Making Cross-Border Payments: 5 Things to Consider

Ivan Skladchikov
April 27, 2020

When everyone is connected and isolated at the same time, making cross-border payments becomes a daily reality. We look for cheaper goods and services abroad, freelance for overseas clients and support our families. To make international money transfers more efficient, you should pay attention to 5 key factors. 

The key priorities when choosing a cross-border transfer method. Image source: SlidePlayer

Factor 1: Preferred Method of Payment

Before making a cross-border transfer, identify the method of payment the recipient prefers. It may depend on the person’s location, habits, current situation, and other factors. For instance, some methods may be unavailable in their area or untypical for it. The recipient may be okay with your currency or unable to easily withdraw or exchange it for their national currency. Some methods (like picking up cash at the payment provider’s office) are unsafe in dangerous regions.

Also, many people are still uncomfortable with hi-tech payment tools and have no motivation for trying them. So, start with the question “What payment method do you prefer?” The answer will narrow the list of options.

A SWIFT transfer normally involves corresponding banks, charging additional fees. Image source: Quora

Factor 2: Transaction Fees

Normally, you use a telegraphic transfer for sending money abroad. This type of transfer is made using the SWIFT network. If you want to know more about how this system works, we have a special article about it.

Note that if you deal with a telegraphic transfer made via SWIFT, the system charges you an upfront transaction fee. It’s the fee you pay before the service is provided. Note that it’s not all you will have to pay. Most banks move your money using a network of partners. All these intermediaries (correspondent banks) will charge you additional fees for their service. Therefore, the final amount may be hard to calculate. Often, these fees add up to a significant sum.

If the recipient is okay with it, you may use a fintech app for sending money to them. One of the advantages of these digital solutions is low or zero transfer fees. The amount depends on the recipient’s location. For many regions, there’s no fee at all. Anyway — this amount is very low in comparison to banks.

Mid-market and non-mid-market rates: how banks make a profit on the difference. Image source: Payoneer

Factor 3: Exchange Rate

If your cross-border transfer involves currency exchange, you are likely to pay a markup fee. This is the difference between the mid-market exchange rate and the rate your payment system or bank applies. The mid-market exchange rate (or the interbank exchange rate) is the rate the banks use when trading foreign currencies between themselves. As a customer, you should know it to understand how much your bank earns when you exchange foreign currency with it. The rate applied by your bank may depend on how much money you deal with.

There is nothing fundamentally wrong with these markup fees. Banks have to earn money to cover their expenses and make a profit. They have many branches to support and employees to pay salaries to. On the other hand, it’s your right to avoid these increased fees when you have an alternative.

So, before making an international transfer, compare the fees of several banks. If they seem too high,  consider using one of the fintech payment apps. Apart from offering very low transaction fees, they eliminate intermediaries who make you pay more by applying unfavorable exchange rates. 

Moving money outside Europe may still take up to several days.

Factor 4: How Fast Your Money Moves

The transfer speed is another important factor to consider. Sometimes, receiving money on time is a matter of life and death. In any case, it’s a good motivation.

If you rely on a bank or another traditional payment system, it may take 3-5 business days for the money to reach the recipient. We are talking about a standard situation with no technical problems, complications or emergencies involved. For example, if the country where you send money to is enjoying a week-long holiday, the recipient should correct her expectations accordingly. In your turn, you should consider these factors when sending money.

If you use a payment tool like Channels, there are no holidays for your money. It travels anytime, anywhere. The normal transfer speed varies between 3 and 10 minutes (though it may be faster or slower depending on the network). Within this time span, the money will arrive to the recipient. 

When choosing a payment app, look for KYС & AML policies in their About section. Image source: Channels

Factor 5: Is the System Secure and Legal?

Last but not least, you should think about the security of your payment and the legality of the method you use. There are online services that may seem attractive in terms of cost and speed. But they lack proper licensing and have a relaxed attitude to security measures. When you have no choice, you can risk your money with them once, but don’t make it a rule. 

You may think that the best option would be using a big bank. Indeed, such institutions have their documents in order and can afford a strong cybersecurity team. But you already know the price of all these benefits.

So, if you don’t want to waste money, try using a well-reputed blockchain payment app. It ensures a very high level of security unless you completely ignore a few simple rules. Also, they normally have a license by the relevant authorities and stick to the KYC (Know-Your-Customer) norms. In this case, you can enjoy an easy and speedy end-to-end money transfer without any legal risks and hidden fees.

These were 5 things to consider when making a cross-border app. As you see, there is always an alternative to the well-established payment methods. Choosing a fintech tool may seem like going out of your comfort zone, but it’s not entirely true, as many of these new apps are very user-friendly.

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