What are cross-border payments and what makes them important?
Cross-border payments are one of the main aspects that make selling abroad possible – especially if you count on the right payment partner for that.
What are cross-border payments and what makes them important?

While a physical establishment has geographic limits, e-commerce helps the entrepreneur to expand the business across the country – and, with the right tools, even beyond that. As digital innovation around the world blurs frontiers and opens up high-rising new markets, it becomes easier for merchants to go international.

Cross-border payments are one of the main aspects that make selling abroad possible. Guaranteeing plenty of advantages for global businesses, they allow you to leverage the export of products and services and to make the most of fast growing markets, such as Latin America’s – especially if you count on the right payment partner for that.

How about finding out more about how cross-border payments work and what they can mean to your business? Below, you can see a complete explanation on the subject to understand how to start or strengthen your global operations.

What are cross-border payments?

In summary, a cross-border payment is a financial transaction in which the payer and recipient are in different countries. Considering business payments and shopping transactions, it can cover all segments in which the merchant and the buyer are in different countries – such as retail, digital goods, travel, and online betting.

In a broader sense, cross-border payments also happen between financial institutions for their clients' transactions, such as loans, foreign exchange, stock, and debt trading, commodities, bonds and more. It is also worth remembering that governments and large non-financial companies also use cross-border payment for large import and export transactions.

Our focus here is cross-border payments between individuals and companies, in the usual purchases of products and services. The most commonly accepted payment method for cross-border payments is internationally-enabled credit cards – but when the merchant counts on a local payment provider, it’s possible to expand that range and offer a wider variety of locally-processed payment methods for the customers.

How do cross-border payments work?

As local currencies and local payment methods are closed-loop, common payment systems are not connected to those in other countries. Therefore, when making a transfer between two jurisdictions, the currency is not physically sent abroad.

Funds are not sent across borders. In fact, accounts are credited in one jurisdiction and the corresponding amount is debited from the local account. In the case of cross-border payments, international banks allow foreign counterparties to have their own accounts. Thus, they can make payments in the currencies of other countries.

In the case of merchants selling abroad, the best option is to count on a local payment provider, who can process transactions locally on behalf of the merchant – a local payment partner integrated to your e-commerce. The local provider will be responsible for collecting payment from customers and carrying out this transfer system until the money arrives in the account.

When choosing a cross-border payment partner, it’s important to make sure they are aligned with your companies needs, in terms of:

  • type of consumer market;
  • legislation in force at the place of sale;
  • sales channels;
  • anti-risk and anti-fraud measures;
  • payment methods offered;
  • settlement process;
  • and more.

What are the advantages for your e-commerce?

It’s important to understand that the cross-border payment by itself is just a way of getting the money from one country to another – the real difference is how you choose to process such payments in your company.

By working with a local payments provider for your cross-border payment needs, you get access to much more than just payment processing. Check out some of the advantages that a local payment partner can bring to your business:

Increase in sales

When you begin selling abroad, your company starts to operate in a completely new market. This gives you a scope for more opportunities and helps to broaden your audience. From there, sales grow, as well as revenue.

As we’ve shown in our white paper E-commerce and Payment Landscape in Latin America, internationally-enabled credit cards are the main method for e-commerce in Latin America, but they represent only 21% of a total volume of $ 479.1 billion in online sales. To unlock the full potential of the region, then, offering local, alternative payment methods – by working with a local payments provider – is essential.

More successful partnerships

Besides processing the payments themselves, a local payment provider has the important role of acting as a consultant about the local market. From payment habits to customer preferences, from rising trends to ever-changing regulations, local expertise is fundamental for a company to truly succeed in a foreign market.

Counting on a local payments partner also eliminates the need for the merchant to open a local entity in each of the countries they want to sell to – which would otherwise be needed to process payments locally.

Stronger compliance and anti-risk processes

A robust anti-risk and anti-fraud analysis requires a deep understanding of customer behavior, most common fraud types for each segment, and the local market. Thus, it can be particularly challenging for foreign companies to design reliable anti-risk processes for cross-border markets they want to enter.

By counting on a local payments processor to handle your cross-border payment needs, you also get access to the required knowledge and technology for an anti-fraud process designed for each local market you’re selling to – with the right algorithms, parameters, and regulatory requirements.

Local expertise for regulatory and tax matters

Each country has its own local regulations for foreign businesses, general selling matters, data protection, and specifically for many segments – such as betting and cryptocurrencies, who have new norms being applied all the time throughout Latin America. A payments provider with a local entity in the country can handle all of that on behalf of the cross-border merchant.

Besides, many foreign countries offer tax advantages to incentivize companies to choose that market. Through them, the entrepreneur can be more competitive in business with national products. The accounting process becomes simpler, it is possible to pay fewer taxes and even be exempt from certain ones.

The right partner to boost your business abroad

The digital revolution was already well underway in Latin America before Covid-19, but the pandemic definitely pushed matters even further – and faster. With 82% of Latam customers having made an online purchase in 2023, the market achieves a more mature phase – where cross-border sales, in fact, grow faster than domestic ones.

The businesses, in turn, took advantage of this favorable scenario to expand their operations and maintain stability even in a crisis situation. After all, the intention was to continue to offer not only products and services but viable payment solutions for anyone, anywhere in the world. This is why cross-border payments have become so important.

It now allows companies to continue to grow and develop. In some cases, it has become the main source of funding for various businesses. It also drives competitive interest in the market by favoring the emergence of new business models and innovation.

PagSeguro offers a complete cross-border payment solution, with everything you need to make the most of one of the most exciting regions for business in the world – Latin America. With us, you can offer over 140 local payment methods to 17 countries in the region – including its main markets Brazil, Mexico, Colombia, Chile, and Peru –, as well as send instant payouts to Brazilian payees.

Want to get started now? Then click here to talk to us and understand more about how we can help your company rise amidst Latin America’s opportunities.

And as we’ve shown, one of the key aspects of a successful cross-border payment strategy is understanding how the customers prefer to pay in each country. So dive further into that by clicking below and downloading our white paper E-commerce and Payment Landscape in Latin America, with exclusive data about the payment habits and preferences in the most important verticals of the Latam market from 2023 to 2026:

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