Cross-border payments explained

Selling to international customers has never been more attainable. From e-commerce stores reaching customers worldwide to B2B companies managing global supply chains, the opportunities for merchants have completely opened up.

But growth and opportunity does bring more obstacles to overcome.

Cross-border payments are at the heart of international commerce, but between FX fees, currency conversion and compliance checks, they are often more challenging than they seem. For merchants, understanding how they work, what challenges they present and what solutions exist is essential for scaling globally. This blog breaks down everything you need to know.

What’s in this blog:

• What are cross-border payments?
• The difference between domestic and international payments
• How do cross-border payments work?
• Cross-border payment methods
• Challenges of cross-border payments for merchants
• Cross-border payment FAQs

What are cross-border payments?

Cross-border payments, or international payments, are transactions that are sent from one country and received in another. These payments can occur within all industries including retail, travel, local authorities and even peer-to-peer transfers.

For example:

• A customer in Germany paying an online store in the U.S.
• A marketplace in Asia paying a seller in Europe.
• A retailer in Canada paying a supplier in China.

Unlike domestic payments, cross-border transactions involve different banking systems, currencies and regulations, all of which can add cost and complexity for merchants.

The difference between domestic and international payments

Alternatively to international payments, domestic payments are when both the buyer and the merchant are in the same country. These transactions are much more straightforward, with less banking systems and fees involved, but you can be limiting your business if you can only process domestic payments.

Factor	Domestic payments	Cross-border payments
Location	Buyer and merchant are in the same country	Buyer and merchant are in different countries
Currency	Single currency	Involves at least one currency exchange
Banking systems	Processed within one national payment system	Multiple banking systems involved; often requires correspondent banks
Speed	Usually near-instant or same-day	Can take 2–5 business days depending on method
Fees	Low or minimal (domestic bank/card fees)	Higher due to FX conversion, correspondent bank fees, and compliance checks
Regulation	Governed by local/national laws only	Must comply with multiple jurisdictions (AML, KYC, tax rules)
Complexity	Straightforward	Higher complexity; more intermediaries involved
Merchant impact	Lower cost, faster settlement, predictable	Higher cost, slower settlement, FX risk, more admin overhead

How do cross-border payments work?

Cross-border payments may seem instant to the customer, but behind the scenes they are more complex.

Since domestic payment systems don’t connect across borders, banks use other banks in different countries (called correspondent banks) to help move money internationally by holding accounts on their behalf.

Correspondent banks act as intermediaries between institutions that don’t have a direct relationship, ensuring payments can still reach their destination, but at the cost of extra time and FX fees.

Here’s a simplified breakdown:

1. Payment initiation – A customer submits a payment in their local currency.
2. Message sent – An instruction is created telling the customer’s bank to debit their account and credit the merchant’s account in another country.
3. Correspondent banking – If the customer’s bank and the merchant’s bank don’t have a direct relationship, the payment moves through one or more “correspondent banks” that act as intermediaries.
4. Currency conversion – The payment is exchanged into the merchant’s preferred currency at an agreed rate, usually with additional costs.
5. Compliance checks – Each bank in the chain runs anti-money laundering (AML) and financial crime checks before releasing funds.
6. Settlement – Accounts are adjusted: one bank debits funds, another credits them. The money itself doesn’t physically move; balances are updated across accounts.

For merchants, this process can introduce delays, fees and foreign exchange (FX) risk, all of which directly impact margins and cash flow. This complexity means it’s critical to choose a payment provider that can streamline these steps behind the scenes.

Cross-border payment methods

When selling internationally, the payment methods you offer can make or break a sale. While card payments and global wallets are popular in some regions, customers in other countries strongly prefer local payment methods. For merchants, adapting to these preferences will greatly reduce cart abandonment and build trust with buyers.

Here’s why local payment methods matter:

• Different regions, different habits – In the U.S., credit cards dominate. In Germany, many shoppers prefer bank transfers. In China, Alipay and WeChat Pay are essential. You get the picture…
• Higher conversion rates – Customers are more likely to complete a purchase if they see familiar, convenient options at checkout.
• Reduced friction – Offering local methods avoids failed transactions due to card rejections or unsupported payment types.
• Trust and loyalty – Customers are more likely to keep returning knowing they can pay via the method they prefer and trust.

For merchants, the lesson is clear: a “one-size-fits-all” approach to payments won’t work globally. To succeed in cross-border commerce, you need to tailor your payment offering to the preferences of each target market.

Challenges of cross-border payments for merchants

As we’ve already alluded to, cross-border payments are a must if you want your business to expand globally, however, merchants face unique challenges when accepting or making international payments.

These include:

• Transaction costs: Additional fees can incur, including FX fees and the use of multiple intermediaries and acquirers.
• Slow settlement: Payments can take longer than domestic payments.
• Complex regulations: Every country will have its own rules and restrictions to stay up to date with, such as AML, KYC, and local tax regulations vary by market.
• Currency risk: Fluctuations between payment initiation and settlement can reduce revenue.
• Cross-billing: Multiple invoices across different regions and systems can add complexities.

These global payment challenges can create friction in scaling internationally if not addressed with the right solutions. For a more in-depth discussion on this topic, take a look at our blog that covers navigating global payment gateway challenges.

The solution? Local acquiring!

Cross-border payment FAQs:

How long do international payments take?

Timeframes matter when running a business. Here’s what merchants can expect:

• Card transactions: Authorised instantly, but settlement to the merchant account may take 2–5 days.
• Bank wires: Typically 2–5 business days.
• Payment service providers: Same-day or next-day settlement in many cases.
• Blockchain-based methods: Near-instant, though mainstream adoption is still limited.

Delays in receiving funds can impact cash flow, making settlement speed a critical factor for merchants choosing payment partners.

How do currency exchange rates impact cross-border transactions?

Exchange rates don’t stay still. They rise and fall in response to global market conditions. For merchants, that means the amount you ultimately receive (or pay out) can shift from day to day. Therefore, it’s advised to closely monitor exchange rates if you’re processing cross-border transactions.

How can businesses minimise risks associated with international payments?

The biggest way you can reduce the risk of cross-border payments is by using a reputable payments provide that has access to the markets you want to process in. You’ll want a PSP that is:

• transparent about their fees
• has access to a global network of acquirers
• has local experts on the ground to advise about the local regulations

---

Looking to simplify cross-border payments? Nomupay helps merchants expand globally with local acquiring and tailored payment solutions. Arrange a call to see how we can improve your international processing and scalability.