Cross-border payments refer to transactions between the sender and receiver in different countries. For example, the payer is in the United Kingdom, and the receiver is in Nigeria. Cross-border transactions can happen between individuals, businesses, governments, banking institutions, and so on.
How do cross-border payments work?
Cross-border payments could either be done electronically between online bank accounts, or through bank accounts registered in different countries. The cross-border payments industry is experiencing rapid growth, particularly in the B2B sector. This surge stems from the increasing reliance of businesses of all sizes, including small and medium enterprises (SMEs) on imports from suppliers in other countries to meet their local production or sales requirements.
Due to the complexity of cross-border payments, they are often riddled with mistakes and challenges, particularly when not handled with due diligence and expertise. These mistakes can manifest in various forms, including:
Slow transactions
Non-tax compliance
High or hidden costs
Incomplete transparency
Non-tax compliance
Currency fluctuations
If you seek to streamline your business's cross-border payments, Kyshi is your gateway to a seamless and error-free experience. With Kyshi, you can effortlessly navigate the intricacies of international payments, ensuring efficiency and convenience at every step. Click here to get started.
How can businesses initiate cross-border payments?
When businesses make cross-border payments, they are requesting that a bank or platform send funds to a foreign bank account on their behalf. A cross-border payment transaction includes;
Pre-funding: Here, the sender, either an individual or a business funds their account with the money they intend to transfer.
Clearing: After the money has been sent, it is now routed through a correspondent in the country where the recipient is based.
Settlement: This is the final step in the cross-border payment process. It refers to the actual transfer of funds from the sender to the receiver.
Case study
Kwesi, a business owner from Accra, needs to pay one of his suppliers in China. He provides his bank with the supplier’s financial details. The money is then sent from Kwesi’s bank in Ghana and is then converted to Chinese currency (Yuan) before making its way to the supplier's (recipient) bank account.
It is important to note that cross-border payments can be seen as complicated, especially when dealing with currency exchange. This is because the fluctuating nature of exchange rates introduces an additional layer of complexity to the transaction process.
What are the components of cross-border payments?
If you are either sending or receiving a cross-border payment, four essential components are involved;
Currency: This is the currency that will be used to pay for the product or service e.g Cedis, Naira, etc
Exchange rate: It refers to the rate at which the currency is being converted.
Payment type: The payment type could either be a wire transfer, direct debit, or credit card.
Receiver’s details: These are the details of the person or business that is receiving the money.
Why are cross-border payments so expensive?
Regulatory costs: A major aspect of cross-border payments is the regulatory costs and requirements involved. As a business that provides cross-border payment services, being compliant with regulations like KYC (Know Your Customer) and AML (Anti-Money Laundering) laws is important but expensive to acquire.
Currency Fluctuations: Cross-border payments are heavily reliant on foreign exchange rates (which are highly unstable) and this ultimately affects the final cost of the transaction. In addition to that, currency conversions involve a large number of parties, and each party takes a percentage cut per transaction.
Unbanked Population: Some people in remote areas in countries, especially in Africa do not have access to financial services. This poses a significant challenge for individuals conducting cross-border payments, often necessitating the involvement of multiple payment intermediaries, which can drive up transaction costs.
Frequently asked questions about cross-border payments
What are the benefits of using cross-border payments?
Cross-border payments allow business owners and merchants to take advantage of the rapidly growing global cross-border e-commerce market.
Why do cross-border payments fail?
Cross-border payments can fail due to a variety of factors, including communication breakdowns between financial institutions, incomplete or incorrect payment information, and currency conversion issues.
Who uses cross-border payments?
Cross-border payments are used by individuals or businesses that need to send or receive money internationally.
Unlock the power of cross-border payments with Kyshi!
In today's interconnected world, cross-border payments have played an incredible role in transforming the way businesses operate globally. With Kyshi's cross-border payment solutions, businesses can seamlessly send and receive payments across borders, streamlining their international operations and taking their business to new heights. Contact us today to get started.
