Enabling cross-border payments is a crucial component of any e-commerce business, allowing them to effectively cater to a diverse customer base and sell products and services globally. However, the facilitation of these payments is not without its challenges. Business owners often encounter regulatory and compliance issues, as well as hidden fees, leading to inadvertent mistakes. In this article, we will explore these common pitfalls in detail and discuss how Kyshi can serve as a solution to overcome them.
What are cross-border payments?
Simply put, cross-border payments or transactions are ones where both the buyer and the seller are in two different countries. For example, a merchant in Nigeria purchases goods from suppliers in China. Cross-border transactions could also involve other complex payments like mergers, acquisitions, investments, distribution contracts, and lots more. Cross-border transactions can be classified into the following;
Retail Cross-Border Transactions: This is the most common type of cross-border transaction. It includes money transfers via financial institutions, card payments, remittances, etc.
Wholesale Cross-Border Transactions: Transactions made here are between financial institutions, for example, securities trading and foreign exchange.
Governments and Large Non-financial Companies: These transactions are made by government entities and other non-financial companies.
What are the common mistakes businesses should avoid when making cross-border payments?
Safeguarding Cross-Border Transactions: Neglecting AML and KYC Compliance
Compliance with Anti-Money Laundering (AML) laws and regulations is important in the financial services industry, particularly when dealing with cross-border transactions. Businesses must be well-versed in these regulations to prevent their product and service offerings from being exploited for money laundering and other illicit activities.
"Approximately 5% of the global GDP ($800 billion) is believed to be the annual estimate for money laundered."
Implementation of robust AML measures, including Customer Due Diligence (CDD) and transaction monitoring, is crucial for ensuring compliance. Equally important is an understanding of Know Your Customer (KYC) requirements, which vary globally. KYC procedures aim to verify the identity of individuals and entities involved in financial transactions. Failure to adhere to AML and KYC regulations can result in severe regulatory sanctions.
Overlooking Tax Implications in Cross-Border Payments: A Pitfall to Avoid
Navigating tax compliance in cross-border transactions requires a thorough understanding of international tax laws and regulations. Businesses must ensure complete adherence to these laws at all levels to avoid potential legal repercussions and financial penalties. The specific taxes involved in cross-border payments depend on the nature of the transaction but may include Value Added Taxes (VAT), Withholding Taxes, and Double Taxation Treaties. Businesses that fail to adhere to tax rules when performing cross-border payments can face reputational damage, making it difficult to attract and retain customers, and can also make it difficult to do business with other companies.
Hidden Charges and Exchange Rate Markups: A Major Pain Point for Cross-Border Payments
Transparency is paramount in the cross-border payment industry, yet many providers continue to impose hidden transaction charges and exchange rate markups, causing frustration and dissatisfaction among business owners. These unexpected costs, often buried within the checkout process, can significantly impact profit margins and erode trust between businesses and their suppliers. A recent study by SWIFT revealed that hidden fees evoke a stronger negative reaction from business owners than a payment not arriving at all. This highlights the importance of upfront transparency in cross-border payments. Businesses need to be fully informed about all charges associated with a transaction before committing to it.
Kyshi: The solution to cross-border payments for businesses
Ready to avoid these common cross-border payment mistakes? Kyshi offers transparent and error-free cross-border payment solutions that will help your business thrive. With Kyshi, you can send and receive money from more than 200 countries worldwide. Want to know more about how our payment solutions can help your business?