How to accept cross-border payments: Your guide to global transactions

Cross-border payments are transactions where the sender and the recipient are based in different countries. These payments allow businesses to trade internationally by transferring funds from one country to another.

Cross-border payments function by routing transaction data and funds through a network of financial institutions across different countries. 

When a shopper in one country buys from a business in another, the payment must pass through several stages to handle currency conversion and regulatory compliance. This process involves the merchant, a payment gateway, an acquirer, card networks, and the shopper's issuing bank.

This is the typical flow of a cross-border transaction:

1. The shopper selects their items and enters payment details at the digital or physical checkout.

2. The payment gateway encrypts the data and sends it to the acquirer.

3. The acquirer identifies the transaction as cross-border and sends the request to the relevant card network.

4. The card network routes the authorization request to the issuing bank in the shopper's home country.

5. The issuing bank verifies the funds and checks for potential fraud before approving the request.

6. The approval moves back through the card network to the acquirer and finally to the merchant.

7. Funds are converted to the merchant's settlement currency and deposited into the business account.

While this process happens in seconds for the shopper, the backend settlement can take several days as funds move between intermediary banks. Using a single partner with local licenses can reduce these delays and minimize the fees associated with international transfers.

The shift from Payment Service Directive 2 (PSD2) cross-border payments to the updated PSD3 framework has improved data sharing and consumer protection across borders. 

Under the Instant Payments Regulation, Single Euro Payments Area (SEPA) cross-border payments must now be processed instantly, ensuring transfers are as fast as domestic ones. These mandates have significantly reduced fraud and eliminated the traditional hidden fees of global banking. 

For businesses, this regulatory clarity means lower costs and predictable, real-time settlement.

• A shopper makes a purchase.

• The payment travels through several steps: the business, the payment gateway, the local processor, the card network, and finally the shopper’s bank.

• The shopper’s bank decides whether to approve or decline the transaction.

• When approved, funds move from the shopper’s bank to the acquiring bank, and then to the business’s bank account.

• For cross-border payments, the journey can involve extra steps, for example, funds may route through a local or foreign acquirer before settling into the business account.

There are different options for accepting cross-border payments. You can work with one acquirer, multiple local acquirers in other markets, or a global partner. Each option has different pros and cons.

Let’s take an example to show the different options:

You’re a US-based business. A Spanish shopper is attempting to buy something from your ecommerce site. The shopper enters their credit card details and selects .

Now, let’s dive into how this works for each option.

1. Cross-border payments with one acquirer

Your US-based acquirer approaches the customer's bank in Spain and requests transaction authorization. There's no need to set up a local entity in Spain as the whole thing is managed from the US.

This is a simple solution, but you may encounter some challenges. The Spanish bank might not be familiar with this US acquirer, and perhaps the authorization request message contains data that the bank doesn't recognize. The bank wants to be safe and reduce risk by refusing the request. 

2. Cross-border payments with local acquirers

Your local acquirer sends the customer's bank an authorization request. The request is seen as local and is perfectly formatted to meet that bank's specific requirements. The bank allows the payment to proceed, the acquirer releases the funds, and your sale goes through.

Locally processed transactions tend to generate higher authorization rates than cross-border transactions. However, having a local acquirer for every market you want to target can be complex, each with its own reporting set consisting of different formats and data elements, which makes reconciliation complicated. 

3. Local acquiring with one global partner

The best solution is to have a single partner with local acquiring licenses in all the markets in which you operate. This means you get the simplicity of one partner and can view all transactions from across all regions, channels, and payment methods in the same place, making reconciliation a breeze. You'll also be able to track performance, spot trends, and get to know your loyal customers.

The global shift toward real-time cross-border payments is transforming payments into an instant experience no matter the time of day. 

By leveraging ISO 20022 standards and interlinked Real Time Payments (RTP) networks like SEPA cross-border payments, transactions now settle in seconds rather than days. 

For businesses, this means instant settlement, drastically improving cash flow and operational efficiency.

When growing beyond your home market, understanding how cross-border payments compare to domestic transactions is essential. Here’s how they differ and why it matters:

• Authorization success rates

  • Domestic: Local payment processors send requests that are familiar in format and origin, driving higher approval rates.

  • Cross-Border: When your acquirer is based in another country, unfamiliar formatting or perceived fraud risk can increase decline rates.

• Fees and costs

  • Domestic: Processing remains straightforward, with predictable costs.

  • Cross-Border: Often comes with extra layers - foreign exchange, correspondent banking, and added processing fees - which tend to raise overall costs.

• Settlement time and currency complexity

  • Domestic: Settlements happen quickly, in local currency, streamlining your cash flow and reconciliation.

  • Cross-Border: Introduces potential delays and FX conversions. You might receive funds in a different currency or benefit from tools like dynamic currency conversion but reconciliation gets more complex.

• Local regulations & compliance challenges

  • Domestic: You operate within the same legal framework you know.

  • Cross-Border: You must manage varied regulations - licensing, KYC, AML rules, and more - across each country you operate in.

How Adyen bridges the gap

With Adyen as your payments partner, you get the best of both worlds:

• Local acquiring across multiple regions for smoother authorizations and faster settlement

• Access to dynamic currency conversion so customers can pay in their preferred currency

• A single platform to manage global transactions, including fee transparency, reporting, and reconciliation

• Streamlined compliance support via licenses and local partnerships in key markets

• Cross-border payments involve transferring funds between parties in different countries.

• Local acquiring increases authorization rates by making international payments appear domestic to local banks.

• Using a single partner for global payments simplifies reconciliation and reduces administrative work.

• Offering local payment methods is essential for converting shoppers in new markets.

• Optimization reduces transaction fees and helps businesses settle funds faster.