Cross-Border Payments
Cross-border payments are transfers in which the payer and the payee are in different countries, usually in different currencies, so the money crosses at least one border, one currency and one banking system on its way. They are slower, dearer and less transparent than domestic payments, which is why they are where fintechs have taken the most share from banks and where the largest payments acquisitions have been made.
- Also known as
- International payments, Cross-border transfers
- Used at
- remittances, business-to-business trade, marketplace payouts, payroll for distributed teams, treasury moves between subsidiaries
- Binding
- governed by the rules of each system the payment crosses — correspondent banking agreements, SWIFT standards, card scheme rules, local payment-system rules
- Typical cost
- the global average for a $200 remittance was about 6.4% in 2023 (World Bank), against the G20 targets of 3% by 2030 for remittances and 1% for retail payments generally by 2027
- Typical speed
- same-day to five days through correspondent banks; minutes through a fintech that holds balances on both sides
- Parties
- the payer's bank or provider, one or more correspondent or intermediary banks, the payee's bank, and the FX provider — often the same institution taking a margin at each step
How cross-border payments work in practice
A traditional international payment is a chain. The payer's bank has no account at the payee's bank, so it sends the payment through a correspondent — a bank where it does hold an account — which may send it through another, until one reaches a bank that can credit the payee. Each link charges a fee, takes time and may deduct from the amount; the currency is converted at whichever link chooses to, at a margin the payer never sees quoted. SWIFT carries the messages; the money moves by book entries between correspondent accounts. SWIFT gpi now lets the sender track the payment and see the deductions, which is an improvement on not knowing.
Fintechs took the market by not crossing the border. A provider like Wise holds local accounts in both countries: the payer pays into the local account at home, the provider pays the payee out of its local account abroad, and the only thing that crosses is the provider's own treasury rebalancing, in bulk, at wholesale rates. The customer sees one fee and the mid-market rate. Card schemes do a version of this at scale, and stablecoins are the newest attempt: a dollar token that moves in minutes and converts at each end.
For acquirers the assets are the licences and local accounts in each corridor, which take years to assemble. That is what PayPal bought in Xoom for $890m in 2015 and what Visa bought in Earthport for about £250m in 2019.
Example
A UK company pays a €10,000 invoice to a supplier in Poland. Through its bank: a £25 sending fee, two intermediaries deducting €15 between them, and an FX margin of 2.2% on the conversion — about €240 in all, arriving in three days with €9,985 credited. Through a fintech provider: a 0.45% fee, €45, at the mid-market rate, arriving the same afternoon in full. Over 400 such payments a year the difference is €78,000 — and the supplier no longer asks why the invoice was short.
Common mistakes
- Comparing providers on the stated fee and ignoring the FX margin, which is usually the larger cost. - Sending in the payer's currency and letting the receiving bank convert at its own rate. - Assuming a payment sent on Friday arrives before the weekend in a country with a different one. - Underestimating the licences a corridor needs on both sides; a payments licence at home does not permit payouts abroad. - In an acquisition, valuing a cross-border business on its volume rather than on which corridors it can serve without a partner.