The Working of Cross-Border Payments in E-Commerce Explained

Safe cross-border payments are essential to B2B E-commerce and trading, which is why businesses should understand their working and best practices to follow. This is even more so critical for scale-driven B2B traders that conduct e-commerce business regularly across multiple geographies. Understanding the working of cross-border payments, also allows traders to uncover new opportunities within the e-commerce domain to explore further. 

Role of global payment gateways

Depending on the type of payment method opted for, cross-border fund transfers occur through global payment gateways. These gateways leverage sophisticated technology to ensure that funds are effectively transferred from one account to another with complete tracking.

Payment gateways send authorization requests, with the transaction details, fund amounts, etc. to the acquiring bank to process the payment accordingly. Banks generally have counterparts across different countries, making it easier for businesses to know the transfer codes and perform a seamless transfer.

Review and approval of transfer

Banks can review the transaction details and reference their internal data structure to ensure validity and authorize the payment request. The bank can approve or reject the request, based on predefined parameters and the businesses’ background details.

There may also be issues with currency mismatching or problems with the funds requested, which is why banks can take longer to process the cross-border payment. After approving the request, banks will share transaction approval details that can be referenced by buyers and sellers.

Understanding currency rate & exchange

Cross border payments function on the infrastructure of payment and settlement currencies. This enables a deeper understanding of currency risk, as well as the rate at which cross-border transfer is fixed. The dynamic nature of international markets can fluctuate the exchange rate significantly.

There may also be a fixed cross-border fee, which can be applicable for different traders across different countries. Businesses need to understand the associated indirect costs of performing cross-border payments in international e-commerce transactions.

Protection against fraud and mismanagement

Most e-commerce payment mechanisms have inherent protection measures against online fraud, especially when engaging in cross-border trading. There are key cyber-security measures set in place to ensure that data is encrypted and that the transaction is secure across international borders.

Additionally, payment authentication methods are set in place to verify the accurate transfer of funds from one account to another. This is a critical technology feature that allows the seamless tracking and refunding of payment, if necessary, cross-border.

Leveraging an escrow service provider

Businesses can utilize the services of a reputed escrow service provider, such as Tazapay, to facilitate the seamless transfer of funds upon receipt of goods. This ensures effective cross-border payment facilitation for e-commerce buyers and sellers.

Traders may be asking themselves, how does an escrow account work, as they begin to understand its inner workings and benefits. Escrow accounts are intermediary payment protection structures that involve neutral third parties that hold onto funds until proof of delivery/receipt. It is a much safer way to transfer funds cross-border.