There is no doubt that cross-border payments are of vital importance to the progress of the global economy. After all, they are responsible for supporting international trade, development and capital mobility. But even in 2023, these financial transactions between payers and recipients in different countries pose significant challenges, both in terms of cost and agility, access and transparency. All of these issues are being addressed by the Group of Twenty (G20), the premier forum for international economic cooperation.
But as long as the global cross-border payment system continues to be less efficient than domestic systems, it's interesting to look for innovative alternatives. Especially for companies looking to leverage their business and expand their market in a strategic and structured and timely manner.
Transactions between payers and payees in different countries can take place in a variety of ways. In addition to bank transfers, payments can also be made using credit cards and other alternative payment methods. For example, e-wallets and mobile payments. However, the currency of one country cannot be physically transferred to another. This is because national payment systems are closed and not interconnected.
To make this possible, and to allow interbank credits and debits, international banks set up accounts (and have their own accounts) with foreign counterparties. In this way, payments are made via messages exchanged between financial institutions, which update the accounts of senders and recipients. But not all banks are directly linked to each other, which means that sometimes. That's why it's necessary to involve another intermediary in the transaction. This intermediary is known as a correspondent bank. Bank "C" provides accounts for Bank "A" and Bank "B" to make these cross-border payments.
This allows the banks to make payments in foreign currency. However, the funds are not sent across borders. Instead, accounts are credited in one country and debited in the other by exchanging information. In this context, payment messages must contain sufficient information to confirm the identity of the parties and the legitimacy of the transactions.
Moreover, data standards and formats vary widely between countries, systems, and networks. As a result, the more intermediaries involved in a cross-border transaction, the slower and more expensive it becomes. After all, each bank in the chain charges fees for processing and exchange.
As you can see, payments between countries involve different currencies, regulations and systems, which makes them slower, more expensive and, in a way, less transparent. And on top of that, each stage of the transaction has its own nuances and challenges to be overcome. For example, different, fragmented data formats make standardisation difficult and increase costs.
Meanwhile, complex compliance processes require repetitive checks and are time-consuming. At the same time, banks' limited operating hours cause delays and affect countries with different time zones. Other issues include legacy technology, which leads to a lack of efficiency and slow processing. In addition, the need for banks to pre-fund payments makes payments more expensive, and long transaction chains increase the cost and time of processing. Finally, the sender's bank must hold enough money to cover unknown costs until the payment is completed.
Even in the face of a complex scenario, global merchants can break new ground with the help of other payment providers. For example, fintechs and money transfer companies that offer payment services to businesses and individuals. However, it is important to stress the importance of choosing a qualified partner that not only knows how to work with this interbank network, but also understands each step of the process and, above all, guarantees compliance with the regulatory system of each country involved in the transactions. This is even more the case when it comes to Brazil.
As well as being a growing market, Brazil has attracted international attention for its revolutionary payment system, Pix. Nevertheless, it is necessary to fully understand the regulatory landscape in order to operate safely in the country. Bazk is a safe choice to scale-up your results. Genuinely Brazilian, it speaks the language of the local consumer and offers a unified solution to access multiple financial institutions.
With Bazk's API integration, the merchant ensures a fast, transparent and secure experience for their customers and company, easily connecting them to the best partners. Additionally, international transactions can be processed using the local payment methods preferred by Brazilians - including Pix.
For this purpose, Bazk offers a risk-based approach analysis for financial partners, merchants and users. It also ensures process transparency and compliance with regulatory requirements. As if that weren't enough, it guarantees anti-fraud expertise in APIs and AML/TF monitoring with Artificial Intelligence.
So how about simplifying your cross-border payments and growing your business with Bazk's expertise and robustness? Get in touch with our team today!
Photo: iStock/ijeab
