In the payments industry, the term “global” is frequently used as a buzzword. The notion of “going global” often implies a seamless, scaled expansion into international markets, selling products or services across multiple countries. However, the reality is far more nuanced, especially when it comes to managing multiple jurisdictions, navigating the web of regulatory frameworks, and critically, managing the complexities of payment flows across borders.
Cross-border payments form the backbone of global commerce, whether viewed as the flow of funds moving between parties or as the ability to enable international payment acceptance.
From an acquiring perspective, there are typically 2 processing models in play. Merchants use either a direct or an aggregated model to process transactions.
◾In the direct model, a merchant establishes relationships directly with acquiring banks or payment processors in the regions where they operate.
◾In the aggregated model, a merchant uses an intermediary such a payment service provider (PSP) or a payment facilitator (PayFac) to manage the payment process on their behalf.
Each payment model, direct or aggregated, comes with distinct characteristics, advantages, and challenges. The choice between them not only influences how merchants engage with their customers but also determines how they manage the flow of funds across borders. For businesses operating internationally, secure and efficient fund transfers are just as crucial as selecting the right acquiring payment model. Yet, cross-border transactions, often dependent on the correspondent banking system, face persistent inefficiencies such as high fees, delays, and lack of transparency, challenges that innovative solutions like blockchain and digital wallets are addressing quite successfully.
Cross-border payments underpin a merchant’s ability to accept payments, manage currency conversions, and fulfill obligations to international suppliers. Beyond the mere transfer of funds, they ensure operational cash flow and provide the critical infrastructure needed to deliver localised payment experiences to customers worldwide.
👉🏽#Paymentexperts, any perspectives to share on #crossborderpayment?
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