What are cross-border payments?
The global economy continues to grow, and more and more people are moving to other countries to work or do business. Often, their families remain in their home country, which creates the need to send the money they earn back home. This is where cross-border payments come in - a convenient and safe way to transfer money across borders. In this article, we will look at what cross-border payments are, how they work, their advantages and disadvantages, and which services are best suited for these purposes.
The concept of cross-border payments
Cross-border payments are the transfer of funds from one individual or legal entity to another when the sender and recipient are located in different countries. The essence of the process is the transfer of money through financial institutions, such as banks or specialized transfer services, for example, Western Union or PayPal. In this case, the money itself is not physically transferred, but the transfer is carried out electronically. There are various options for such transfers: from bank to bank, from card to card, from an e-wallet to a bank account and even through cash if necessary. The process of transferring money itself occurs through international systems such as SWIFT (Society for Worldwide Interbank Financial Telecommunication) or similar networks. For example, for domestic transfers in Russia, the SPFS system is used, and in China - CIPS (Cross-Border Interbank Payment System).
Types of cross-border transfers
In practice, cross-border payments can be of the following types:
Card-to-card transfers
One of the simplest and most popular methods. The sender only needs to know the recipient's card number. An example of this method are transfers through services such as Visa Direct or MasterCard MoneySend.
Bank transfers
They are considered a traditional way of sending money abroad. In this case, the recipient's bank details are required: account number, SWIFT/BIC code of the bank and other data. E-wallets
Many international systems, such as PayPal, WebMoney or QIWI, offer transfers from an e-wallet to bank accounts or other wallets. This option is convenient for small amounts.
Transfers using cash
In some cases, cash can be sent through special agencies, such as Western Union or MoneyGram. The recipient can pick up the funds at any branch of the partner upon presentation of a passport.
Transfers by phone number
Some services allow you to transfer money by phone number, which is linked to the recipient's bank account or card.
How does a cross-border transfer work?
When making a cross-border transfer, funds are not transferred directly from one bank to another. Instead, complex systems of mutual settlements between financial institutions are used. Here's how it works:
Initiating a transfer
The sender initiates the transfer using the recipient's details and the amount. For example, if the transfer is made through a bank, you must specify the account number, the recipient's name, and the bank's SWIFT code.
Exchange of information
The sending bank sends a message via SWIFT or another system with instructions to the recipient bank. This message includes information about the recipient, the amount, and the account to which the money should be credited.
Interbank settlements
In the process of transfer, money is not actually transferred between banks. Instead, banks exchange information and account for debts to each other, using their own funds to credit the money to the recipient's account.
Deposit funds to the account
The receiving bank credits the specified amount to the recipient's account and informs the sending bank that the transaction is complete. This mechanism allows you to quickly and securely transfer funds anywhere in the world. Advantages and disadvantages of cross-border transfers
Advantages of cross-border transfers
- Speed: Modern technology allows you to transfer money in a matter of minutes, especially if you use specialized services such as Profee or Wise.
- Convenience: You can send money anywhere in the world using a bank account, card, or even a phone number.
- Security: Unlike transferring cash, electronic transfers are protected from theft and fraud thanks to the use of secure data transfer systems.
- Availability: Many services provide cross-border transfer services, which allows you to choose the most convenient and profitable method.
Disadvantages of cross-border transfers
- Commissions: Banks and transfer services charge commissions for their services. They may depend on the amount transferred and the sending method.
- Exchange rates: When transferring money from one currency to another, exchange rates are used, which can vary significantly depending on the service.
- Waiting time: In some cases, the transfer may take several days, especially if it is a traditional bank transfer.
- Regulation: Different countries have different rules and restrictions on cross-border transfers, which can create difficulties for the sender.
Ways to Reduce Fees and Transfer Time
When it comes to cross-border transfers, choosing the right service can significantly reduce fees and transfer time. Some services offer minimal fees, while others offer better exchange rates or instant crediting of funds. In this section, we will look at the best services for cross-border transfers, their features, pros and cons.
Funcwallet
Funcwallet is a modern service focused on ease of use and low fees for cross-border transfers. The platform was developed taking into account the needs of freelancers, affiliates and small entrepreneurs who often need to transfer money abroad. The service provides fast and secure transactions with minimal costs.
Pros:
- Low fees
- Support for multiple currencies
- Fast transfer speed
- Ease of use
- Security
- Support for affiliates and businesses
Cons:
- Limited geography
- Verification requirement
Funcwallet is ideal for users who want to save on fees and quickly send money abroad, especially if they work with international clients or businesses.
Wise (formerly TransferWise)
Wise is one of the most popular services for international transfers, which offers transparent conditions and favorable exchange rates. The service is especially convenient for small and medium amounts, as it offers a transparent commission system and market exchange rates.
Pros:
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Transparent fees
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Market exchange rate
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Instant transfers
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Wide country support
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Mobile app Cons:
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Limit on the maximum transfer amount
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No cash transfers
Wise is a great choice for those who want to minimize costs when transferring small amounts and get a favorable exchange rate.
Revolut
Revolut is a multi-currency wallet that offers a wide range of financial services, including cross-border transfers. The service was initially focused on travelers and users who need to quickly and profitably transfer money to different countries.
Pros:
- Instant transfers between Revolut users
- Multifunctionality
- Choice of premium plans
Cons:
- High fees for currency conversion on weekends
- Transfer limits for free users
Revolut is an ideal solution for users who are looking for a multifunctional tool for managing finances and traveling.
PayPal
PayPal is one of the oldest and most reliable services for online payments and cross-border transfers. It is known for its security and ease of use. However, convenience comes at a high price in the form of fees.
Pros:
- Wide support
- Security
- Business support
Cons:
- High fees
- Delays in withdrawals
PayPal is a convenient service for one-time payments or purchases abroad, but not the best option for regular cross-border transfers.
Western Union
Western Union is one of the most famous services for international cash transfers. The service has been operating for over 150 years and offers a wide network of offices around the world.
Pros:
- Wide network of branches
- Fast cash transfers
- Possibility of cash transfers
Cons:
- High fees
- Inconvenience of use
Western Union is a good choice for those who want to quickly send cash or for cases when a bank transfer is not possible.
How safe are cross-border transfers?
The security of cross-border transfers depends on the chosen provider. When choosing a service, pay attention to the following points:
- License: The payment service must be licensed and regulated in the country of its operation.
- User reviews: Before sending money, check reviews about the service to ensure its reliability.
- Use of secure communication channels: Make sure the service uses encrypted data transmission channels (for example, SSL).
It is recommended to choose only large companies with a good reputation, such as Funcwallet, Western Union, Profee or Wise.
Frequently asked questions about cross-border payments
What types of cross-border payments are there?
The main types of cross-border payments include card-to-card transfers, bank transfers, transfers via e-wallets, cash transfers and transfers by phone number. Each type is suitable for certain cases and differs in cost, transfer time and ease of use.
Which services are best suited for cross-border transfers?
Popular services include Western Union, Wise, PayPal, Profee, Revolut, and MoneyGram. The choice depends on the speed of the transfer, the fee and the destination country. For example, Wise and Revolut are suitable for small amounts and fast transfers, and Western Union and MoneyGram are suitable for traditional cash transfers.
How long do cross-border transfers take?
Transfer times vary depending on the method used. Electronic card-to-card transfers via specialized services like Profee can be instant, while bank transfers can take up to 5 business days or longer. Cash transfers via Western Union or MoneyGram usually take a few minutes.
What fees are charged for cross-border transfers?
The fees depend on the amount transferred, the currency, and the method used. For example, bank transfers may charge a flat fee or a percentage of the amount, while specialized services like Wise offer better fees and transparent terms. It is important to consider not only the fee, but also hidden costs, such as the difference in exchange rates.
How to avoid high fees for international transfers?
To avoid high fees, it is recommended to use services that offer transparent terms and favorable exchange rates. For example, Wise, Revolut or PaySend often offer lower fees than traditional banks. It is also important to check if the receiving bank charges additional fees.
Can cross-border transfers be delayed?
Yes, delays are possible. They can be caused by holidays, errors in the recipient's details, regulatory checks or other factors. To avoid delays, check all the details before sending and choose a reliable service with a good reputation.
How to protect your money when transferring across borders?
To protect your funds, you should choose licensed and regulated services with a good reputation. Be sure to use two-factor authentication if possible, and never transfer sensitive data to third parties. Check whether the service uses secure data transfer protocols (for example, HTTPS).
What exchange rate will be applied to the transfer?
The exchange rate depends on the selected service or bank. Specialized services like Wise use market rates and transparent conditions, while traditional banks may set their own rates, which are not always favorable to the client. When choosing a service, pay attention to the exchange rate indicated and hidden fees.
Are there any limits on the amounts of cross-border transfers?
Yes, depending on the country and the service you choose, there may be limits on the minimum and maximum transfer amounts. For example, some countries may have anti-money laundering (AML) regulations and mandatory verification of senders for amounts above a certain threshold (usually around $10,000 or equivalent).
Conclusion
Cross-border payments are a convenient and safe way to transfer money abroad, regardless of who they are intended for: family, friends, or business partners. The development of international payment systems and technologies has made these transfers fast and accessible to almost everyone. However, it is important to consider fees, exchange rates, and security when choosing a reliable service.