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Cross-Border Payments: The Issues and Challenges

The modern payment landscape is constantly changing, and the pronounced increase in online shopping and e-commerce for both B2C and B2B markets has defined one of the most recent evolutions in transaction trends. Alongside this unstoppable rise, international or ‘cross-border’ payments have steadily and consistently risen at 7 to 8 trillion USD year on year, with 2022 seeing an increase to nearly 156 trillion. The UK Bank of England (BoE) estimates that this value is likely to hit 250 trillion USD by 2027.

Yet with this significant expansion comes the inevitable cross-border payment issues. International payments are often resisted by B2B and B2C organisations due to their perceived high cost, which can accumulate to thousands of pounds annually. Other challenges include tax issues, due diligence and compliance requirements, and legal issues that arise when conflict between legal systems – causing friction and delays. In this article, we explain the key issues organisations of many stripes face when executing cross-border payments, and discuss the best solutions available to optimise these transactions in order to increase revenue and save valuable time and money.

What are cross-border payments?


A cross-border payment is another term for an international financial transaction. It refers to both retail and wholesale payments where buyer and seller are in separate countries. So, a simple consumer purchase of an item across borders qualifies as a cross-border payment. They also encompass complicated investments, mergers and acquisitions involving companies in different countries, and as a result can entail complex service and distribution contracts.

The different types of cross-border transactions can be categorised as follows:

Retail cross-border transactions: These usually refer to person-to-person, person-to-business, and business-to-business payments. Examples include e-commerce purchases, card payments, bank transfers, alternative payment methods (aka digital wallets and mobile payments) and remittances.

Wholesale cross-border transactions: Whole cross-border payments take place between financial institutions and are typically used to support customer needs or a business’s international activities – for example, foreign exchange, securities trading or borrowing and lending.

Governments and large non-financial companies: Institutions and organisations like these often use wholesale transactions to pay for financial market trading and the large-scale import and export of goods and services.

How does cross-border money transfer work?


The usual scenario is that when a buyer makes a purchase, the money (or ‘funds’ as there is no use of physical cash) is carried from their account to the merchant’s account by a financial system. This process becomes more complicated if the funds need to cross borders, as this incurs currency conversion and therefore exchange rate fees. Foreign transaction charges may also apply. As more intermediaries and other entities get involved – for instance, domestic and international banking networks and financial system – the transaction grows even more complex.

The cross-border transaction usually involves the following steps:

  1. Purchase

  2. Routing and processing

  3. Payment verifications

  4. Transaction confirmation

  5. Fulfilment

  6. Settlement

For a more detailed understanding of what happens during each transaction step, see our separate article on the fundamentals of cross-border payments.

How do banks settle cross-border payments?


Since the funds are not physical money, the term cross-border payments is perhaps a misnomer: nothing is literally transferred across borders, but accounts are debited in one jurisdiction and credited in the corresponding account in a separate jurisdiction. In some cases, a payment provider or transfer agent will use an interbank network to carry out this payment service.

How long do cross-border payments take?


International transactions typically take around two business days to process and settle in the recipient’s account. The length of time depends on the destination of the funds, and how many intermediaries are involved throughout the process. The quickest cross-border payments tend to be credit card payments, which can be processed almost instantly, followed by international wire transfers which have a maximum transfer time of two business days.

International transfers via eWallets take between two and three business days, and like credit card payments are mostly used by e-commerce websites, online shops and organisations with subscription business models. Conventional bank transfers are the slowest form of cross-border payment, with a transfer time of three to five business days. Along with international wire transfers, this method is sought for international business purposes as the additional processing time lends greater security especially when handling large payment volumes.

The challenges of cross-border payments


Given the volume of many external remittances, they are often taken seriously and several issues come into play, namely, cost, processing time, security, and legal concerns – among others.

1. Payment processing

Cross-border transactions can be a convoluted and time-consuming process, and can also be halted at any point – causing friction, delays and a suboptimal experience for all those involved. Often this is due to incomplete payment information, Anti-Money Laundering (AML) checks and other fraud screening measures. The transmission of international payments are not as digitised or standardised as other transactions, meaning that the solution is often manually intensive and can leave the payment in limbo for several weeks.

2. Legal issues

When companies expand across borders into foreign jurisdictions in order to achieve growth, the level of risk can increase due to the divergent legal systems in each country. Although most developed countries adhere to systems of civil law, these can vary wildly between different nations and as a result lead to drastically different interpretations in agreements for mergers and other B2B agreements. A notable example of this is intellectual property protection, which can diverge a great deal between foreign jurisdictions.

The language of the contract in question also leads to issues with enforceability, as either party may struggle to decide which interpretation should have authority in either domestic or international courts. Data protection laws also vary between different countries, resulting in both compliance issues but also the costs associated with seeking the relevant domestic or foreign counsel to interpret dense legislation and provide clarity.

3. Tax issues

As with legislation, taxation also differs between countries. A payment may have tax implications in its destination country, which requires the buyer or seller to consider which ones may apply and therefore affect the profitability or fairness of the deal. Taxation treaties have been devised throughout the years to avoid the scenario of double-taxation, but these tend to be specific to each country – meaning that recipients or payees may not be entirely exempt under those same terms.

4. Data protection

As we touched on already, the provision of data is regulated in most countries, but the specific laws vary. Banks must adhere strictly to these regulations, as, for instance, in some countries they are not permitted to share any personal or business information with their clients. In the UK and EU, General Data Protection Regulation (GDPR) applies to any company or financial institution that processes personal information for citizens, which has a serious impact on what data can or cannot be shared. Compared to the USA, for example, UK, Japan and EU member states have strict data privacy which incur severe penalties for the unlawful collection or disclosing of private information, and even prison time.

5. Operational systems

The conventional messaging format used to process cross-border payments – SWIFT MT103 – is rather limited in its capacity to transmit large amounts of information. For additional capacity, another non-automated messaging infrastructure (MT199) will communicate with the parties involved in the transaction. Processes like these are behind the majority of inefficiencies within the transaction.

The infrastructure of financial institutions can vary dramatically, but what compounds this issue is that often the legacy systems used are not compatible with changes in technology. This results in further delays for settlements and other obstacles that arise, for instance, from a lack of real-time monitoring, the reliance on batch processing and a low data processing capacity.

6. Fees & exchange rates

Payment systems that do not involve physical paper money usually incur additional costs of some kind. Payee entities (i.e. a business) often need to provide funds up front in order to access foreign currency and begin the transaction. The more entities involved in a cross-border payment, the more bank fees are charged. While a great deal of these will apply to merchant banks, they can be passed along to the purchaser as well. Many consumers will be familiar with credit card companies charging them for paying for goods in a foreign currency – the same principle as exchange rates.

The value difference between currencies is prone to fluctuate, affecting both buyer and seller who may encounter deficits if there is a rate change in the time between the initiation of the transaction and the settlement. For this reason, merchants allow buyers to use payment service providers that calculate the best exchange rate possible.

7. Compliance issues

Due to the various risks associated with cross-border transactions, there are numerous compliance checks involved to protect payer and recipient against financial crime, fraud, sanctions and others – many of which are time consuming. The rules and processes differ for each bank or payment gateway, and this in turn leads to unnecessarily declined payments – for something as simple as a customer sharing the name with another person who has a financial criminal record. Payments that pass through various domestic bank systems may also be subject to unique checks depending on the jurisdiction. This creates even more complications, without the payment having even reached an international border.


When it comes to cross-border payments, it is increasingly becoming a sprint, rather than a marathon. As borders have become less significant for customers due to e-commerce, technology has striven to accommodate the demand across both B2B and B2C consumers. New payment platforms, like Payment Orchestrators, have since emerged to optimise the process of sending large funds overseas and across borders, no matter what market is involved.

Payment service providers can now utilise intelligent processing features, along with automated compliance screening and the capacity to support a range of transaction methods. The key to thriving in such a fast-evolving market is in the hands of those organisations that prioritise a seamless, hassle-free transaction experience.


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