The world is fast evolving, and with improved technology and globalisation, you can shop from anywhere across the globe. You can also hold investments, run an international business, and send and receive money from distant relatives and friends. That’s indeed the beauty of technology!
However, many of these transactions are not local because it involves persons or businesses that are not within the same country. This means if you have ever ordered an item shipped from another country, or sent or received money from another country, you have been a participant in cross-border payment.
Cross-border payments are transactions in which the payer and the payee (recipient) reside in different countries. At one point or the other, we might find ourselves processing cross-border payments. This may be to pay education fees for international students, pay for goods or services, shop for items or receive funds from migrated loved ones. The government also participates in cross-border payments during importing and exporting of goods.
Cross-border payments are typically between person to person, person to business, and business to business and usually involve the exchange of currencies. You can process them via bank or wire transfer, credit or debit card payment, e-wallet, and more. Cross-border payments, however, are more complicated than local transactions due to the need to exchange currencies.
Cross-border transactions go through multiple layers of verification, including the exchange of currency and involve several local and international entities working together to transfer the funds. The most widely used cross-border payment medium is the bank or wire transfer. Here is how it works:
It seems simple, right? However, it's a lot more complicated than that. Each bank or entity the funds flow through has to undergo numerous legal and regulatory processes before they can even begin facilitating the transaction. At the same time, the funds may go through multiple entities to facilitate the transaction, which slows down the processing time. Typically, completing these transactions takes two to five days or even more.
Sadly, not all banks enable the receiver to receive the funds in their local currency. Most times, the recipient gets it in dollars and has to use the local bureau de change service to change it to their local currency.
Cross-border payments must go through numerous channels before processing, which can prove expensive as each entity charges its fees. At the same time, depending on the country you send money to, you may also be charged a cross-border fee. Taxes also apply to these transactions and vary from country to country.
Finally, cross-border transactions involve currency exchange, so you have to consider the exchange rate. Depending on the exchange rate at the moment- if it's unfavourable, it reduces the value of the money. All these contribute to cross-border payment being expensive.
Cross-border transactions affect people as well as businesses. Several people depend on remittances from migrated family members living in other countries. At the same time, Business owners with supply partners in other countries need cross-border payments for the import and export of goods. At one point or another, you may find yourself processing cross-border transactions either when travelling, paying for international school fees, or shopping for goods or services.
However, cross-border payment is not without several challenges. These have made it difficult for people to complete these payments. Some of the limitations of cross-border payments include:
The high transaction cost, numerous regulations, document requirements, and slow speed has made it difficult for people to process cross-border transactions. The demand for quick, secure, and cross-border payments has increased as a result of the rise in global e-commerce and migration globally. As solutions to reduce the challenges of cross-border payment, there are alternative channels people can use to improve cross-border payment.
Cross-border payment is an essential need but still has a lot of challenges. With alternative cross-border payment channels like Yellow Pay, you can send funds much easy, quickly and at no cost from the comfort of your home.
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