International payment methods: Cross-border payment systems

Multiple channels exist for moving money between countries to enable trade, yet navigating the maze of international payment methods poses risks, delays and excessive fees that hamper businesses. 

As global payment systems continuously advance, what are the key mechanisms facilitating affordable overseas transactions? Which solutions help minimise complexity for collections and payouts across borders? 

This article explores the infrastructures, risks and regulations steering cross-border payment systems to uncover the ideal mix of speed, savings and transparency that are essential for growth.

Types of international payment methods

Two of the most common international payment methods are traditional bank transfers and cards. We’ll take a brief look at each of these to help you understand advantages and limitations with these types of cross-border payment systems. 

International bank transfers

A bank transfer, also called a wire transfer, is a way of sending money electronically between two different banks or financial institutions. 

Wire transfers follow wire networks provided by correspondent banks that are used to transmit funds. This network of banks handles the whole transaction from the first bank to the last, ensuring that local tax rules are followed along the way. 

As one of many international payment methods, traditional bank transfers sent via the correspondent banking networks typically aren’t suitable for businesses conducting frequent or high value international payments. That’s because the combination of currency conversions and bank changes can make this payment method prohibitively expensive. 

SWIFT payments 

SWIFT payments were instrumental in creating standard financial messaging around the world in the later twentieth century - they’re not going anywhere, in much the same way that Slack won't replace postcards. 

SWIFT payments are frequently used for international payments because they’re widely accepted and fully traceable. However, settlement is particularly slow, at 2 - 5 days, which makes it difficult for international businesses to stay on top of cash flow.

SWIFT payments are subject to various fees, including currency conversion fees. These rates are usually less competitive than multi-currency providers. 

In summary, SWIFT payments can be expensive and variable, making them less attractive for businesses that require large volumes of transactions at speed.

Payment cards 

Payment cards (both credit and debit cards) are one of the most convenient international payment methods. For example, a business may choose to pay an overseas supplier using a credit or debit card.

Behind the scenes, card networks and acquirers do the heavy lifting, charging transaction fees, changing currencies and complying with regulations.

Global card schemes mean that cards are widely accepted everywhere - that’s why you’ll often see “Accepted wherever you see Visa” and the like. However, it’s important to understand how cross-border payments work, including credit and debit cards, because of factors like hidden costs when sending funds. 

Merchants trying to navigate the best cross-border payment solution might lean towards credit cards, because of the convenience. However, credit card processing is expensive as it involves high fees to accept card payments as well as currency conversion fees, and the credit checks might be prohibitive. 

Typically, merchants who make a high volume of low value international payments to suppliers might opt for virtual debit cards. For example, online travel agent customers of Airwallex use virtual cards to pay hotels and airlines around the world. For growing businesses, virtual cards are preferred over a physical card for business expenses because they can be uniquely and instantly issued per transaction which makes reconciliation much easier for the finance team.

Card networks

Card networks operate card-based payments across different countries and currencies. They process and settle transactions between issuers, acquirers, merchants and customers. 

Card networks also set the rules, fees and exchange rates for cross-border payments, if the card provider does not settle directly in the chosen currency. Visa, Mastercard and American Express are all examples of card networks. 

To cover the costs associated with the running and maintenance of their infrastructure, card networks charge interchange, assessment or network fees. These fees vary wildly depending on the type of card, the transaction amount, the payment channel, the geographic location and other factors. 

How do card network fees impact merchants’ earnings? 

Online payment platforms

Online payment platforms leverage international payment gateways and payment processors to move funds. 

Digital payment solutions like PayPal, Shopify Payments and WorldPay allow businesses to accept payments in foreign currencies, send payouts and automate financial processes. They make digital transactions accessible and cost-effective to a wide audience.  

In fact, the rise of online payment platforms has been one of the biggest developments in the field of global payment methods in the last decade. 

As one of the key B2B cross-border payment types, online payment platforms are advantageous because they can lower transaction fees, currency exchange fees, and operational costs associated with traditional payment methods (such as wire transfers). 

Online payment platforms can also help businesses optimise their cashflow and working capital by providing faster access to funds and clearer visibility of funds. 

Payment rails: What they are and how they work

Today’s fragmented payment landscape creates complexity for global businesses that need to navigate customer payment preferences across markets, available infrastructure, local regulations and low-cost international transfers. 

What are payment rails?

Payment rails are the underlying infrastructure upon which sit international payment methods. Essentially, payment rails are payment networks that allow global money movement between a payer and a payee. 

Businesses that want to make low-cost international payments need to navigate global and local payment rails to succeed in new markets. 

Card networks, SWIFT wire transfers and global platforms like Airwallex are global payment/rail networks, because they enable individuals and businesses to move funds securely, quickly and conveniently across borders. 

Local rails on the other hand are local payment methods that are market-specific. For example, Giropay is a widely-used and trusted bank transfer service popular in German markets.  

Whereas if you’re a UK retailer, you’ll be more familiar with payment systems such as Faster Payments and Bacs operated by Pay.UK, and CHAPS which is operated by the Bank of England. Airwallex has built its global payments network on top of its local payments network. This means Airwallex uses a local rail to collect cost-effectively in the sending country, then internally transfers the funds to its corresponding entity, and finally pays out in the local rail of the receiving country. 

Who uses local rails?

Local payment rails are highly relevant to cross-border payments: 

• For eCommerce merchants, using local rails to accept customer payments can lead to higher authorisation rates, improved customer satisfaction and higher conversion rates because you’re offering them an experience with which they’re familiar.  

• Tapping into local payment rails enables businesses to accept local payment methods by aligning checkout options to the local market’s preferred payment methods.  

• Local payment rails generally have lower maintenance fees which makes them cost-effective and often instant.

• Customer payouts (e.g. customer refunds in local currencies) and international bill paying are more cost-effective when using local payment rails. 

To access local rails, your business needs to have an account provided by a financial institution licensed to operate in that country, like an Airwallex Business Account.  

The frictionless future of global transactions

International payment methods rely on underlying networks and intermediary banks to transfer funds. Yet traditional vehicles like wire transfers and cards have costly drawbacks at volume.

Online payment platforms solve many challenges through technological streamlining, transparency, flexible currency handling and tapping into local payment rails crucial to overseas collections and payouts. Selecting the right mix ultimately balances compliance, fees and cashflow control across borders.