How to save money on cross-border payments

As more and more commerce takes place online and digital payments boom, it has become increasingly common for businesses to receive and send funds across borders as part of their day-to-day operations. That’s a good thing; it opens up the available pool of customers, suppliers and employees. But the fees and costs associated with international payments can be an overlooked hindrance to growth.

In this article, we’ll look at the ways that businesses can save money on cross-border payments in order to boost their bottom line and have the best chance at continued success. 

What are the costs of cross-border payments?

Unless the costs involved in international transactions are thoroughly understood, it is possible to send a payment and be surprised that the amount received is much lower than expected. The following should be factored into any consideration of the price of a cross-border payment:

Exchange rates

The value of one currency in relation to another changes from day to day, so macroeconomic fluctuations can suddenly make an outgoing payment more expensive or an incoming payment less valuable than expected.

In addition to this, banks typically add several percentage points to the interbank FX rate at which banks lend money to each other. This acts as an additional hidden cost, although some fintech platforms offer payments at the interbank rate, without any covert mark-up. 

Fees

International transaction fees are usually added to cross-border payments, and these can vary depending on the provider, the countries and currencies involved, and the type of payment. Wire transfers, for example, involve not only fees for both the initiation and receipt of a single transfer, but also fees for any intermediary banks that helped facilitate the transaction. The total cost of these fees is often not available upfront.

Taxes

There may be tax implications when sending large amounts of money across borders, depending on the country involved and the details of the transaction. A tax professional is best placed to advise whether this will impact a particular business’s payments.

How to choose the right payment provider

There are several types of financial institution that can be used to send or collect money across borders, and the service they offer can vary in several ways. Each of these should be considered carefully to ensure that a business is getting the service that is best for their own operational success.

Banks

Businesses and individuals often have long-standing relationships with their banks, and some value the fact that it can still be possible to visit a bank branch in-person. These factors help explain why they are still often used for international transfers, even though fees are often higher and exchange rates less competitive than alternatives. Banks may also offer longer processing times for cross-border payments than more modern and streamlined alternatives. 

Money transfer services

Traditional money transfers services like Western Union also involve high fees, but they allow people who don’t have access to a bank account to send money overseas. Cash can be received in branches without the need for digital devices. This provider has a large network of branches all over the world and a high level of name recognition.

Fintechs

Thanks to advances in financial technology, a new generation of digital payment platforms has sprung up that allow money to be seamlessly transferred across borders. Airwallex is an end-to-end payments and financial platform that offers a fast and cost-efficient way for companies to receive, hold and send money globally. Businesses can use Airwallex to accept global Payments, make high-speed payouts to suppliers and partners across the world, and exchange currencies at the interbank rate.

Strategies for saving on foreign exchange

Compare with the interbank rate

By staying up-to-date with the basic mid-market ‘interbank’ rate, you can assess whether the FX rates offered by different payment providers are reasonable or not.

Monitor FX fluctuations

The value of one currency in relation to another can shift from day to day. By keeping an eye on some of the factors that impact a currency’s value, such as any incipient trade deals or political events indicating instability, it may be possible to time payments to get a more favourable deal for your business.

Lock in favourable rates

Some payment providers may allow you to lock in a favourable FX rate for a certain period of time. This allows you to complete a transaction at a time that works for you, without missing out on a window of time in which currency fluctuations are beneficial for the business.

Open a multi-currency account

With a multi-currency account, you can receive payments in a foreign currency and wait to convert them into your domestic currency at a time that’s right for your business. You can even avoid FX fees altogether if you have suppliers and customers in the same foreign country by holding payments in that country’s currency and later paying out your bills in the same currency.

Comparing payment providers

When choosing a payment provider, consider the following factors when making your decision:

• Security: You want to make sure that your private financial data is safe and that your transaction will get to its intended recipient securely. Check for any reports of attacks or data breaches and look for indicators that the provider uses up-to-date anti-fraud measures.

• Fees: As mentioned above, consider not just transaction fees but also “hidden” fees such as FX rates that differ significantly from the interbank rate.

• Speed: How long will the transaction take to be completed? This may vary depending on where you are sending funds and how well-connected that place and institution is as a global financial hub. However, some payment providers will take longer than others, even factoring this into account.

• Global access: How many countries and territories does the payment provider serve? Does it offer payment methods that may not be globally dominant but are widely used in specific regions?

• Additional services: Some modern payment providers will offer additional services, such as the ability to integrate payments software with your accounting system or the ability to batch payments for greater convenience.

A better way to send payments internationally 

Airwallex is a payments and financial platform that offers a fast and cost-efficient way for companies to receive, hold and send money globally. With an Airwallex Global Account, you can open multiple foreign currency accounts with local bank branch details and avoid unnecessary currency conversions on your international transactions.

Airwallex leverages local payment networks to enable businesses to transfer money faster. 70% of transfers arrive instantly or within the same day. State of the art security technology and advanced anti-fraud methods are used to keep your money safe.

Additional features help you streamline your business operations. You can automate your accounts payable processes with Bill Pay, save time with batch payments, and integrate Airwallex with your accounting software to simplify bookkeeping. Find out more about Airwallex global transfers here.