BlueSnap's Ultimate Guide to Cross-Border Payments

What Are Cross-Border Payments?

Cross-border payments, or cross-border transactions, involve any exchanges of money that cross the border of a country or region, starting in one jurisdiction and ending in another.

When banks process cross-border payments, they perceive them to be riskier than domestic transactions. This perceived risk leads to higher fees and a greater likelihood that the transactions could be declined.

Types of Cross-Border Payments

Cross-border payments can take any of the same forms as domestic payments so it’s important to be able to accept all types of payments, including types native to the particular countries where your customers are located. Two of the most popular payment types, that can also incur cross-border fees, are credit cards and eWallets:

• Debit and credit card payments

Perhaps the most traditional form of cross-border payment is an online card payment. This is a transfer of money via a card issued by a financial institution, typically a bank, that gives an individual access to their own funds or a line of credit.

• eWallet payments

eWallets, or digital wallets, are a type of software application that stores an individual’s payment information to allow the digital transfer of funds between users. They are often used through mobile payment devices, such as smartphones or tablets.

How Cross-Border Payments Work

Payment processing follows the same seven steps whether a transaction is domestic or international. However, cross-border payments have some additional considerations that, if addressed, will help you make the most of your international sales. Here’s how they work:

1. The customer purchase: Your customer arrives at your checkout page, shopping cart filled with merchandise (or services or software), ready to make a purchase. They choose a payment method and enter any required information associated with it.

For cross-border payments: To make cross-border eCommerce a success, this step requires some extra attention — a localized checkout experience. The checkout page should always be presented in the shopper’s language. According to a global survey, 76% of shoppers prefer to purchase products presented in their own language and 65% prefer website content that’s in their language, even if it’s of poor quality.

Not only does this make the customer feel more comfortable navigating the page, but it also feels more like a local shopping experience, making it more likely that customers will see the process through. A payment gateway with an emphasis on cross-border transactions will detect the shopper’s IP address and serve up the appropriate experience.

Similarly, the price of your goods should appear in the shopper’s local currency. This is important for two reasons: One, it helps your customer know exactly how much they’ll be paying, without making them jump through hoops by doing currency conversion calculations. Two, it’s more likely that the transaction will be approved by the acquiring bank (see step #2). Again, a simple IP check by your payment provider should provide the shopper with what they need.

Lastly, your checkout page should offer local payment methods — no matter what country your shopper is in, they should be able to choose whatever method of payment they use normally. Without local payment options, you risk losing the sale altogether; at the very least, your customer won’t be completely satisfied with the experience.

2. Routing and processing: In this step, the customer’s card information is captured and encrypted by the payment gateway. The gateway then sends an authorization request along with the transaction information to an acquiring bank — the bank or financial institution that processes credit or debit card payments on behalf of the merchant (you). The acquiring bank then sends the request to the issuing bank — the shopper’s bank — to request approval to process the transaction.

For cross-border payments: To conduct cross-border eCommerce transactions more effectively, a payment solutions provider should partner with numerous acquiring banks around the globe. Some payment providers only have one acquiring bank partner, so it’s important to check! Why? A one-bank partnership sets up global payments for failure. If the acquiring bank is located in the US and the shopper’s bank is in another country, that transaction has a much higher probability of being flagged for fraud.

3. Approval: In the approval phase, the issuing bank either approves or denies the request. That decision might seem like a no-brainer — either funds are available or they’re not — but the decision is based on a few different factors, including availability of funds, transaction value, etc.

For cross-border payments: Approval becomes more challenging for cross-border payments because there is the potential for more risk. Banks consider the same factors when authorizing any transaction, but with international sales, there’s more likely to be a mismatch:

• • Funds: Are the funds available to cover the amount of the transaction?
  • Transaction value:  Lower value transactions have a better chance of being approved as higher value transactions are seen as higher risk. If you have higher ticket items, you might consider offering a subscription plan to be able to offer lower value transactions to increase the chances of approval. For example, rather than charging $120 a year to access your software, charge a monthly $10 fee.
  • Currency mismatch: If the currency request doesn’t match the issuing bank’s local currency, the transaction is more likely to be declined.

For cross-border payment processing, the approval step goes more smoothly when transactions are routed to the banks most likely to approve them — banks that are a good match geographically and that fit the transaction’s currency and issuing bank or country. This type of “intelligent” routing helps increase approval rates.

4. Shopper results and confirmation: Once the issuing bank has made a decision, it informs the acquiring bank, which authorizes the transaction and then informs the customer via the checkout page as well as you, the business.

All of these steps happen in about a second.

Figure 1 – From purchase to confirmation, the steps of a cross-border eCommerce transaction happen in just under one second.

For cross-border payments: More potential obstacles exist at every step, including getting flagged as a fraud risk, running afoul of regulations or having additional fees applied.

Once a transaction has cleared, then you can head on over and start the next phase.

5. Order fulfillment: Enough said — you know what happens here.

6. Settlement and payout: In this stage, you, the merchant, receive the money owed to you for all those global transactions. For each approved transaction, the issuing bank sends the appropriate funds to the acquiring bank, which then passes them on to you, sometimes via a payment solutions provider like BlueSnap. You usually have the opportunity to determine how frequently you’ll get paid — either daily, weekly or monthly.

For cross-border payments: Typically, foreign exchange fees (called FX fees) apply for merchants that prefer payouts in their local currency. However, some providers offer like-for-like payout options, which means they are capable of paying into your multi-currency bank account in the original transaction currency. Merchants that take advantage of this option can save money on FX fees.

7. Reconciliation: Similar to balancing your own personal checkbook, reconciliation is how you keep track of what you’re owed and what you’ve been paid. You may get multiple reconciliation reports, one from each bank you work with.

For cross-border payments: Reconciliation can be especially complex for businesses that receive funds in multiple currencies. To save time — and ensure accuracy in the process — it benefits you if your payment provider sends easy-to-read processing statements that consolidate all information related to transaction activity (countries, banks, currencies, etc.). Ideally, your payment provider should offer the option for a single consolidated report, which includes every transaction from every bank, currency and payment type.

How to Accept Cross-Border Payments

If you’re interested in being able to accept cross-border payments, with a minimum of hassle and fees, then there’s a few important things you’ll need to consider:

1. Where your customers are located. This will dictate the languages that you’ll need to support as well as required compliance and taxes they may need to pay.
2. How your customers will want to pay. You’ll need to be able to provide the currencies and payments that they’ll want to use
3. Where your business is located. Leveraging all your legal entities can help you create the right connections to local financial institutions.

Processing cross-border payments has a lot of moving parts, and the more regions you serve, the more payment types you need to accept and the more banks you need to work with increases your payment complexities.

Thankfully, there’s a fourth consideration for accepting cross-border payments: Which payment provider will you choose?

Much of the process of cross-border payments can be handled by a payment service provider (PSP) that will manage the accepted currencies and payment options, automatically display appropriate languages, offer compliance to regulations and handle the gathering of payment details and reconciliation.

If you choose BlueSnap’s Global Payment Orchestration Platform, then you’re getting all of that and more. Our platform is designed to optimize cross-border transactions to increase your authorizations and reduce costs.

The Benefits of Optimized Cross-Border Payments

According to BigCommerce, merchants that sell to international customers boost sales by 10% to 15%. That’s because they have access to a much wider audience than those that only deal locally. Similarly, platforms that can onboard new clients in international markets expand their reach exponentially.

The catch? There’s a big difference between just accepting cross-border payments and optimizing them. Optimizing those payments means creating both an ideal experience for your customers and an ideal operational setup for your company.

To get the full benefits of selling globally, the key is to structure your payment processing strategy to increase sales and reduce costs.

Increasing Global Sales

When it comes to international payments, there are two levers for increasing sales: improving your authorization rate and reducing checkout abandonment.

According to our survey on cross-border payments, 40% of respondents report an international payment authorization rate of 70% or less. That means more than 30% of sales are lost after you’ve convinced a customer to choose your goods or services and then they go through the entire checkout process, submit their payment authorization, and then are denied the opportunity to purchase from you because the transaction is denied. You miss that sale and potential future sales from the customer.

But the right approach to cross-border payments can improve your authorization rate and lead to a 3% to 12% increase in sales. You need to:

• Match the customer’s country with the processing country
• Match the issuing bank with the acquiring bank
• Match the issuing currency to the acquiring currency

Additionally, you can see a 5% increase in sales by using the right retry logic and failover. Retry logic is about optimizing when and how the transaction data gets sent to the banks and is especially important for subscriptions. Failover, which is a capability that instantly reroutes declined transactions to another bank for approval, is essential because, without it, you are relying on one bank to process and authorize your transaction, which automatically limits your authorizations. You need to be able to rely on a network of banks – this way, if one bank does not process a transaction you can immediately failover to another bank in the same region.

BlueSnap Intelligent Payment Routing is a proprietary algorithm that routes transactions based on a number of critical factors to get you the highest likelihood of approval and increase your authorization rate.

Similarly, checkout abandonment is a significant challenge for those who sell cross-border. When it comes to reducing checkout abandonment, the biggest issue is local friction – 56% of companies do not offer global shoppers’ preferred payment methods, and 20% of shoppers will abandon checkout if it is not in their language.

To remove this friction, and reduce checkout abandonment, you need to offer a localized experience for your shoppers wherever they are. This builds trust and helps them fully understand their purchase, making them more likely to go through the entire process and increase your sales. Be sure to leverage your shoppers’ local languages, local currencies and local payment methods.

With 100+ local currencies, 110+ local payment types, including popular eWallets and 29 local languages, BlueSnap supports sales in more than 200 geographies.

Reducing the Costs Associated with Cross-Border Payments

The other side of profitability when it comes to selling cross-border is reducing the associated costs to improve your margins. This comes down to decreasing cross-border fees and reducing technical debt.

According to our survey, 68% of respondents are potentially paying unnecessary cross-border fees because they are processing payments where their business is headquartered rather than where their customer is located and they have a legal entity. Cross-border fees can add an additional 2% on top of the interchange fees you are already paying to process payments. You can avoid these fees by partnering with a payments provider that can offer local acquiring wherever you have a legal entity.

BlueSnap offers local acquiring in 47 countries to help you reduce avoidable cross-border fees.

Technical debt is another challenge businesses selling cross-border face. Our survey found that 31% of organizations are working with four or more payment processors to meet their cross-border needs. The amount of time and resources needed to integrate and maintain each platform can be crippling, not to mention making sure that they are meeting customers’ needs. Getting a holistic understanding of business performance is near impossible.

To combat technical debt, look for a global payment partner that can meet your needs everywhere you want to sell today and in the future. Look for unified global reporting to help you understand what is and isn’t working and how you want to allocate your global resources.

With BlueSnap, you get a single integration with everything you need to sell globally built in.

Reaping the Rewards of Optimized Cross-Border Payments

With these strategies in place, your business will enjoy a number of benefits, including:

• Increased ROI

By optimizing your cross-border payments, you’ll see a higher ROI on each transaction. By taking steps to lower the costs associated with each payment, you’ll be able to boost your margins.

That’s especially important because of the recently increasing card processing and interchange fees. Cross-border payments that process locally (for instance, a French credit card that processes in the EU rather than in the US) avoid many of these fees. The better your payment processor can minimize cross-border fees, the more ROI you’ll see.

• A Localized Global Customer Experience

If sellers don’t optimize their websites for cross-border payments, prospects likely won’t see their preferred language, currency or payment types – and this creates friction, leading to checkout abandonment.

On the other hand, if you design an eCommerce experience with cross-border payments in mind, you can offer the ultimate checkout experience for every shopper, particularly by incorporating localized payment types. By meeting your customers where they are, you can remove all possible obstacles to purchase and ensure that global customers enjoy an experience on par with domestic buyers.

For example, a shopper in Amsterdam who sees a checkout page in Dutch with prices and taxes calculated in euros and the option to pay with the popular Netherlands payment method iDEAL is far more likely to convert than a shopper who’s forced to operate within a US-centric payment experience.

• Operational Efficiency

Properly implemented cross-border payments are highly efficient and effective. For instance, processing cards locally helps transactions get authorized much more quickly. Similarly, a payment solution that optimizes payments by automatically adapting to a local region’s needs ensures you don’t lose transactions to false declines.

Centralizing your cross-border payments in one global payment processor also streamlines your internal operations. You no longer need to operate multiple accounts across regions or work with a net new provider in each region you enter. That means fewer issues with data, a single source for reconciliation and less manual work on integrations.

• Enhanced Reporting Capabilities for Reconciliation & Strategy

Reconciliation can often be a challenge when selling into multiple countries and using multiple payment providers to do so. It’s difficult to correlate data across those different solutions, causing you to struggle to compare insights from different markets. Different banks and payment providers each use their own terms and definitions that need to be interpreted and aligned. However, a single source of payment analytics creates a positive feedback loop of operational efficiency by helping you make more strategic decisions.

With a single global payments processor and accompanying reporting, you’ll be able to understand the impact of fees in different regions and take action to redress them. You’ll understand why payments don’t go through or what your fraud patterns truly look like in different countries. Not every cross-border payments tool comes with advanced reporting via one centralized account, but those that do help you grow more effectively and leverage rich data insights. At BlueSnap, we have synthesized the banks’ different terms into a common vernacular to make reconciliation easier and the data more useful.

• Fortified Payment Security to Prevent Fraud

Unlike domestic payments, cross-border payments must address numerous regions’ fraud patterns. A one-size-fits-all approach won’t work: fraud prevention must be optimized for cross-border or it risks missing new types of fraud as well as inadvertently denying transactions that aren’t fraudulent.

Processors designed for cross-border payments take regional idiosyncrasies into account to ensure your protection from regional fraud types while letting the right purchases go through. In London, 12 transactions coming through one IP address is a red flag for fraud that a processor should stop. In India, where many access the internet via cybercafés, 12 transactions from a single IP address is common and more likely to represent individual purchases.

When you get cross-border payments right and locally optimize payment processing, you unlock the door to many more rewards. This is key to growing your business — but you could still fall prey to some serious challenges.

Challenges with Cross-Border Payments

Cross-border commerce is experiencing unprecedented growth, and it’s projected to continue to expand. Yet only half of leading US retailers ship outside North America. Why have so few businesses capitalized on this opportunity? Because cross-border payments are:

• Subject to more regulations and can be slower and costlier than other payment types 
• Harder to track and more likely to fail to process, causing the loss of legitimate sales
• Subject to cross-border fees, which results in two-thirds of merchants overpaying for  cross-border transactions 
• Seen as overly complicated or not worth the effort, leading to missed opportunities for maximizing revenue

Fortunately, leveraging the right payment APIs and technology can help reduce the pain points associated with cross-border payments and improve the end-to-end experience for customers. 

See how the right optimizations can shift cross-border payments from a cost center to a profit center in our on-demand webinar Untapped Revenue Opportunities of Cross-Border Payments. Then read on for how BlueSnap simplifies the cross-border payment process.