Importance of International Payments
Globalisation and the rise of digitalisation have changed the way institutions worldwide interact with each other. As a result, a truly global marketplace has been created, and moving capital, goods, and services across borders is now easier than ever. That is why it comes as no surprise that, according to Juniper Research, the transaction value of B2B cross-border payments is expected to exceed $42.7 trillion in 2026, compared to $34 trillion in 2021.
Consequently, the need for B2B international payments is expected to increase, so it’s essential to understand how these methods work and in what way they can affect your business. In this article, Evaldas Karčauskis, our Business Development Manager is going to talk about different aspects of cross-border payments so that your business can operate internationally and grow.
What Are International Payment Types?
International payments are financial transactions that travel across geographical borders and jurisdictions. For a business, this could refer to payments made to contractors, suppliers, and freelancers, as well as taxes paid to foreign governments.
International payments can be made in different ways, the most popular ones being international wire transfer (SWIFT), SEPA, ACH, and alternative methods.
How Does International Wire Transfer (SWIFT) Work?
To complete an international wire transfer, the sender has to provide information about the recipient (their name, address, contact information, amount, and bank account number) first. They also need to specify the routing information — the receiving bank’s name, address, and identifying info (a routing number or a SWIFT code).
Popular Misconception About SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a standardised payment messaging system that does not process any funds on its own. It simply facilitates the exchange of funds by coordinating banks and financial institutions. This system enables safe and efficient communication standards for cross-border transactions.
However, keep in mind that not all international banks and payment service providers are members of SWIFT.
Benefits of SWIFT Payments
SWIFT offers several advantages, including:
Transparency — Standardised communication is at the very heart of SWIFT. All parties involved in a SWIFT payment have access to the same information. If there are questions about the status of a payment or if there is a delay, all the information is readily available and easily traceable.
Tracking — Payment information is crucial for both the sender and the receiver so that they can track invoice details for each transaction. Luckily, the SWIFT payment data includes many of these details, thus reducing the amount of time it takes to complete the reconciliation.
Consistency — With standardised payment information, transaction details will always be the same, whether you're paying your freelance marketing consultant in Germany or a supplier in Argentina. A consistent experience for all payees results in fewer risks and more reliable payment cycles.
Challenges of Using SWIFT Payments
Even though SWIFT has greatly improved the overall experience of international wire transfers, there are still a few challenges involved:
Uncertain payment delivery time — SWIFT international payments can take 24–48 hours; in some instances, up to five days may be required. Such delays can happen without warning, causing friction between payers and payees in the process.
Surprise costs — Fees vary from bank to bank; as a result, SWIFT transfer costs may differ as well. The inability to accurately predict the fees and lead times in advance leaves room for uncertainty in the payment process. Working with payment service providers that have direct agreements overseas helps mitigate these challenges. However, if intermediary banks are necessary to complete a SWIFT payment, the fees and transfer times could add up.
Other Widely Used International Payment Systems — SEPA, International ACH
SEPA (Single European Payment Area)
SEPA covers 36 European countries, including several that are not part of the eurozone or the European Union.
The services provided by it are divided into separate payment schemes. SEPA Credit Transfer (SCT) facilitates funds transfer from one bank account to another. According to its clearing rules, payments made before the cutoff point on a given business day must be credited to the recipient's account by the next business day.
SEPA Instant Credit Transfer (SCT Inst), also known as SEPA Instant Payment, offers immediate money transfers. The delay is less than ten seconds.
ACH Network is an electronic system that facilitates transactions between more than 10,000 financial institutions in the US.
Payments are made directly to a recipient’s bank account through a clearing system. They can be completed in batches rather than individually through a network of banks. International ACH payments can take anywhere from two to five business days.
How Fintech Is Improving Cross-Border Payments
Fintech is changing the way businesses approach cross-border payments by implementing advanced technologies to optimise the experience on both ends.
Application Programming Interface (API) is an intermediary between two software components. Logging in to an online banking interface is an example of an API. It is the intermediary that connects your computer or phone to your payment provider server so that you can access your account information.
Instead of going to a bank, businesses can now open online accounts without stepping foot inside a building. This improves accessibility to underserved markets and industries and eliminates the need for businesses to maintain local bank accounts that would otherwise be necessary for facilitating and monitoring currency conversion.
How to Pay Internationally Using Wallter
Wallter enables you to send international payments from your online banking interface easily and effectively. Reach out to your Customer Success Team to discuss your company’s payment needs.
About Evaldas Karčauskis, Business Development Manager Wallter®
Evaldas is a persistent and creative business development professional with more than 7 years of experience in the finance sector. He has extensive knowledge of FinTech, payments, and securities industries, and a comprehensive understanding of complex banking operations, working for major financial institutions in Lithuania.