Cross-Border Payments: A Guide to Methods, Strategies, and Innovations

Dive into the dynamic realm of cross-border payments, where we unravel the complexities, navigate regulatory landscapes, and harness technological breakthroughs to redefine global transactions

Table of contents

Key Takeaways

  1. Cross-border payments facilitate international trade and activities by connecting payers and recipients in different countries.
  2. Handling cross-border payments involves challenges needing strategic planning, advanced technology, and knowledge of international complexities.
  3. Cross-border payments are shaped by regulations and policies focusing on compliance, data privacy, and balancing transaction facilitation with integrity.
  4. Technological progress, international standards, industry cooperation, and ongoing innovation are transforming cross-border payments.

For a brief moment, as the COVID-19 pandemic shock unfolded, globalization seemed to reach its natural end. This moment went by fast. Post-pandemic, international flows have bounced back strongly, trade volumes have gone up again, and our reliance on e-commerce, digital goods, and cross-border payments has deepened.

Defined as financial transactions in which both sides – the payer and the recipient – are located in separate countries, cross-border payments enable international trade and globalization. Optimizing them can help global companies save costs, mitigate regulatory and cyber risks, enhance visibility and transparency, and ensure compliance.

Cross-border payments are transactions between parties in different countries that involve moving money across borders. These transactions can occur for various reasons, such as global trade, remittances, foreign investments, or workforce payments.

Cross-border payment methods

Cross-border payment methods are essential for facilitating transactions between parties in different countries. Common cross-border payment methods include:

Wire transfer

A wire transfer is an electronic transfer of funds from one bank account to another. When used for cross-border payments, it involves the movement of funds between accounts held at different financial institutions in different countries.

In many cross-border transactions, especially those involving different currencies, intermediary banks may be involved to facilitate the transfer between the sender’s bank and the recipient’s bank. The time it takes for a wire transfer to be completed can vary, depending on factors such as the banks involved, the countries of the sender and recipient, and the involvement of intermediary banks.

Both the sender and the recipient may incur fees in wire transfers. These fees can include transaction charges, currency conversion fees, and intermediary bank fees. Wire transfers are generally considered secure, as they involve direct transfers between banks.

Payroll cards

Payroll cards are prepaid cards issued by employers to their employees as a method of disbursing wages. While payroll cards are not inherently design Cross border transaction ed for cross-border payments, they can be used in a cross-border context when issued by international card networks such as Visa and Mastercard.

Payroll cards function similarly to debit cards; employees can use them to make purchases, withdraw cash from ATMs, and perform other financial transactions. If employees use their payroll card in a country with a different currency from where it was issued, the card may automatically perform currency conversion at prevailing exchange rates.

While payroll cards can facilitate cross-border transactions, there are considerations such as foreign transaction fees, currency conversion fees, and limitations on international usage. Employees should be aware of these factors to make informed decisions about using their payroll cards abroad.

International bank draft

An international bank draft is a payment issued by a bank on behalf of the payer. The individual or company receiving the bank draft can deposit it at any bank, just like a cashier’s check. It is a typical method for cross-border payments, especially for large transactions such as real estate purchases, academic tuition payments, or other high-value cross-border transactions where a secure and guaranteed form of payment is required.

Typically, a customer who needs to make a payment in a foreign currency requests an international bank draft from their bank. The customer pays the equivalent amount in their local currency to the bank, plus any applicable fees. This amount is used to secure the international bank draft.

The bank issues an international bank draft – a document resembling a check. International bank drafts often include security features such as watermarks, holograms, and other measures to prevent forgery and ensure the document’s authenticity. The funds are credited to the payee’s account after the draft is cleared.


E-wallets, or electronic wallets, have become a popular and convenient cross-border payment method in the digital era. An e-wallet is a digital account that allows users to store, manage, and transact funds electronically.

Users can create an account with an e-wallet service provider by providing personal information and linking their bank accounts, credit/debit cards, or other funding sources to the e-wallet. To use an e-wallet for cross-border payments, users need to fund their e-wallet accounts. This can be done by transferring money from linked bank accounts, using credit/debit cards, or receiving transfers from other users.

Many e-wallets support multiple currencies, allowing users to hold balances in different denominations. E-wallets employ various security measures to protect user accounts and transactions. This may include two-factor authentication, encryption, and fraud detection systems to ensure the safety of funds during cross-border transfers.

How do cross-border payments work?

How cross border payments work

Understanding how cross-border payments work is essential for navigating the complexities of various payment methods, ensuring the efficient and secure transfer of funds, and managing factors such as exchange rates and regulatory compliance. These are the main steps involved in the process of making cross-border payments:

1. Choosing a payment method

The process begins with the payer selecting a suitable payment method for the cross-border transaction. The decision can be based on several factors. For example, wire transfers or international bank drafts are typically used for large transactions due to their ability to handle high volumes, albeit at potentially higher fees.

If speed is an issue, payment methods like payroll cards and e-wallets offer quick processing times. Some payment methods may be subject to more rigorous anti-money laundering (AML) and know-your-customer (KYC) checks. And there are also low-cost options like online payment platforms and certain cryptocurrency services.

Another crucial factor is the recipient’s ability to access and utilize specific payment methods. Certain countries, for instance, may have limited access to specific digital wallets or payroll cards. Ultimately, the decision should reflect the needs of the transaction and the parties involved.

2. Checking the exchange rate

Exchange rates often fluctuate, affecting the final amount received by the recipient. Various online platforms, financial news websites, and currency converter tools provide real-time exchange rate information. Users can check these rates before initiating a cross-border payment to ensure they have the latest data.

Retail customers often see slightly different rates compared tcroo interbank rates, as financial institutions may add a margin to cover their costs and generate revenue. Some services, especially Forex brokers, may offer rate lock-in options for a specified period, protecting users from short-term rate fluctuations.

In addition to the exchange rate, payers should be mindful of any currency conversion fees associated with the chosen payment method. Some platforms and services provide transparent fee structures, clearly outlining any additional costs related to currency conversion.

3. Providing the recipient’s details

This step involves sharing information about the individual or entity receiving the funds. These details may include the recipient’s full name, address, contact information (phone number and email), bank account number, IBAN (International Bank Account Number), BIC (Bank Identifier Code) or SWIFT code, and purpose of payment.

The accuracy of this information is crucial to ensure the funds reach the intended recipient. Any errors or omissions in this information can lead to delays, additional fees, or even the misdirection of funds.

4. Verifying the payment

Before finalizing the payment, the payer should carefully review the transaction details, including all recipient details and the amount being transferred, to ensure accuracy.

Depending on the chosen payment method, users may need to authenticate themselves through passwords, PINs, biometrics, or two-factor authentication to ensure the transaction is authorized.

Some payment providers and financial institutions may require additional documentation – e.g., government-issued identification or other proof of identity documents – to comply with AML and KYC regulations.

5. Sending the payment

This phase involves executing the transaction based on the verified details. For example, in the case of a wire transfer, the payer typically submits payment instructions through the bank’s online portal, mobile app, or in person at a branch.

Many payment methods require additional authorization before the transaction is executed. This may involve entering a one-time password (OTP), biometric verification, or another form of secure authentication.

Upon successful submission and authorization, payers usually receive a payment confirmation. Processing times may vary depending on the payment method. Some methods, such as debit card transactions or online payment platforms, offer real-time settlement: the funds are immediately deducted from the payer’s account and credited to the recipient’s account.

direct bank transfer
Direct international payment using accounts maintained at both banks.

6. Tracking the payment

This step is crucial for ensuring transparency, confirming the completion of the transaction, and addressing any issues that may arise.

Many online payment platforms and banking systems provide users with real-time updates on the status of their transactions. Payments often come with a unique tracking ID, reference number, or transaction code. This information can be used to track the payment’s progress.

If a transaction is taking longer than expected, payers should investigate potential delays. This could be due to issues with the payment method, intermediary banks, or other factors. In the case of failed transactions, payers should follow up promptly to understand the reason for the failure and take corrective action.

The benefits of cross-border payments

Market expansion

Cross-border payments allow businesses to expand their market reach beyond domestic boundaries. That’s especially true in the global B2C e-commerce market, which is projected to reach $7,938.2 billion by 2031.

In the era of globalized e-commerce, cross-border payments play a crucial role in facilitating online transactions. Businesses engaged in e-commerce can sell products or services to customers worldwide, breaking down geographical barriers and expanding their market presence.

In addition, Cross-border payments enable businesses to establish partnerships and collaborations with international suppliers, vendors, and service providers. This promotes global supply chain integration and allows companies to benefit from a wider network of resources and expertise.

Personalized customer experience

Cross-border payment systems often allow for personalized and localized experiences. This can include offering payment methods preferred by customers in specific regions, displaying prices in different currencies, and providing multilingual support.

For example, a global online streaming service may offer subscription plans in local currencies, ensure transparent fee structures, and provide customer support in multiple languages, creating a more personalized experience for users worldwide. This approach enhances customer satisfaction, fosters loyalty, and builds trust.

Mobile accessibility and intelligent scheduling

Many Cross-border payment platforms leverage mobile technology, allowing businesses to initiate, track, and manage cross-border payments on the go.

This flexibility aligns with today’s dynamic nature of work, where professionals may be traveling or working remotely. The ability to conduct cross-border transactions via mobile devices ensures that financial processes can continue seamlessly regardless of the physical location.

Another feature that helps companies streamline their financial operations is intelligent scheduling – i.e., leveraging technology to optimize the timing of cross-border payments. Companies can use intelligent scheduling to plan and execute payments when market conditions are most favorable, minimizing the impact of exchange rate fluctuations.

Efficiency and transparency

Most cross-border payment systems streamline business transactions by automating funds transfer between parties. Automation reduces manual workload, minimizes errors, and accelerates transaction processing, contributing to overall operational efficiency.

Additionally, cross-border payment systems provide greater visibility into the entire payment lifecycle. Businesses can track the status of their transactions in real-time – from initiation to settlement – and receive timely updates on payment progress, enhancing transparency and reducing uncertainties associated with cross-border transactions.

Higher bank acceptance rates and lower interchange costs

One of the biggest benefits of cross-border payments, especially for merchants, is access to a network of acquiring banks. Different acquirers may have varying relationships with card networks and financial institutions globally, leading to higher acceptance rates.

Diversifying your network of acquirers also provides a backup in case one acquirer experiences technical issues, downtime, or has restrictions on processing certain transactions.

Moreover, access to multiple acquirers allows businesses to minimize interchange costs. Interchange fees are charges paid by the merchant’s acquiring bank to the card-issuing bank for each transaction.

By intelligently routing transactions through acquirers that offer lower interchange fees for specific card types or regions, businesses can effectively manage and reduce the overall cost of processing cross-border payments.

Customizable authentication and fraud management

Tailoring and enhancing security measures allow businesses to comply with regional regulations and reinforce customer trust. Customizing authentication processes, for example, enables companies to implement methods that suit their customers’ preferences, such as multi-factor authentication, biometrics, one-time passwords, or other secure verification mechanisms.

Overall, implementing robust fraud management measures enhances the security of cross-border payment processes. Advanced systems can learn from new data and emerging patterns, adapting to evolving fraud threats. This is particularly important as cyber threats and sophisticated fraud techniques continue to evolve.

Standardization of financial messaging

The adoption of ISO 20022 – an international standard for financial messaging that facilitates data exchange between financial institutions – promotes interoperability, reduces errors, enhances transparency, and facilitates more informed decision-making in cross-border transactions.

Compared to previous standards, ISO 20022 supports more extensive and structured data in financial messages, including detailed information about transactions, parties involved, and payment purposes. Several global financial market infrastructures (FMIs) have already adopted ISO 20022, which will become the sole globally recognized standard in November 2025.


ISO 20022

Cross-border payment processing challenges

Cross-border payment processing can pose various challenges to companies. These challenges arise from financial, regulatory, technological, and operational factors. Overcoming them requires careful planning, adopting advanced financial technologies, and a deep understanding of the complexities inherent in international transactions. Here are the main challenges of cross-border payment processing:

Data privacy

Data privacy is a significant challenge in cross-border payment processing, primarily due to the diverse regulatory frameworks and legal requirements governing the protection of personal and financial information across different countries. For example, The General Data Protection Regulation (GDPR) imposes stringent requirements on the processing and transfer of personal data in the European Union.

Ensuring the legality and security of these data transfers while complying with various data protection laws is a complex task. Some jurisdictions require specific measures, such as data encryption, to safeguard the privacy of individuals. For international transfers of workforce payments, ensure compliance with specific regulations governing cross-border data movement, like the EU-US employee data Privacy Shield framework.

In addition, cross-border payments introduce an increased risk of data breaches. As data travels across borders, it may encounter various points of vulnerability – unauthorized access, hacking, or other cyber threats – that require companies to implement robust cybersecurity measures.

Fraud prevention

Cross-border transactions are particularly susceptible to fraud, as the involvement of multiple jurisdictions, currencies, and financial institutions creates opportunities for fraudsters to exploit vulnerabilities in the payment process.

Know Your Customer (KYC) processes, which involve verifying customers’ identities, can be challenging in cross-border transactions. Different countries have varying regulations and standards for identity verification, making it difficult to establish a standardized KYC process that is universally applicable.

Maintaining a consistent and effective Anti-Money Laundering (AML) program – designed to prevent the illicit flow of funds through financial systems – is also complicated. The lack of uniformity in AML regulations across jurisdictions involves comprehensive due diligence on customers and transactions, which can take significant time and resources.

Lack of transparency

Limited visibility and clarity at various stages of the international payment journey can lead to uncertainties and make it difficult for companies to reconcile their financial records, build trust, and improve the overall efficiency of cross-border payments.

One common issue is that cross-border payments often involve multiple intermediary banks and financial institutions. As a result, customers may not have clear expectations about when funds will be debited from their accounts or when beneficiaries can expect to receive payments.

The lack of real-time information about the status of cross-border payments can also be a challenge. In today’s fast-paced business environment, having timely and accurate information is crucial for decision-making and financial management. Difficulties in identifying the exact path of payments can cause misunderstandings and disputes.

High transaction costs

Cross-border transactions often incur high fees. These fees stem from various factors and can reduce the overall value of the transaction for both the payer and the recipient.

It starts with currency conversion fees. Financial institutions charge a fee for converting one currency into another, and the rates at which these conversions occur may include a markup. The cumulative impact of these fees can significantly contribute to high transaction costs.

Additionally, cross-border payments typically involve multiple intermediary banks that facilitate the routing of funds between the sending and receiving banks. Each intermediary bank may charge a fee for its role in the process, and these charges can accumulate as the payment traverses through the correspondent banking network.

Finally, financial institutions may impose fees specifically for processing cross-border transfers. These fees cover the administrative and operational costs of facilitating international payments and ensuring compliance with regulatory requirements.

cross-border payment using a correspondent bank
A payment made across international borders using an intermediary bank

Regulatory requirements

Each country has its own set of regulations regarding financial transactions. Ensuring compliance with these regulations requires a comprehensive understanding of global regulations, collaboration with regulatory bodies, and ongoing compliance efforts.

For instance, some countries impose capital controls to manage money flow across borders. These controls can include restrictions on the amount of funds that can be transferred internationally or limitations on certain types of transactions. Adhering to these controls is essential for compliance but can hinder the efficiency of cross-border payments.

Foreign exchange regulations, including restrictions on currency conversion and fluctuating exchange rates, can also impact the cost and speed of cross-border payments. Businesses must navigate these regulations to offer competitive and compliant international payment services.


Taxes present a unique challenge in cross-border payment processing. Various countries impose withholding taxes on cross-border payments, such as dividends, interest, or royalties. Businesses may need to withhold a certain percentage of the payment and remit it to the tax authorities of the country where the payment originates.

Another challenge is the complexity of international taxation laws. Understanding the tax implications in multiple jurisdictions, including the potential for double taxation, requires specialized knowledge and expertise in international tax law.

Countries often have bilateral tax treaties or agreements to avoid double taxation and promote cooperation. The terms of these agreements can impact the applicable tax rates and the ability to claim credits for taxes paid in one jurisdiction against taxes owed in another.

Time zones

Making cross-border global payroll payments often involves coordination between different time zones. For example, if a business headquartered in New York wants to pay its employees in New Delhi, it may need to wait until business hours in New Delhi – 10.5 hours ahead of New York – to initiate the payment.

Payment tracking is another problem. Companies may need to track payments across multiple time zones, making it difficult to know when a payment has been initiated, processed, and received. This can create challenges in reconciling payments and ensuring the recipients have been paid correctly.

Banking systems

The banking infrastructure varies across countries. Some countries may have sophisticated and modern banking infrastructure, while others may still rely on legacy systems. Integrating and harmonizing transactions across these diverse systems can be challenging.

Interoperability plays a crucial role in this context. Ensuring smooth communication and interoperability between banking systems in different countries is often complicated, leading to potential delays and inefficiencies in the payment process.

Correspondent banking relationships add another layer of complexity. When a country lacks correspondent banking relationships, its financial institutions may face difficulties accessing the global financial system. This limitation can impede the ability of individuals and businesses to make cross-border payments.

Language barriers

Cross-border payments often require exchanging documentation, such as contracts, tax forms, and payment instructions. If these documents are not in a language that both the payer and the payee can understand, there may be delays or errors in payment processing.

This can be particularly challenging when dealing with local tax authorities or regulatory bodies that require specific documentation in a particular language.

Regulations and policies for cross-border payments

Regulations and policies significantly influence the landscape of cross-border payments. From compliance requirements to data privacy and security to foreign exchange controls, they aim to balance facilitating international financial transactions with ensuring the integrity and security of the global financial system. Here are the main areas in which regulations and policies affect cross-border payments:

Foreign exchange

Many countries have regulations governing the flow of currencies across borders, which can influence the cost and efficiency of global payments. For instance, some countries may have fixed or pegged exchange rate systems, where the value of their currency is tied to another currency or a basket of currencies.

Other countries impose strict controls on foreign exchange transactions. This can impact the ability to convert one currency into another and may lead to delays or restrictions on the amount of currency that can be transferred across borders.

In addition, foreign exchange activities often require licenses or authorizations to engage in currency conversion. In some jurisdictions, businesses and financial institutions involved in cross-border payments must comply with documentation requirements, providing evidence of the legitimacy of transactions.

Finally, central banks may intervene in the foreign exchange market to stabilize or influence their currency’s value. Such interventions can impact exchange rates, affecting the cost and outcome of cross-border transactions.

Differences in payment regulations

The differences in payment regulations across countries can have significant implications for cross-border payments. Varying requirements for Know Your Customer (KYC) processes, Anti-Money Laundering (AML) checks, and the submission of supporting documentation introduce complexities for businesses trying to move funds globally.

A good example of this is transaction limits. Different jurisdictions may set different limits on the amount of money that can be transferred internationally within a particular time frame, impacting the feasibility of large payments. Businesses and financial institutions must navigate this regulatory landscape to ensure compliance and the successful execution of international transactions.


Businesses that regularly make cross-border payments must carefully consider tax laws in multiple jurisdictions. The treatment of VAT or GST in cross-border transactions, for instance, depends on the tax regulations of the countries involved.

Cross-border payments also trigger tax reporting obligations in both the source and destination countries. Businesses must comply with local tax reporting requirements, including filing tax returns and providing necessary documentation to tax authorities.

Banking systems

Banking regulations often align with international banking standards to promote consistency and interoperability. Standards set by organizations like the Basel Committee on Banking Supervision influence how banks ensure the soundness of cross-border financial transactions.

In many countries, for example, banking regulations include measures to comply with international sanctions imposed on jurisdictions, entities, or individuals. Financial institutions must screen cross-border transactions to ensure compliance with these sanctions, which may restrict or prohibit certain transactions.

Data privacy

The data privacy regulatory landscape varies between countries, but several common themes affect cross-border payments. One of them is the collection, processing, and transfer of personal data. Compliance with these data protection laws is crucial for cross-border payments, as transactions often involve exchanging sensitive information.

Another common theme is data breach notification. Many jurisdictions have laws requiring organizations to promptly notify individuals and regulatory authorities in the event of a data breach. Cross-border payment service providers must have mechanisms to detect and report breaches across the globe.

The future of cross-border payments: insights and predictions

Cross-border payments have undergone significant changes over the years, driven by many factors, such as technological advancements, shifts in international standards, increased industry collaboration, and a focus on continuous innovation.

Cross-border payment growth
Cross-border payment transactions in the B2B sector over the years

Here are some key trends and developments that will likely continue to shape the future of cross-border payments:

Regulatory reforms

Regulatory reforms are reshaping the cross-border payments landscape by encouraging innovation, improving efficiency, enhancing security, and promoting competition.

A good illustration of this is the emergence of open banking. The practice of secure financial data sharing between banks and third-party service providers via application programming interfaces (APIs) was made possible by the revised Payment Services Directive (PSD2), an EU Directive from 2018.

Many jurisdictions have decided to promote regulatory sandboxes focusing on cross-border payments, allowing fintech firms and financial institutions to test innovative solutions in a controlled environment. This enables regulators to understand the implications of new technologies without compromising consumer protection or financial stability.

Technological integrations

Technological integrations are playing a transformative role in cross-border payments, leveraging advancements in financial technology and innovations in digital infrastructure to enhance the speed, efficiency, and accessibility of international transactions.

For example, adopting blockchain and distributed ledger technology (DLT) can streamline cross-border payments by reducing intermediaries, enhancing traceability, and providing real-time settlement capabilities.

The development of digital currencies is another way to make cross-border transactions more efficient. Digital currencies can reduce reliance on traditional banking systems, providing faster, cheaper, and more inclusive cross-border payment solutions.

Market dynamics

Changing preferences, needs, and behaviours’ of businesses, consumers, and financial institutions continually impact cross-border payments. These dynamics contribute to a more competitive and innovative environment where various stakeholders are compelled to adapt and enhance their offerings.

The rise of e-commerce, for instance, has significantly impacted cross-border payments, with businesses and consumers seeking seamless and secure payment options for international online transactions.

There is also an increasing demand for faster cross-border payments, driven by the need for timely and efficient transactions. Businesses and consumers expect real-time or near-real-time settlement capabilities, leading to the development of faster payment systems and services.

Industry collaborations

As various stakeholders, including traditional financial institutions, fintech firms, and other industry players, collaborate, they contribute to innovations, efficiencies, and improvements in the international payments ecosystem.

Many cross-border payment platforms, for instance, were created by collaborations between financial institutions, payment service providers, and technology companies. These platforms provide seamless, cost-effective, and efficient solutions for international transactions, often leveraging shared infrastructure and technologies.

In addition, collaborative efforts to establish common standards for messaging, data formats, and interoperability contribute to a more standardized cross-border payments landscape. These standards help reduce complexities, enhance compatibility, and promote consistency across financial systems.

Access to payment systems

Efforts to make payment systems more accessible are a driving force behind positive changes in cross-border payments. These efforts aim to break down barriers, expand financial services to underserved populations, and create a more inclusive environment for international transactions.

Accessibility initiatives often encourage using fintech products to include individuals and businesses previously excluded from formal financial services. By expanding access to cross-border payment systems, these initiatives help bridge the financial inclusion gap.

Reduced costs and increased speed

Reduced costs and increased speed in cross-border payments are driven by technological advancements, regulatory reforms, and industry innovations. These developments benefit businesses, consumers, and the global economy by making international transactions more accessible, efficient, and economically viable.

Businesses and individuals benefit from quicker settlement times, allowing for more timely and responsive financial transactions. Lower costs make cross-border transactions more accessible to individuals and businesses that may have been excluded from traditional banking services due to high fees.

Customer expectations

As individuals and businesses become more tech-savvy and demand seamless, cost-effective, and transparent international transactions, service providers drive a customer-centric transformation in the cross-border payments landscape.

This includes adherence to local and international regulatory standards, faster processing and settlement times, personalization options, real-time tracking, competitive exchange rates, and more efficient and responsive customer support.

Continuous Innovation

Continuous innovation is a dynamic force that responds to the evolving needs of businesses and consumers in cross-border payments. In recent years, for example, artificial intelligence (AI) and machine learning (ML) have been employed to enhance fraud detection, risk management, and customer authentication in cross-border payments and payroll.

Another example is RegTech solutions, which leverage innovative technologies to automate compliance processes. These solutions help financial institutions comply with evolving regulations in different jurisdictions, contributing to a more efficient and streamlined cross-border payments landscape.

The ultimate solution for cross-border workforce payments

Papaya Global, the only unified payroll and payments platform, embodies the spirit of innovation in cross-border transactions. Relying on partnerships with tier-1 banks such as J.P. Morgan Chase, Papaya built the world’s first workforce-dedicated rails to ensure fast and timely payments.

Recently, Papaya introduced a ground breaking solution for global workforce payments: the Workforce Wallet. Using the Workforce Wallet accelerates the payment process by 80%, offers a 95% same-day delivery, and reduces bounced payments to less than 0.1%.

Schedule a demo to learn more.