’s what to expect for the future of international payments:
Rise of Central Bank Digital Currencies (CBDCs)
Central banks across the world are exploring the use of digital currencies. These will be different to cryptocurrencies in that they’re state-issued and regulated, providing the benefits of digital money with the backing of a national authority.
When it comes to cross-border payments, CBDCs could eliminate many of the delays and costs tied to traditional banking systems. Countries like China (e-CNY), Sweden (e-krona), and the Bahamas (Sand Dollar) are already testing digital currencies and more nations are expected to join in the near future.
If CBDCs become interoperable across borders, they could dramatically simplify international payments and transform the way we send and receive money around the world.
Improved interoperability between payment networks
One of the biggest roadblocks in cross-border payments today is fragmentation. Different systems don’t always talk to each other and that makes international transfers slow and expensive. But that’s all starting to change.
Industry players, from fintech startups to global banks, are working towards greater interoperability between online payment platforms. These initiatives are focused on standardizing APIs, messaging formats, and regulatory frameworks to make global payments smoother and more connected.
Focus on emerging markets
Emerging markets are becoming a major focus for fintech innovation. Many of these regions have limited access to traditional banking, but increasing mobile adoption is creating new opportunities for the future.
So what can you expect? More real-time, low-cost payment solutions tailored to the emerging markets. Fintech platforms that can bridge the gap between developed and emerging economies will help businesses tap into new customer bases while promoting financial inclusion.
See More: Guide to International Business Payments: the Most Common Payment Methods
Shift towards real-time and 24/7 payments
The global economy no longer runs on a 9-5, five-days-a-week schedule. Businesses want to move money instantly, regardless of time zones or weekends. As real-time payment systems continue to expand, we expect cross-border transactions to increasingly operate around the clock. This shift will be major for sectors like e-commerce, international B2B services, and the gig economy, where payment speed directly impacts cash flow and competitiveness.
More emphasis on compliance tech
Regulatory compliance is one of the major challenges of global payments, and we’re seeing more businesses turn to RegTech – technology designed to streamline compliance with cross-border regulations. These automated tools, which handle KYC, AML, and sanctions screening, will become a standard for businesses around the world.
ZEN.COM makes cross-border payments easier
With more companies expanding into new markets and managing increasingly international operations, traditional banking systems just don’t cut it anymore. The cross-border payments landscape has a faster, more transparent future that’s built with global businesses in mind – and it’s already here.
ZEN’s cross-border payments solution allows businesses to send and receive international payments quickly, efficiently, and more cost-effectively. With ZEN, your business can manage exchange rate risk, convert multiple currencies, and maintain regulatory compliance – all in one easy-to-use platform. Contact us today to step into the future of cross-border payments.
