What are cross border payments and how do they work?

Cross-border payments refer to transactions made between two parties in different countries. They involve the transfer of funds from one currency to another and across borders. Cross-border payments enable international trade, support supply chains, and facilitate global business operations.

These types of payments work through correspondent banking relationships. A bank in one country partners with a bank in another country to enable fund transfers.

The sending bank passes payment instructions to the receiving bank, which then credits the payee's account. Intermediary banks may also be involved to facilitate the transaction as needed.

Payment message systems like SWIFT enable secure communication between the banks to process cross-border payments. Parties involved in the transaction incur fees at various stages, making these payments costlier than domestic transfers.

Factors like exchange rates, transaction charges, processing time, and settlement methods impact the flow of funds. Join us in this guide as we explore the details of cross-border payments in the crypto ecosystem and which cryptocurrency is the most suitable for these types of transactions.

What are some examples of cross-border payments?

Some common examples of cross-border payments include:

• Multinational companies pay suppliers or partners overseas. A US company buying goods from a Chinese manufacturer would make a cross-border payment.
• Businesses are paying freelancers or remote workers in another country. Hiring a virtual assistant in the Philippines involves cross-border wage payments.
• Consumers buy products online from international e-commerce sites. Purchasing goods on e-commerce websites as a US customer involves cross-border consumer payments.
• Money transfer services like Western Union facilitate remittances across countries. A migrant worker sending money back home is making a cross-border person-to-person payment.
• Financial transactions between banks or financial institutions overseas, like loans or investments,
• Individuals pay bills to foreign service providers, such as tuition fees or subscription charges.
• Travelers exchanging currencies and making transactions abroad during foreign trips.
• Donors contributing to international charitable causes or NGOs operating cross-border.

What is a cross-border payment for B2B?

For businesses, cross-border payments enable trade with international partners and smooth operations in multiple geographies. According to Statista, B2B payments accounted for around $140 trillion in transaction value globally in 2021.

Common examples of B2B cross-border payments include:

• Export/import transactions between a supplier and buyer located overseas
• Outsourcing and service procurement by companies across borders
• Foreign direct investments, lending, and capital transfers between businesses internationally
• Payroll and expense settlements for overseas employees or clients
• Inventory, licensing, or franchising payments to international counterparts
• Settlement of claims, legal disputes, or damages between commercial entities abroad

B2B payments have specific needs like transaction transparency, seamless integration, and faster processing. Solutions like SWIFT GPI provide advanced business payment features for cross-border corporate transactions.

What is the difference between cross-border payments and international payments?

Cross-border payments and international payments are often used interchangeably, but there is a subtle difference between them.

International payments are a broader term that refers to any transaction made between two countries. These could involve just one cross-border payment, like a consumer remittance or a traveler exchanging currency abroad.

But cross-border payments describe recurring transactions that are more structural in enabling international trade and business flows. These include systematic payments like trade settlements, overseas payroll, and regular B2B transfers that rely on cross-border connectivity.

So while any transaction across countries is an international payment, regular cross-border payments support the continual flow of goods, services, and capital that underlie globalization. They facilitate international trade at scale versus just individual transactions.

Why are cross-border transactions important?

Here are some key reasons why cross-border payments play an essential role in the global economy:

• They enable trade and commerce between countries, supporting economic growth and development.
• Cross-border payments allow multinational companies to operate globally and run international supply chains.
• They facilitate the international flow of capital for investments, loans, and asset purchases.
• Individuals and families depend on cross-border remittances as a vital source of income.
• Travelers and tourists need access to currencies abroad via cross-border transactions.
• Charities and NGOs need efficient cross-border solutions to transfer aid and funds internationally.
• Banks and financial institutions rely on correspondent banking for cross-border interlinkages.
• Cross-border transactions facilitate international projects, collaborations, and partnerships.
• They enable governments, embassies, and public-sector agencies to function overseas.
• By powering globalization, cross-border payments support worldwide connectivity and collective progress across nations.

How fast is cross-border payment?

Traditionally, cross-border payments used to take several days for settlement due to multiple intermediaries, time zone differences, and batch processing issues. You can check “crypto batch payments” for further details.

But improved systems and faster technologies have reduced transfer times significantly, such as blockchain technology with various types of cryptocurrencies, including stablecoins. Some key stats on current processing speeds:

• SWIFT payments take 1 to 2 business days on average currently.
• Real-time payment rails like SWIFT GPI can facilitate credit within minutes. Over 50% of SWIFT GPI transactions are credited instantly today.
• Blockchain-based cross-border solutions like EURK and stablecoin process payments in seconds.
• Remittance providers deliver next-day or 48-hour transfers in most payment corridors.
• Instant mobile payment apps have reduced transfer times.
• Domestic schemes like UPI in India have enabled real-time overseas transfers to some countries. UPI crossed 1 billion monthly transactions in October 2022.

So most cross-border payments today get settled anywhere between minutes and just 1-2 days, depending on provider capabilities, payment rails, and currency corridors. Much faster than the week or more it used to take earlier!

What cryptocurrency is used for cross-border payments?

Cryptocurrencies have emerged as an alternative for cross-border transactions, given their borderless nature. Here are some of the major cryptocurrencies making an impact:

• Stablecoins like EURK, pegged 1:1 to fiat currencies like EUR, aim to provide stability akin to fiat currencies. Their growing adoption makes them useful for global payments involving currency conversion.
• Widely accepted cryptos like Bitcoin and Ethereum offer a universal medium of crypto exchange. Transfers in Bitcoin or ETH avoid forex complexity.
• Ripple's XRP token aims to power instant cross-border transactions on the RippleNet blockchain. It offers XRP-powered solutions tailored for global payments.
• CBDCs, or central bank digital currencies, are being explored to power government-backed cross-border payment systems. Countries piloting CBDCs include China, South Korea, Saudi Arabia, and others.

However, issues like price volatility and patchy adoption still limit cryptocurrency uptake in business payments. But based on their use cases, eur stablecoins hold the most potential currently among crypto assets for mainstream cross-border adoption with their stable value.

Why should you choose EURK as a stablecoin?

EURK is an expert player in the global payments and cross-border payments space. Here are some key benefits EURK offers:

• As a euro-backed stablecoin, EURK combines the stability and trust of the euro currency with the speed and efficiency of blockchain transfers.
• It enables instant cross-border payments and settlements with euros in a seamless, cost-effective way.
• EURK provides a transparent 1:1 back with cash reserves held across multiple locations, like Switzerland and the Dominican Republic.
• Leading crypto service provider Cryptobunq securely audits its transactions in real-time to ensure reliability.
• By running on top of major blockchains and being available on ERC20, EURK brings interoperability across different networks and crypto payment systems.
• Being compliant with regulations around KYC and AML makes it a viable choice for mainstream adoption.

By merging the strengths of stablecoins, blockchain technology, and euro stability, EURK can emerge as an ideal option for secure, instant, and inexpensive cross-border transactions worldwide. Its potential to facilitate global commerce and trade as a faster payment rail is promising.

If you are interested in secure transactions and want to dive into the world of stablecoins, EURK is a reliable stablecoin option. You can easily buy EURK and start to trade stablecoins for your cross-border payments. Become a partner and benefit from fast, secure, and easy transactions with EURK!