With Wednesday’s (March 20) announcement about Visa’s expanded partnership with LemFi, the focus is on cross-border payments. The cross-border payments landscape itself is a dynamic and fragmented one, full of unique local frictions that present a number of obstacles to foreign businesses looking to capture market share outside of their home borders.
From regulatory compliance to navigating complex payment processing systems and tax regulations, the journey can be daunting. Success hinges on effectively navigating cross-border challenges. By understanding and addressing the top five problem areas — international regulatory compliance, cross-border payment processing, logistics, customer support and fraud — businesses can pave the way for sustainable growth in global markets.
This comes against the backdrop of a payments renaissance, one whose digital solutions may solve — or at least, to chip away at — many of the longstanding frictions plaguing cross-border payments and commerce.
See also: Interoperability and Transparency Are Key Challenges as Cross-Border Payments Modernize
Expanding operations internationally means entering new jurisdictions with distinct regulatory landscapes. From product safety standards to data protection laws, down to the payment workflows themselves, compliance requirements vary significantly from country to country. Failure to adhere to these regulations can result in hefty fines, legal entanglements and damage to brand reputation.
That’s why it is crucial for businesses to conduct thorough research on regulatory requirements in target markets and establish robust compliance protocols. Implementing scalable compliance management systems ensures ongoing adherence to evolving regulations, and partnering with local experts of international regulatory environments can provide valuable guidance.
Across the globe, payments are the heart of commerce. Navigating international payment processing involves grappling with currency conversions, diverse payment methods and varying banking systems. Transaction fees, exchange rates and security concerns can further complicate the process, potentially deterring customers and hindering revenue growth.
Underscoring the challenge, PYMNTS Intelligence in the report “Cross-Border Sales and the Challenge of Failed Payments,” a collaboration with Nuvei, found that in the last year alone, U.S. merchants suffered at least $3.8 billion in lost revenue from failed cross-border payments.
Read more: G20 Lays Out Cross-Border Payments Roadmap
“Cross-border payments inherently have more points of failure compared to domestic payments,” Citi’s Global Co-head of Payments and Receivables, Treasury and Trade Solutions (TTS) Amit Agarwal told PYMNTS in a recent interview.
To mitigate these higher failed-payment rates, merchants looking to expand internationally should strengthen their collaboration with their payment service providers (PSPs). The report found that these partnerships can provide access to advanced tools and expertise that facilitate efficient and reliable cross-border transactions.
The ongoing migration of global financial systems to the ISO 20022 messaging system should also help ease cross-border payment frictions by providing improved transparency, better control functions and the potential for faster processing. But, as PYMNTS has written, the maximum efficiencies of data and messaging standardization can only be realized when everyone’s on board. And that onboarding is a process nearly as full of friction as today’s existing cross-border payment workflows.
Fluctuating exchange rates and complex tax structures pose substantial financial challenges for cross-border businesses. Currency volatility can impact profit margins, while navigating international tax laws requires comprehensive knowledge and expertise.
Neil Drennan, chief technology officer at Visa Cross-Border Solutions, told PYMNTS in an interview posted in November that the cross-border market is “growing massively,” which means there are more businesses looking to “[move money around the world] quickly and transparently, with complete clarity around costs — what the FX rates and fees are.”
Closing the books on cross-border accounting can be a particular challenge for small- to medium-sized businesses (SMBs) with limited resources to draw on.
Adding to the difficulties of global growth for online merchants is the proliferation of online fraud, which poses significant challenges for cross-border businesses. From identity theft to chargebacks, fraudulent activities can erode profits and cause merchants to inadvertently turn away good customers.
PYMNTS Intelligence found that 69% of firms have strong interest in innovative solutions for friendly fraud and chargeback fraud. Businesses selling physical goods internationally have a greater appetite for this than those in the digital services space, at 75% and 64%, respectively.
It’s crucial for merchants to implement robust fraud detection and prevention measures, including AI-powered fraud monitoring systems and stringent authentication protocols. Employing geolocation and IP tracking tools can help identify suspicious transactions and mitigate risks proactively while maintaining competitive payment authorization rates.
Importantly, delivering exceptional customer support — as well as the purchased goods and services — transcends international borders. Efficient logistics and responsive customer service are critical components of international expansion and can pose challenges to firms that aren’t prepared to deal with global logistics partners, or even things as fundamental as language barriers.
Many issues that seem relatively simple or minor can still cause significant friction within cross-border transactions. But by embracing innovation, fostering strategic partnerships and prioritizing customer-centricity, businesses can overcome cross-border hurdles and capture valuable growth by unlocking the benefits of international commerce.
