An overview of traditional overseas and international payment methods
- •What are international payments?
- •What international business payment solutions are available in the market?
- •What are the considerations to choose the most suitable payment method?
- •Pros and cons of traditional overseas and international business payment methods
- •Challenges brought by traditional cross-border payment methods
- •Airwallex: the new international payment solution
Cross-border payment methods can be broadly categorized into four types: bank wire transfers, electronic payments (such as WeChat Pay and Alipay), money changers, and third-party payment platforms (such as Western Union, PayPal and Airwallex).
This article will provide an overview of mainstream international payment solutions and their advantages and disadvantages. It will also discuss the considerations and limitations of traditional methods, and introduce innovative alternatives.
What are international payments?
With the booming development of global trade, various companies, including e-commerce businesses, are shifting their production to countries and regions with lower costs in order to maximize profits. They also market their products and services globally. In this trade ecosystem, companies need to make quick and secure payments to overseas suppliers or employees, resulting in a significant demand for overseas or international payments.
What international business payment solutions are available in the market?
1. Bank wire transfers
Bank wire transfer involves the use of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system to facilitate international transfers. Basically, all banks that offer wire transfer services and have their own unique SWIFT codes. By providing the recipient bank's SWIFT code and account number, funds can be transferred electronically worldwide. Additionally, many banks also provide commercial finance services to small and medium-sized enterprises (SMEs). With a corporate account, you can enjoy wire transfer and free payroll services.
2. Electronic payments
Electronic payments refer to making transfers without the need for cash, cheques, or credit cards. As a popular cross-border payment tool for online shopping, many electronic payment platforms and e-wallets also support international transfers. Transfers can be processed through the application once authenticated.
3. Money changers
Money changers is another common method for overseas payments. It provides cash exchange services between different currencies based on the prevailing exchange rates. This option is convenient for travelers or individuals on business trips who need to make overseas payments. Money changers typically charge based on exchange rates and impose transaction fees.
What are the considerations to choose the most suitable payment method?
Payment scenarios and the payment amount
You can choose the appropriate payment method based on factors such as payment deadlines, payment amount, and recipient country. For example, bank wire transfers may be more secure and reliable for large international transfers. For small payments, electronic payments or money changers may be more convenient.
Cost of the remittance process
Each payment method has its own transaction fees, processing fees, and exchange rates so different payment methods and tools may incur different charges. It is important to compare and choose the most cost-effective method that fits your budget.
It is important to make sure the chosen payment method has robust security measures to protect your funds and privacy. For larger transfers, it is recommended to use bank wire transfers or licensed third-party payment platforms. However, wire transfers generally take longer to process and may cause delays.
Airwallex, as a licensed third-party payment platform, prioritizes system encryption and security to ensure the security of the transaction and funds. We also provide fast and secure payment that allows instant transfers so cross-border remittances can be credited as fast as 1 day.
Pros and cons of traditional overseas and international business payment methods
Different payment methods have their own advantages and disadvantages. Bank wire transfers through the SWIFT system can be understood as a telecommunications network connecting global financial institutions. It enables fast and secure international fund transfers between banks worldwide. However, wire transfers may take 2 to 5 days depending on the bank and the location/country of the recipient. On top of that, interbank transfers may incur various transaction fees that accumulate over time. The exchange rates are also determined by the bank and can result in potential currency conversion losses.
As for commercial banking services, while they offer comprehensive fund management and cross-border remittances, major banks generally charge annual or monthly fees in addition to transaction fees. Additional charges might be required if you reached their limits on the number of free transfers.
In terms of electronic payments and payment platforms, they allow for instant transfers around the clock. However, mainstream electronic payment platforms often have restrictions on the maximum amount for cross-border payments in Hong Kong dollars (HKD). They are more suitable for daily consumers but not for large Business-to-business (B2B) transactions.
Money changes also offer cross-border remittance services with a widespread network covering various destinations worldwide. They set their own exchange rates and attract customers with lower transaction fees compared to bank transfers. The fees can be based on a fixed amount or a percentage of the transferred funds. The remittance process typically takes around 1 to 3 days, depending on the region and the amount transferred. However, it is important to consider the reputation of the money changes as there are certain risks involved. It is recommended to verify whether the store is listed as a licensed Money Service Operator (MSO) to ensure the legitimacy of the transaction.
Challenges brought by traditional cross-border payment methods
Traditional cross-border payment methods bring several challenges to business operations, including:
Unnecessary costs: Cross-border payments involve various service fees, along with the additional cost for currency conversion, significantly reduce profitability.
Extra administrative work: Transaction limits restrict the amount that can be transferred. The need for multiple transfers results in extra administrative work.
Lengthy transfers: The process of transfer can take up to 5 days depending on the method and destination. The lack of transparency also makes it difficult to track the status and details of the transaction. In case of delays, fines may be imposed by suppliers or even lead to delayed deliveries, impacting the production and the reputation of your business.
In spite of the advantages of traditional business payment methods, none of them is perfect. Therefore, a cross-border payment solution that combines efficiency, security, convenience, and low costs would undoubtedly provide significant support to the operations of cross-border business.
Airwallex: the new international payment solution
Airwallex offers one-stop global corporate accounts specifically designed for global trades. Simply upload basic business documents to complete the account opening process within minutes, with no account opening fees, monthly fees, or hidden charges.
The multi-currency account allows you to avoid unnecessary double currency exchanges, and businesses can take advantage of market-leading exchange rates to reduce costs. In addition, cross-border remittances can be credited as fast as 1 day, giving you a competitive edge in your business. All transaction records are automatically synced to Xero so you can conveniently manage and allocate funds in real-time, and have a comprehensive view of your company's financial status.
Open an Airwallex corporate account for free, or watch a 5-minute video demo to learn more.