Cross-Border Payments
Cross-border payments refer to financial transactions where the sender and receiver are in different countries and generally across different currencies. These transactions require currency conversion, compliance with international regulations, and coordination between multiple financial institutions. Initiatives like SEPA (Single Euro Payments Area) reduce barriers around cross-border payments by creating a unified framework for making euro-denominated bank transfers across Europe with the same ease, speed, cost, and security as domestic payments. Card networks (such as Visa, Mastercard, American Express) manage cross-border payments through a sophisticated infrastructure that connects issuers and acquirers globally, handles currency conversion, and ensures settlement across jurisdictions. If the transaction is in a different currency from the cardholder’s, the card network performs currency conversion using daily exchange rates published by the network, with potential foreign transaction fees it has set. The transaction is then cleared and settled through multilateral settlement systems, often coordinated with central banks or correspondent banks for FX handling. Wire transfer regulations such as the intergovernmental Financial Action Task Force (FATF) framework set the rules governing electronic transfers of funds between parties, particularly for anti-money laundering (AML) and counter-terrorist financing (CTF) purposes. While these don’t typically apply to standard card payments, they can do when cards are used to send money across borders or replicate wire-like behaviour.
Applications
E-commerce:
Reduces fraud in online card payments by verifying the cardholder's identity
E-commerce:
Reduces fraud in online card payments by verifying the cardholder's identity
Advantages
- Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
- Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
Challenges
- User Experience: Additional authentication steps can cause friction and increase checkout abandonment
- User Experience: Additional authentication steps can cause friction and increase checkout abandonment
