How merchants can optimize cross-border payments

Learn why cross-border payments are so challenging and what solutions e-commerce merchants can use to improve them.

Every e-commerce merchant that operates across multiple countries or continents will sooner or later encounter the challenges of cross-border payments. Their complexity stems from the fact that cross-border transactions require merchants to manage multiple currency conversions – from buying to processing to settling. This generates several issues, such as high costs, low speed, and safety.


Conducting currency conversions and managing the exchange rate risk throughout the process is just the beginning. E-commerce businesses also face direct and indirect costs related to resolving payment issues – from lags in receiving funds to payments that need to be recalled. Such problems may impact operations, technology, network management, and front-office teams that may get involved in resolving payment issues. The cost of involving so many resources every time a cross-border payment causes issues can escalate quickly and become difficult to quantify.


That’s why merchants need to implement measures that address such unique challenges of cross-border payments. Luckily, businesses can rely on the expertise of payment service providers that are continuously exploring innovative ways of solving pain points. 


Keep reading to see how modern cross-border payment technologies can help you to deliver a better payment experience and boost business operations for cross-border transactions in a  fast, cost-effective, and safe way.



Table of contents

Payment flows in cross-border transactions

Why are cross-border payments so challenging?

How digital technologies improve cross-border payments

Summary: Streamline your cross-border payments

How can merchants improve cross border payments PayU cover

Payment flows in cross-border transactions

The standard-setting body for financial market infrastructures – Committee on Payments and Market Infrastructures (CPMI) – defines a cross-border payment as a payment that involves financial institutions in different jurisdictions.


This definition is rather vague and may include a broad range of payments. According to the CPMI definition, a euro payment from a bank in France to a bank in Italy is not really a cross-border payment. Such payments can be processed in real-time at very low costs through existing payment systems like Target2 (a real-time gross settlement system owned and operated by the Eurosystem) or RT1 (a system that guarantees that payments that have already been made cannot be canceled or withdrawn).


Cross-border payments that involve the purchase of foreign currency against the home currency by the payer are more complex and more relevant globally than domestic transactions. For example, a company in Colombia that wants to make payments in US dollars to a supplier in the United States must first buy US dollars and then transfer them to the supplier’s bank account. Such cross-border transactions tend to be slow and costly since they require exchanging one currency into another before sending the funds across international borders.  

Why are cross-border payments so challenging?

High costs

Cross-border payments involve significant currency exchange (FX) fluctuations that may lead to high costs. Financial intermediaries are involved at every step of the online payment processing journey, which directly translates into costs. Regulatory costs also add up, and so do foreign exchange fees that are charged to convert one currency into another. 



Slow transaction speed

Cross-border payments take a long time to process because so many entities are involved in a single transaction. Another reason behind the prolonged transaction time is the technology of traditional payment rails. For example, if a merchant from Mexico wanted to transfer money to India, the payment may have to go through intermediaries across several other countries first – leading to a delay.


Merchants demand fast and convenient services, and a cross-border payment system that is subject to delays will prevent them from delivering a great customer experience. While international transactions are undoubtedly more complex than domestic ones, businesses can use modern technologies to reduce their processing time to meet customer expectations.



Security issues

Merchants want to be confident that their money is safe during international transactions. However, banks cannot guarantee that the stolen funds will be recovered if a cybercriminal can steal from a cross-border payment pathway. That’s why cross-border payment systems frequently fall victim to security breaches like the $81 million heist on Bangladesh’s central bank in 2016. 


Every country abides by its regulations, so the cross-border payment system may be hacked whenever money enters a country with relatively soft security and access policies. Cybercriminals are far more likely to hack systems that aren’t reliably regulated and don’t have the best security measures in place. Cybersecurity is thus a significant concern for any business making international payments. 



Lack of transparency

A common complaint among both businesses and consumers regarding cross-border payment systems is the lack of transparency. One survey found that 64% of corporations seek real-time payment tracking capabilities, while 47% want better visibility regarding the costs and deductions involved. 


Greater transparency is essential for businesses that want to avoid hidden transaction costs. Another common goal is being able to provide better services to customers using these insights. E-commerce companies need a solution that allows them to learn why certain payments are rejected or require investigation. This will open the door to processing improvement, time savings, and considerable cost and resource reduction.

Payment security and compliance capabilities PayU main image 990x640

How digital technologies improve cross-border payments

Current cross-border payment systems are complicated and often lack transparency. Legacy systems and platforms cannot be upgraded overnight, and rolling out new infrastructures is costly and time-consuming. However, a new breed of global payment solutions is emerging that harnesses the potential of innovative technologies for improving cross-border payments. 


Here are some functionalities that are transforming the processing of cross-border e-commerce payments – and making it easier than ever for merchants to expand to new markets.




By allowing merchants to speed up cross-border payments and avoid FX fluctuations, modern payment technologies help merchants stay competitive when selling internationally. Such solutions accelerate and simplify the process to make it time- and cost-efficient, and more transparent. 


Suppose you have a cross-border transaction settled in 3 to 20 minutes. In this scenario, there’s no room for currency fluctuation. That’s why it’s cost-efficient – merchants don’t risk losing money because of currency fluctuations. If the settlement takes a couple of days or even weeks, all the currencies involved in the cross-border transaction are likely to fluctuate and potentially have a negative impact on revenue.



Innovation in payment rails

One of the biggest issues facing merchants in the context of cross-border payments is slow transaction speed. Innovative solutions address this problem using new types of payment rails technologies.


The space of cross-border payments is evolving quickly, with a growing demand for real-time payments in both B2B and B2C transactions. Through global partnerships and the usage of new types of rails rather than SWIFT, payment providers can offer senders more ways to make foreign exchange payments in real time. Instead of a prolonged settlement period, businesses can pay their out-of-country customers and vendors instantly, with little or no friction. 



Real-time FX rates with APIs

Treasury departments within global organizations have tested multiple digital solutions to optimize their workflow and increasingly use APIs to achieve their objectives. 


By using APIs, large organizations can access real-time FX rates directly from existing systems and effectively manage currency exposure, minimize risk across their global accounts, and speed up reconciliation thanks to having FX rates earlier in the process.


API use also opens the door to locking in FX rates for predetermined periods, allowing merchants to price goods in the best currency for their clients while efficiently managing funds on the backend.

PayU global payment ecosystem illustration

Summary: Streamline your cross-border payments

All the actors in the payment ecosystem realize how challenging cross-border payments can be – no matter the organization’s size. That’s why payment companies like PayU have been working to develop faster, cheaper, more transparent, and more inclusive cross-border payment services while maintaining security.


The ongoing advancement of faster and more cost-efficient cross-border settlements will bring widespread benefits to economies worldwide. Cost, speed, access, and transparency are the top objectives of the payments industry, which is continually seeking new ways to improve the user experience of both merchants and shoppers.  


E-commerce companies stand to benefit significantly from collaborating with a trusted partner that can provide connectivity across currencies, adding cross-currency solutions into existing workflows to ensure businesses keep up with the rapid global expansion and increasing customer demands.