Cross-border payments & transactions: What is it & how does it work in Singapore?

Singapore’s eCommerce sector is a growth industry, with sales projected to reach a value of SGD 19.6 billion by 2027.¹ In the Airwallex 2024 Cross-Border eCommerce report by Edgar, Dunn & Company, we found that 54% of global shoppers plan to shop more from international merchants in the next 6 to 12 months. As eCommerce in Southeast Asia continues to thrive and gain 2.18 billion users by 2029.² it’s clear that selling overseas and sourcing from offshore suppliers is critical to your growth. 

To capitalise on this opportunity, Singapore businesses must be ready to handle cross-border payments. A fintech partner like Airwallex can simplify the challenges and costs associated with international payments and drive your business’s expansion to overseas markets. In this guide, we explain cross-border payments, how they work, their advantages and potential risks. You'll also discover how Airwallex can help you accept global payments with ease and cost-efficiency.

What are cross-border payments?

A cross-border payment is a money transfer between a sender and a recipient located in different countries. They can be transactions between individuals, between businesses, or from a consumer to a business. 

Cross-border payments are essential to multinational corporations and small businesses expanding overseas or sourcing products from global manufacturers.  Despite this, international payments are faced with many roadblocks like high cross-border fees, slow transfer speed, and unfavourable exchange rates.

How to make cross-border payments?

There are several ways to accept or initiate cross-border transfers from Singapore. It’s important to examine each method’s benefits, drawbacks, and fees so you can make an informed decision.

• Wire transfers. Many businesses rely on wire transfers for cross-border payments. These are electronic transfers where money is moved from one bank account to another, in a matter of days. These payments generally go through the SWIFT payment network, a globally recognized network that facilitates secure and efficient cross-border payments.

• Card payments. Using a corporate debit or credit card can be a convenient way to pay overseas suppliers or vendors. Compared to making a wire transfer, they take less time and require no paperwork to fill. However, this convenience comes at a price. Foreign transaction fees can be as high as 3.25% of the transaction amount. Acceptance may also be an issue in markets like China, where the recipient gets charged for card payments.

• Instant payments. PayNow’s linkages with PromptPay in Thailand, DuitNow in Malaysia³, and UPI in India⁴ allow you to make cross-border payments as if they were PayNow payments. You only need to enter the recipient’s mobile number to make a payment. However, there is a maximum daily limit of SGD 1,000, which makes this method unsuitable for large sums. If your business needs to make fast, larger volume payments to these markets, consider using a fintech platform like Airwallex instead.

• Digital wallets. Platforms like WeChat Pay, Apple Pay and Google Pay allow businesses to receive cross-border mobile payments with ease. Many digital wallets provide features like multi-currency wallets, making them a valuable tool for wholesalers engaged in global trade.  

• Fintech payment platforms. Payment providers like Airwallex offer competitive exchange rates, low fees, and speed, making them attractive alternatives to bank wire transfers. Our Global Accounts allow business to accept payments in 20+ currencies without incurring costly conversion fees and make fast transfers to 150+ countries. We also have a Payment Gateway that lets eCommerce stores accept 160+ local payment methods in 180+ countries. 

How do cross-border payments and transactions work?

Cross-border payments rely on a network of financial institutions beyond your bank and your recipient’s bank. Here’s a straightforward breakdown of the international money transfer process⁵:

Step 1: Initiation

The sender initiates the transaction using a bank or a digital payment service. They need to provide the recipient's bank details, including their international bank account number (IBAN) and the bank identifier code (BIC). 

Step 2: Processing and currency conversion via intermediary banks

Cross-border payments don’t go directly from the sender's bank to the recipient's bank. Instead, they pass through one or more intermediary or correspondent banks. These banks help facilitate the transfer and are located in either the sending or receiving country. In some cases, they will be located in a third country.

The complexity of the process depends on the currency pair - the two currencies being exchanged in the transaction. 

If you’re converting SGD to a commonly traded currency like USD, EUR, GBP or JPY, the transaction will be faster and require fewer intermediary banks.⁶

However, if you’re sending ZAR (South African Rand) or BRL (Brazilian Real) from Singapore, the process may take longer as these currencies are thinly traded and prone to volatile fluctuations.

Step 3: Receipt

The funds eventually reach the recipient’s bank and are credited in their local currency. The whole process can take a few days, largely depending on the number of intermediary banks involved and the efficiency of each bank.

Why use cross-border payments?

Cross-border payments make it easier for companies to operate in international markets, source new materials, and hire talent. Here are cross-border payment examples in business contexts:

• eCommerce. Cross-border payments are used to collect eCommerce payments from global customers. To do this effectively, you need a payment gateway provider that supports local payment methods and currencies.

• Payroll for international teams. Companies employing remote workers and international teams use cross-border payments to handle payroll. This system allows them to pay salaries in local currencies.

• Professional services. Many businesses offer marketing, accounting, and other professional services to overseas clients. Cross-border payments allow them to invoice and receive global payments efficiently.

• Overseas suppliers. Businesses that source products from suppliers in China often use wire transfers to settle invoices.

• Sending funds to foreign subsidiaries. Singapore businesses with overseas offices use international payments to support operations or manage liquidity in their foreign subsidiaries. 

Benefits & disadvantages to cross-border payments 

Benefits of using cross-border payments

Cross-border payments can unlock new opportunities and revenue streams for your business. Here are ways you can benefit from international payments:

• Global reach. Cross-border payments let you accept payments from customers in different countries and grow beyond Singapore’s borders. 

• Competitive advantage. Companies that enable cross-border payments often have a competitive edge over those that don’t. It makes it easier to transact with a broad range of customers, suppliers, and business partners.

• Access to global talent. Cross-border payments facilitate payroll of overseas employees and contractors. This access to a global talent pool lets you access the best skills and expertise, regardless of geographic boundaries.

• Smoother market entries. Offering local payment methods and accepting local currencies makes it easier to enter new markets and gain their trust.

Challenges associated with cross-border payments

Despite advances in payment technology, cross-border payments remain complex and challenging. Here are some pain points businesses often face when making international money transfers: 

• High fees. Traditional banks often charge hefty cross-border fees and foreign exchange fees. That’s because international payments need to travel through intermediary banks, which can rack up cable charges, agent handling fees, and other hidden charges.  

• Payment delays. Cross-border payments can take anywhere from 3 - 5 working days to complete, and longer if payments get lost or stuck. These delays can disrupt business operations or strain supplier relationships.

• Currency exchange risk.  Exchange rates between currencies can fluctuate significantly over time. This unpredictability can lead to financial losses or complicate budgeting and financial planning. 

• Lack of transparency. Often, it's not clear how long a transaction will take or how much it will cost until after the fact. This can make it difficult for businesses to manage their resources.

• Regulations and compliance. Different countries have their own regulatory frameworks for international transactions. Navigating these rules requires resources and expertise, which can increase the operational burden of smaller firms.

Airwallex provides a better alternative to traditional cross-border payments

To start making cross-border payments - and overcome their limitations - you need a global fintech partner like Airwallex. Our all-in-one Business Account lets businesses accept payments from 180+ countries, hold 20+ currencies, and make fast international payments, without the setbacks of traditional wire transfers.

Here’s how Airwallex reduces costs and improves the efficiencies of cross-border transfers:

• Accept and hold 23+ currencies in local currency accounts. Our Global Accounts let you collect, hold and transact balances in 23+ major currencies including GBP, USD, EUR, AUD, CAD, CNY and more. Each currency account is assigned unique account details for local and international payments. 

• Fast, same-day transfers. Unlike other fintech firms, Airwallex’s FX and Transfers facilitates cross-border payments as though it were a local transfer. That’s because Airwallex works with local payment rails in economic territories like the EU, which allows overseas payment to bypass the SWIFT network. 70% of our transfers arrive on the same day.

• Accept eCommerce payments from 180+ countries. With our Payment Gateway, you can accept customer payments from 180+ countries and 160+ local payment methods like Klarna, AliPay, and WeChat Pay. You also enjoy like-for-like settlement in 11 currencies. This means you can collect and hold payments in AUD, CAD, CHF, EUR, GBP, HKD, JPY, NZD, THB, SGD and USD without converting them into SGD. You can then use the funds to pay out suppliers in that same currency, which saves you unnecessary conversion fees.

• Multi-currency Borderless Cards. Issue physical and virtual cards at no extra cost, and use it wherever VISA cards are accepted. Pay 0 international transaction fees and avoid unnecessary currency conversion by using the balances in your multi-currency accounts. You also get 1% unlimited cashback on ad spend, SAAS subscriptions, and business travel in currencies other than SGD.

• Foreign exchange risk management. With Airwallex, SMEs can lock in desired exchange rates and customise settlement dates. Reduce foreign exchange risk with round-the-clock real-time monitoring to ensure that you get the very best prices on your currency conversions. 

Create an Airwallex account and start growing beyond borders today.

Frequently asked questions

1. How long do cross-border payments take?

Cross-border payments typically take one to five business days to reach its recipient. The exact timing can vary depending on the countries involved, the payment method used, and the banks' specific policies. Fintech firms like Airwallex, which specialise in digital payments, can complete cross-border payments as quickly as 1 business day.

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

Cross-border payments and international payments refer to the same process of transferring money from one country to another. 

3. What is the risk of cross-border transactions?

Cross-border payments come with a few risks. One risk is due to currency exchange fluctuations, which can affect the final amount received or paid. Delayed transactions are also a risk, as the funds often travel through multiple banks or financial intermediaries. Finally, cross-border transactions may come with hefty fees that can eat at your margins.

Airwallex has several features to mitigate these risks. Global Accounts make it easier to receive cross-border payments in local currencies. Airwallex also lets you send money like a local through a wide network of local payment rails, which means lower cross-border fees and faster transfer times.  Meanwhile, our intelligent FX risk management tool lets you lock in your preferred rates to minimise currency risk. 

4. What could be the future of cross-border payments?

In the near future, business owners can look forward to even faster cross-border payments, potentially settling transactions within minutes due to advancements in real-time processing. Digital payments will become more accessible as technology simplifies the process, allowing for easier integration with existing business operations. Additionally, as technology scales and becomes more widely adopted, sending funds in “exotic” currencies like ZAR and BRL will be more efficient and cost-effective.

Sources & references

¹ https://www.straitstimes.com/business/e-commerce-sales-in-spore-expected-to-reach-196b-by-2027-despite-slower-growth-this-year

² https://www.statista.com/forecasts/1259097/e-commerce-users-asia

³ https://www.mas.gov.sg/news/media-releases/2023/launch-of-cross-border-real-time-payment-systems-connectivity-between-singapore-and-malaysia

⁴ https://www.mas.gov.sg/news/media-releases/2023/launch-of-real-time-payments-between-singapore-and-india

⁵ https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp ⁶ https://www.inpay.com/news-and-insights/how-to-perfect-cross-border-payments-in-minor-currency-pairs/

Related articles about high level business operations:

• Compare the best business bank accounts in Singapore for 2024

• How to open a business bank account in Singapore

• How to find angel investors: Everything entrepreneurs need to know

• How to find Product Market Fit