These days, the world is a smaller place than it’s ever been. Not in terms of size, of course, but in how easy it is to contact and do business with people from other countries. The rapid boom of the Internet has made international ecommerce one of the easiest things to master, but there are still some challenges to face. Cross border payments are one of them.
The reasons why are probably clear – not only do you have to deal with multiple currencies, but varying laws and regulations from area to area. It can create a complex picture, but like most things in life, there’s a way through it. You just need to know how to turn challenges into opportunities.
In this guide, we’ll help you understand the entire international picture, so you can accept global payments more easily.
TL;DR
- Regulatory differences between jurisdictions create cost optimization opportunities through strategic routing and licensing strategies.
- Cross-border payment data generates valuable insights that can be monetized through analytics and risk assessment services.
- Geopolitical considerations increasingly influence payment strategies, requiring businesses to develop sanctions-resistant architecture.
- Understanding hidden infrastructure dependencies determines success or failure in global payment operations.
- PayCompass offers a streamlined, competitive route toward cross border payment strategy success.
The Regulatory Arbitrage Game
Let’s go back to basics for a second and explain the cross border payments meaning. It might sound simple, but it’s the foundation on which we can move forward.
Basically, cross border payments are transactions that move from one country to another. For instance, if you’re a customer and you purchase an item online from China, the money will be a cross border payment, making its way to the Chinese country. The issue with these types of payments is that they often incur extra costs due to currency exchange, and there are many different regulations that govern them.
Yet, while trading across borders is complicated, it’s a profitable game if you know how to play it. That means identifying areas where you can optimize your payment flows, reducing operational costs, and accessing new markets.
To do this, you need several strategies, including clever payment routing, careful use of licensing requirements, and intelligent placement of entities.
Let’s explore this further.
The Jurisdiction Shopping Strategy
Across every region of the world you’ll see different regulatory environments. These create their own opportunities to optimize costs and gain new market access. Yet, to do that, you need to know how to capitalize on these differences. The first step is to understand which jurisdictions have the most favorable terms of your specific industry and how your business runs.
Strategically placing yourself in these favorable areas reduces compliance costs but still allows you to reach out to new customers in your target markets. You can also look toward careful payment routing through specific countries. This can optimize your operational expenses and reduce your regulatory burden.
The table below explains the different requirements for key jurisdictions.
| Jurisdiction | License Type | Capital Requirements | Processing Time | Key Advantages |
| Singapore | Major Payment Institution | S$1M – S$25M | 6-12 months | ASEAN passporting, 24/7 RTGS |
| UAE (ADGM) | Payment Services Provider | $150K – $2M | 3-6 months | MENA gateway, tax optimization |
| UK | Authorized Payment Institution | £20K – £5M | 6-12 months | EU access via equivalence |
| Luxembourg | Payment Institution | €20K – €5M | 3-6 months | EU passporting, fintech-friendly |
| Hong Kong | Stored Value Facility | HK$25M | 6-9 months | China gateway, stable currency peg |
License Arbitrage Opportunities
One of the big differences between areas is payment licensing requirements. These significant differences can create opportunities to reduce your operational costs through careful licensing decisions. Again, it comes down to knowing which jurisdictions have the most favorable terms, yet many countries have varying requirements on capital, operational standards and compliance costs.
For instance, some jurisdictions have passporting rights that mean you can have a single license that serves multiple markets. Of course, this cuts down on your licensing costs because you only have to pay for one.
Cross-Border Tax Optimization
Tax is something else you need to keep at the forefront of your mind. Every jurisdiction has its own specific rules and regulations around tax. Some are more favorable than others, but you have to comply to stay out of trouble. However, strategic routing through specific jurisdictions can optimize your withholding taxes and obligations around VAT.
Of course, anything related to tax is complicated, and it requires a careful understanding of tax treaties. Getting some professional advice in this case isn’t a bad idea. It will help you to minimize your tax burden and ensure you’re in compliance with all regulations.
Compliance as Competitive Advantage
If you know how to navigate the challenges of high-risk payment processing, you’ll know that it’s possible to turn compliance into an advantage. The same goes for cross-border payments.
To do this, you need to build quality infrastructure to allow you to access premium markets and partnerships that your competitors simply can’t reach.
White-Label Compliance Infrastructure
Once you’ve built a strong compliance system that you can use across several markets, you’ll have a scalable advantage. You can then white-label this system to other businesses, creating a compliance-as-a-service offering and a new revenue stream.
So, not only will you remain in compliance with all necessary regulations, but you’ll earn money from your efforts at the same time.
The Data Monetization Dimension
There are many examples of cross border payments that create valuable analytics. These can be monetized as an extra revenue stream.
Many types of cross border payments create valuable data that you can use to build your business over time. Yet, you can also monetize this information through payment analytics, business intelligence services, and risk assessment. Again, you’re looking at a new revenue stream or two that goes beyond regular transaction fees.
Transaction Intelligence as a Service
We talked about compliance-as-a-service, and now we have intelligence-as-a-service.
There is serious value to the data you discover through your analytics. It contains information about economic trends, business relationships, and trade flows. All of this is extremely valuable to specific entities, such as corporations and banks, to name just two.
Economic Indicator Development
Payment flow data can be incredibly insightful as an indicator into economic trends and currency movements in particular. It’s also valuable in assessing trade relationships. The main advantage of this data is that it provides early signals, making it particularly beneficial for financial institutions.
Risk Scoring Monetization
Other types of data you can monetize include payment history and patterns. This can be used to develop risk models that you can then licence out to financial institutions. These are then used to create parametric insurance offerings, providing in-depth risk assessment abilities.
Trade Finance Intelligence
Payment patterns between countries and industries can be used to develop strong finance pricing models, while also informing about country risk assessment. We can also mention supply chain decisions here. The data you discover can then be sold to financial institutions and corporations who have a heavy investment in international trade.
The Geopolitical Payment Strategy
The world is a complicated place and cross border payments often get caught in the middle. These payments are influenced by many factors, including geopolitical considerations, economic fallout, and sanctions. While much of this is out of your control, you can create strategies to ensure you remain connected while also managing political risks.
Then, when moving through the merchant account setup, keep your chosen strategies to avoid upheaval in mind, and you’ll always have a plan B.
Sanctions-Resistant Architecture
It’s important that your payment infrastructure can handle fast-changing situations. After all, the geopolitical landscape can change on a dime, and having a flexible approach allows you to quickly adapt without major upheaval.
One particular area to consider is sanctions resistance. While you can’t predict when things like this may happen, regularly monitoring developments and planning proactively for any potential disruption will see you through.
The table below will help you understand the potential geopolitical risks and how to overcome them.
| Payment Rail | Geopolitical Risk | Backup Options | Implementation Cost | Recovery Time |
| SWIFT | High (sanctions vulnerable) | Alternative messaging networks | Medium | 2-4 weeks |
| Correspondent Banking | Medium (de-risking) | Direct relationships, fintechs | High | 3-6 months |
| Card Networks | Low (private networks) | Regional card schemes | Low | 1-2 weeks |
| Digital Assets | Medium (regulatory uncertainty) | Multiple blockchain networks | Medium | 1-2 days |
| Local Payment Systems | Low (domestic control) | Multiple local partners | High | 2-8 weeks |
Multi-Rail Redundancy Planning
Geopolitical tensions can affect cross border payment solutions, leading to potential outage or disruption.
One way to help minimize the impact of geopolitical issues is to have relationships with payment providers across different geographical areas. This means that if one payment rail is disrupted, i.e., your primary one, you can quickly move to another. It ensures your operations don’t halt and you can continue to accept payments worldwide.
Of course, this type of strategy requires careful planning and it’s important to manage your relationships across several providers. It’s akin to juggling several balls in the air, but it’s a route that will help you avoid major disruption in the event of a severe political issue.
In many ways, optimizing your payment processing in this way is a growth strategy too. It allows you to sidestep problems when many of your competitors may falter.
Digital Currency Hedge Strategies
There are some other potential cross border payment solutions when geopolitical tensions rise. These include CBDCs (Central Bank Digital Currencies) and stablecoins, which are alternatives to traditional banking routes when disruption occurs. However, it’s important to keep regulatory compliance in mind when using these examples of cross border payments.
Economic Diplomacy Opportunities
Cross border payments can serve a much broader purpose than simply allowing your business to function from country to country. Your payment flow can also be an economic and diplomatic development tool. It can create opportunities for you to take part in government-based initiatives, helping you to grow your market access.
Overall, this strategy allows you to access other tools. These include subsidized funding, risk guarantees, and potential access to preferential regulatory treatment in emerging markets.
Development Finance Integration
It’s a good idea to align your cross border payment solutions with other development financial initiatives. Researching these carefully will give you plenty of days, but they can help you access the benefits we just mentioned. In many cases, it’s win-win for both you and the broader economy. You’re expanding your operations quite easily in this situation, but you’re also supporting wider development aims. In the end, this will bring even more advantages your way as the economy strengthens.
Trade Corridor Development
Research trade corridor initiatives backed by the government. These can give you easier access to emerging markets, along with favorable regulatory approvals and partnerships. In this situation, several governments usually work together to help boost trade and the wider economic picture.
The Infrastructure Invisibility Problem
We’ve explored the fact that when you accept payments globally, you have a complicated system operating behind the scenes. This allows you to remain compliant with all necessary regulations while also ensuring fast and efficient transfer of funds. Yet, much of this is invisible, and it’s extremely easy to overlook key aspects of the process.
It’s vital to understand the hidden layers that can play a big part in whether you succeed or fail on the global stage. Payment infrastructure limitations are often invisible until a problem occurs, but there are also opportunities that may remain hidden unless you dig deeper.
By taking the time to explore this invisible infrastructure, you can spot problems and take advantage of opportunities to reduce risk and optimize your operations.
The Settlement Time Arbitrage
The settlement process is complicated and varies across different jurisdictions and networks. This creates time-based opportunities that you can use to optimize working capital opportunities, and to gain a competitive advantage. In some cases, that advantage can be quite significant.
By learning more about timing differences, you can boost your cash flow management and keep ahead of your competition.
Weekend and Holiday Gaps
It’s easy to assume that all banking systems close down during weekends and holidays, but that’s not always the case. It’s a good idea to understand which systems operate during different time zones and in non-business hours. This allows you to strategically time large transfers and high-volume transactions taking advantage of better exchange rates and settlement timing.
Real-Time Gross Settlement Variations
Some countries have RTGS systems that run 24 hours per day. This stands for Real Time Gross Settlement, and one example is the MEPS+ system in Singapore or UPI in India. These offer faster settlement on different types of cross border payments if you can leverage them correctly. It’s an ideal option for any time-sensitive payments, and can also help you optimize your cash management strategy.
Of course, this turns into a competitive advantage if you know how to use them correctly, giving you a headstart on others in your industry. This is particularly the case if you have large value payments that you want to process quickly – obviously the money will be settled and land in your merchant account much faster.
The Concentration Risk Reality
You’ve no doubt heard the saying about not putting your eggs in one basket, and the same goes for cross border payment processing. If you rely upon just one payment processor, you’ll have issues if that processor experiences down-time, or if it’s located in a country that experiences an economic issue. In that case, considering third-party payment processors is a good option.
This strategy allows you to look at the infrastructure dependencies and any failure points, and to plan your cross border payment partner selection carefully.
It’s the same as investment diversification – you spread your operations so that you can continue operating in the event of a problem. It’s a form of risk mitigation and also gives you a competitive edge.
Single Point of Failure Mitigation
Let’s imagine that the worldwide SWIFT system experiences an outage or there are sanctions restrictions that affect operations. If your business relies solely upon this system as a cross border payment solution, your operations will cease until the system is back up and running. That could be minutes, hours, days, or worse.
During that time, you won’t be able to send or receive payments, effectively shutting your business down. In the meantime, your competitors have a strategy to pivot to another payment solution, continuing their operations while you’re standing still.
Having a different settlement rail in place means that you can continue to run your business without issues, switching back to your primary option once the disruption is solved. You could even consider offshore payment processing as a solution. Of course, if any of your competitors fail to do this, you’ll gain a competitive edge over them.
This is a strong strategy to have in place and gives you a line of defense against any network disruptions or unexpected geopolitical tensions.
Network Effect Exploitation
When you accept payments globally, you’ll find that small, regional payment networks often give you better pricing and service quality. This is deliberate, and it’s designed to attract customers from the main players in the industry.
It’s worthwhile exploring these options as they may give you better opportunities in terms of cost-savings. You may also be able to negotiate better terms, helping you run a more cost-effective, smoother business.
This process is called network effect exploitation and providing you balance the pros and cons carefully, it can be extremely beneficial. The more businesses use these smaller payment networks, the more valuable they become, giving you a strong return on your strategy choice.
Interoperability Investment Strategy
The final option is to use interoperability capabilities. This is a complex strategy and it requires you to understand the different types of payment gateway architectures available. It’s also important to familiarize yourself with how you can integrate them into your systems without disruption to your operations.
That way, you can seamlessly switch between payment networks depending on real-time requirements, optimizing settlement times and costs with ease. Of course, this also gives you another layer of defense against any geopolitical tensions or outages.
How Can PayCompass Help?
PayCompass can help you create a strong cross border payments strategy.
That’s cross border payments explained, and it’s clear that it’s a complex process. Yet, there are plenty of opportunities to protect your business against disruption and optimize your processes. That’s where PayCompass comes in.
We understand that your business needs far more than just basic processing services. You’re growing, overcoming challenges, and seeking out new opportunities wherever you can. That approach requires several things – support, advice, and tools and solutions to help you deal with everything that comes your way. We offer resilient and streamlined payment processing services, helping you focus on what matters, rather than getting bogged down in the technicalities – that’s what we’re there for.
Our high-risk merchant accounts are designed to counteract the challenges you face on a regular basis. We also offer multi-currency capabilities, fraud protection, real-time transaction monitoring, analytics, and a stronger layer of chargeback prevention. All of this works together to give you a strong base on which to build your cross border payments strategy.
Final Thoughts
We’ve reached the end of our guide to cross border payments explained. Whether you’re an ecommerce business selling your products and services to far-flung destinations or another type of business altogether, there are major opportunities out there. Of course, with opportunities comes challenges, yet with the right strategies in place, you can overcome whatever arrives at your door.
It’s clear that the cross border payments landscape has developed beyond measure over the years. From a simple process, it’s become sophisticated, technical, and rich in potential revenue through the strategic use of analytics. Understanding all of this, as well as how to leverage it for your benefit, helps you overcome the potential challenges and reach toward the opportunities instead.
While there are many unknowns in this equation, such as geopolitical tensions and network outages, a proactive approach works well. This means you anticipate what may come and put systems in place to sidestep the brunt of the disruption. When you do this and your competitors don’t, you’re standing strong and heading toward growth.
So, if you’re ready to transform your cross-border payment strategy, contact us today. We’re ready to help you capitalize on hidden opportunities without complicating your operations. After all, the world is full of chances to grow and develop your business, and it’s time to grab them with both hands. Let’s work together to do exactly that.
