Cross-Border Payments: Everything You Need to Know

Over the years, cross-border payments have undergone dramatic changes. In the past, sending money across borders meant relying on slow, paper-based wire transfers that took days to process and required multiple intermediaries. 

Now, digital platforms, instant payment systems, and improved banking networks make it possible to transfer funds across countries with far greater speed, transparency, and convenience. Their growth has been so rapid that the market is projected to reach $320 trillion by 2032.

The widespread adoption of cross-border payments is thanks to several forces shaping the global economy. Globalization has extended supply chains across continents, while the rise of e-commerce enables businesses to sell to international customers with ease. At the same time, advancements in financial infrastructure and trade agreements have reduced barriers, making these payments faster, more accessible, and more reliable than ever before.

In this article, we'll break down what cross-border payments are, how they work, their main uses, common challenges, and how automation is making them far more efficient.

Cross-Border Payments: Definition

Cross-border payments are financial transactions where the payer and the recipient are located across geographies, in different countries. The transfer may be made in a single currency or involve currency conversion, depending on the nature of the transaction and the payment arrangement.

They are initiated by businesses trading internationally, individuals sending money abroad, or governments funding overseas projects. These payments are facilitated by banks, payment processors, card networks, and modern fintech platforms, each providing the infrastructure to move funds securely and efficiently across borders.

Types of Cross-Border Payments

Cross-border payments can be completed through multiple channels, each offering different benefits, processing speeds, and costs. The method chosen often depends on the transaction amount, the urgency, and the level of traceability required. Here's a closer look at the main types: 

1. Wire Transfers

Wire transfers are one of the oldest methods for sending funds between international bank accounts. They operate through networks like SWIFT, where the sending bank transmits instructions to the receiving bank, often via one or more intermediary banks. 

They are highly secure and widely accepted for large-value transactions, but can take two to five business days to complete and carry higher service and intermediary fees.
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Also Read: ACH vs Wire Transfer: What Are the Differences in How They Are Reconciled?

2. Electronic Funds Transfers (EFTs)

EFTs move money electronically between accounts without paper-based processes. In a cross-border context, they are often processed through systems like SEPA in Europe or ACH-linked international transfers in the US. 

They are faster than wires, typically lower in cost, and suitable for recurring or mid-value payments such as payroll or supplier invoices.

3. International Payment Gateways

Platforms such as PayPal, Stripe, and Wise allow businesses and individuals to receive and send funds globally via the internet. They support multiple currencies, offer conversion services, and provide buyer or seller protection features. They are especially popular for e-commerce transactions and service-based businesses operating internationally.

4. Credit Card Transactions

Credit card payments for cross-border transactions are processed through international card networks like Visa or Mastercard. Currency conversion is handled automatically, making it convenient for consumers and merchants. However, they can incur foreign transaction fees, dynamic currency conversion charges, and higher merchant service costs.

5. Blockchain-Based Transfers

Blockchain and cryptocurrency payments bypass traditional banking intermediaries, offering near-instant settlement and low transaction fees. They are gaining popularity for cross-border remittances and B2B settlements, though adoption is still limited by regulatory uncertainty and market volatility.

6. Cross-Border Instant Payment Systems

Emerging linkages between domestic real-time payment systems, such as India's UPI and Singapore's PayNow, allow near-instant transfers across borders. These reduce settlement delays, lower fees, and improve transparency, making them ideal for both personal remittances and business payments.

Key Uses of Cross-Border Payments

Almost 97% of cross-border payments are B2B transactions, driven by international trade and the interconnected nature of today's supply chains. Businesses rely on these payments to manage supplier relationships, pay for services, and move capital across countries. 

Here are some of the most common uses: 

1. Paying Overseas Suppliers

Companies regularly use cross-border payments to pay suppliers in other countries for raw materials, finished goods, or components. These payments may involve different currencies, complex trade terms, and specific delivery timelines, making accuracy and timeliness critical.

2. Settling International Service Invoices

Businesses often work with vendors and consultants located abroad for services ranging from software development to marketing. Cross-border payments allow these invoices to be settled quickly and securely, regardless of geographical boundaries or currency differences.

3. Disbursing Global Payroll

With remote work on the rise, more companies employ talent across multiple countries. Cross-border payments enable salaries, bonuses, and benefits to be paid directly into employees' local bank accounts, often in their preferred currency.

4. Facilitating Cross-Border Investments

Businesses and investors use cross-border payments to fund overseas subsidiaries, joint ventures, or investment projects. These transactions often involve large sums and require compliance with international regulations, making secure and traceable payment methods essential.

How Cross-Border Payments Work

Each type of cross-border payment, whether it's a wire transfer, EFT, payment gateway, or blockchain transaction, has its own specific process, fees, and timelines. However, most follow a similar sequence from initiation to settlement. Here's how the process usually works: 

Step 1: Payment Initiation

The process starts when the payer instructs their bank or payment service provider to send money to a recipient in another country. This includes providing beneficiary details, the amount, the currency, and the payment purpose. In some cases, supporting documents may be required for compliance checks.

Step 2: Currency Conversion

If the transaction involves two different currencies, conversion takes place either at the payer's bank, the payment processor, or a partner FX service. The exchange rate applied, along with any conversion fees, will affect the final amount received by the beneficiary.

Step 3: Transmission via Payment Rails

Once details are confirmed, the payment is transmitted through an international payment rail such as SWIFT, SEPA, a card network, or a blockchain protocol. In some cases, funds pass through one or more intermediary or correspondent banks before reaching the destination country.

Step 4: Intermediary Bank Processing

In many cross-border payments, especially those sent via SWIFT or traditional wire transfers, funds do not move directly from the sender's bank to the recipient's bank. Instead, they pass through one or more intermediary or correspondent banks that have existing relationships with both parties.

For payments that use correspondent banking, intermediaries handle routing, compliance checks, and any currency conversions not completed earlier. While necessary for connecting banks in different jurisdictions, these steps can add time and cost to the transaction.

Step 5: Settlement in the Beneficiary's Account

Finally, the payment reaches the beneficiary's bank or payment provider, which credits the recipient's account. Depending on the payment method and the number of intermediaries involved, settlement can be near-instant or take several business days.

Common Challenges in Cross-Border Payments

The very nature of cross-border payments spanning multiple jurisdictions, currencies, and financial networks makes them inherently complex. Every transaction may pass through different systems, follow varied regulations, and involve several intermediaries. This creates multiple points where delays, errors, or extra costs can occur. 

Here are some common challenges with cross-border payments: 

1. High Transaction Costs

Cross-border payments often involve multiple layers of fees, including bank service charges, intermediary bank deductions, and foreign exchange spreads. These costs can be unpredictable, especially when each participant in the payment chain applies its own charges before the funds reach the recipient.

2. Slow Settlement Times

Unlike domestic payments, which can clear within hours or seconds, cross-border transactions may take days to settle. This is due to the involvement of multiple payment rails, time zone differences, and manual checks at intermediary banks, which slow down fund availability.

3. Regulatory and Compliance Complexities

Every country has its own rules for anti-money laundering (AML), sanctions screening, and tax reporting. A payment that complies with one jurisdiction may require additional checks in another. This increases the likelihood of delays or rejections, particularly when documentation is incomplete.

4. Lack of Transparency in Payment Tracking

Once a payment leaves the sender's bank, it may become difficult to see where it is in the transfer chain. Intermediary banks may not provide real-time status updates, making it challenging for businesses to predict settlement times or identify the source of delays.

5. Reconciliation Difficulties

Matching cross-border payments with corresponding invoices or ledger entries can be complicated by multiple currencies, varying settlement amounts due to FX conversions, and inconsistent reference numbers. Data formatting differences across banks and payment systems further increase the risk of unmatched transactions, which can affect cash flow visibility and financial accuracy.

Best Practices for Efficient Cross-Border Payments

The challenges in cross-border payments, whether it's high transaction costs, delayed settlements, or reconciliation issues, directly impact the experience and trust of the businesses and individuals that rely on financial institutions to move their money. 

By implementing the right operational practices, institutions can process transactions faster, reduce errors, and deliver greater value to their clients while safeguarding compliance and profitability. Here are some best practices to follow: 

1. Route Payments Through the Most Efficient Rail

Financial institutions must maintain access to multiple cross-border payment rails, such as SWIFT, SEPA, instant payment linkages, and correspondent banking, and route transactions based on factors like corridor, currency, settlement speed, and cost structure. 

Intelligent routing ensures funds reach the beneficiary quickly, with minimal fees and fewer intermediary banks, while meeting client expectations.

With Osfin, institutions can match millions of records in minutes while maintaining complete accuracy and compliance. Book a demo today!  

2. Maintain Verified Beneficiary Records

Incomplete or outdated recipient details remain a major cause of rejections and delays. Institutions that maintain rigorously verified beneficiary data, covering bank account details, SWIFT/BIC codes, and currency preferences, can reduce operational friction, limit investigations, and protect both client timelines and institutional resources.

3. Automate Cross-Border Payment Workflows

Automation allows institutions to handle high volumes of cross-border transactions without compromising accuracy. Integrated systems can initiate payments, run real-time compliance checks, detect fraud, and reconcile transactions across currencies and formats. 

Logic-based matching engines can identify and tag discrepancies instantly, while automated routing ensures unresolved items reach the right teams quickly.

4. Provide End-to-End Payment Tracking

Offering clients complete visibility into their transactions strengthens transparency and trust. Real-time tracking lets both the institution and its clients monitor each stage of the payment journey, anticipate settlement timelines, and act quickly if delays or compliance holds occur. Detailed reporting also supports audits and regulatory reviews.

How to Reconcile Cross-Border Payments 

Banks and other financial institutions processing cross-border payments handle millions of transactions every day. They need reconciliation processes to ensure that every payment leaving or entering their customers' accounts is correctly recorded, matched, and accounted for. 

While reconciliation workflows vary slightly depending on the payment type, wire transfers, EFTs, payment gateways, or blockchain transactions, the core process remains the same. Here's how it works:

1. Ingestion of Data from Multiple Sources

Transaction data must be compiled from all relevant systems. For example, wire transfers may require settlement files from SWIFT, ledger entries from the core banking system, and confirmation messages from correspondent banks. EFTs may pull data from ACH processors, clearing houses, and internal ledgers. 

Each source delivers data in different formats, like SWIFT MT103 messages, XML files, or CSV reports, which must be standardized before matching can begin.

2. Transaction-Level Matching

Once data is ingested, reconciliation engines apply logic-driven rules to match transaction details across files and systems. This can include one-to-one matches (a single payment record in both systems), one-to-many matches (a single settlement covering multiple transactions), or many-to-one matches (multiple debits consolidated into a single settlement). 

Matching criteria often include transaction amount, date, reference number, and currency, with tolerances set for expected FX differences.

3. Flagging and Resolving Exceptions

If a transaction cannot be matched, due to missing reference IDs, currency conversion variances, timing delays, or intermediary bank deductions, it is flagged immediately. The system tags the transaction with a specific reason code and routes it to the appropriate operations team for investigation and resolution, preventing unresolved items from piling up.

4. Reconciliation Report

After all possible matches are completed and exceptions are routed, a reconciliation report is generated. This report outlines matched transactions, unresolved items, and any adjustments made. It is an operational checkpoint and an audit-ready record, providing transparency into the movement of funds and the institution's reconciliation accuracy.

How Osfin's Technology & Automation Improve Cross-Border Payments

Cross-border payments move through multiple banks, payment rails, and regulatory environments, making them difficult to reconcile, monitor for compliance, and account for in real time. For banks and financial institutions, attempting to handle this manually slows operations, increases risk, and leaves room for costly errors.

Osfin is an enterprise-grade reconciliation platform built to handle this complexity at scale. The platform automatically fetches data through 170+ pre-built integrations and is fully file-format agnostic, capable of processing MT103s, XMLs, CSVs, JSON files and more in their native formats. Data is then auto-parsed, where extensive data quality checks are performed to prepare it for reconciliation. Its logic-based matching engine can reconcile up to 30 million transactions in just 15 minutes.

Osfin's built-in ticketing and exception handling engine automatically flags unreconciled transactions, tags them with reason codes, and routes them to the right internal or external stakeholders for resolution. Live dashboards provide real-time visibility, while detailed reporting ensures full audit readiness.

Osfin's security is enterprise-grade, with 256-bit SSL encryption, role-based access control, two-factor authentication, and compliance with SOC 2, PCI DSS, ISO 27001, and GDPR standards, keeping sensitive cross-border transaction data fully protected.

With Osfin, you can reconcile faster, reduce operational strain, and maintain complete compliance across all cross-border payment flows. Book a demo today to see how Osfin.ai can transform your reconciliation processes.

FAQs on Cross Border Payments

1. What is the cross-border payments flow?

The cross-border payments flow involves initiating a payment, converting currencies if required, transmitting funds via international payment rails, processing through intermediary banks, and finally settling the amount into the beneficiary's account in another country.

2. What are some cross-border payment examples?

Examples of cross-border payments include wire transfers sent between international bank accounts, electronic funds transfers (EFTs) for overseas suppliers, credit card transactions made in foreign currencies, payments processed through international gateways like PayPal, and blockchain-based transfers used for rapid, low-cost global fund movement.

3. Why are cross-border payments expensive?

Cross-border payments often incur high costs due to foreign exchange spreads, intermediary bank charges, compliance checks, and payment network fees. These combined expenses can impact the total amount received by the beneficiary.

4. How long do cross-border payments take?

The time required for a cross-border payment depends on the method used. Certain corridors with linked instant payment systems can process transactions in seconds, while traditional wire transfers may take two to five business days.

5. What makes reconciling cross-border payments challenging?

Reconciling cross-border payments is difficult due to varying data formats, currency conversions, settlement delays, and the absence of standardized reference identifiers across banks and payment networks, which makes accurate transaction matching and discrepancy resolution more complex.