Optimizing cross-border payments without local acquiring

In today’s global economy, cross-border transactions are more frequent than ever. Consumers are increasingly operating in a borderless world when it comes to purchasing goods and services. Whether it's buying from a business in another country or using their card to pay for purchases when they travel, transactions are being processed in a truly global sense more and more often. 

Cross-border payments are any transactions where the merchant, issuer, or acquirer are in different countries, often involving different currencies and regulatory environments. This is in contrast to local acquiring—where the issuer, merchant, and acquirer are all in the same country.

There are a lot of advantages to accepting cross-border payments, particularly when it comes to being able to increase the markets you serve. However, these transactions face unique challenges. It's important that you understand how to optimize your setup for cross-border payments to make sure that you can increase your reach but still ensure smooth and cost-effective transactions.

Global vs local acquiring

So, what is the difference between global and local acquiring? Local acquiring is when a merchant acquirer is in the same country where the payment is taking place. Locally acquired transactions create a scenario for the issuer that is familiar and, therefore, there is more chance of the transaction being successful. When the acquirer is based in a different country to where the transaction is taking place, this becomes a cross-border transaction—even if the merchant and the customer are in the same country.

However, your business can take advantage of your payment services provider’s (PSP) local acquiring capabilities giving you the advantage of higher authorization rates and lower transaction costs. 

Local acquiring, however, is not always available and most global businesses will use a mixture of both local and international acquiring to meet the needs of their global customers. International acquiring allows businesses to accommodate transactions that come from customers anywhere in the world, which is extremely important for businesses that have a global footprint and want to be able to accept payments from customers even when local acquiring isn't possible. Using local acquiring in core markets and international acquiring for transactions from other markets allows businesses to make the most of a wide range of markets. Working with a PSP that can offer both is an ideal scenario for global businesses.

Why cross-border acquiring?

Processing locally means that your business must meet several hard requirements such as local operations, a local bank account, and a legal entity. International cross-border acquiring allows a business to take advantage of business from more markets without having to meet these requirements. 

Working with a cross-border acquirer gives businesses the opportunity to operate internationally or expand their reach and accept payments from customers around the world.

Cross-border acquirers simplify the transaction process by handling currency conversions, ensuring that businesses receive payments in their preferred currencies. This not only streamlines the purchasing process for customers but also eases financial management for businesses.

Moreover, accommodating various international payment methods is crucial, and cross-border acquirers are adept at managing a wide range of these methods. This flexibility allows businesses to meet local payment preferences in different international markets, enhancing customer satisfaction. Making use of products that allow you to dynamically sort and filter payment methods based on shopper location or currency can lead to better-performing payments. 

Cross-border acquirers also help in ensuring transactions comply with local laws and assist in managing risks such as fraud detection and prevention. This comprehensive support is vital for maintaining secure and compliant operations.

Businesses working with global acquiring solutions can streamline their financial operations with solutions that offer unified platforms for reporting and reconciling transactions across all markets. This simplifies financial management and oversight.

Lastly, making it easier for international customers to purchase goods and services builds customer trust and brand loyalty. In today’s globalized marketplace, this trust is a significant competitive advantage, as satisfied customers are more likely to view the business as reliable and customer-centric.

Learn more: How to optimize your cross-border ecommerce

Understanding and tackling the challenges

Cross-border payments can be fraught with high fees, unfavorable currency exchange rates, and lengthy processing times. Businesses may also encounter payment rejections and compliance issues due to the varying regulatory frameworks across countries. Understanding these challenges is the first step toward optimizing your payment processes.

So, how can businesses optimize for cross-border payments when local acquiring is not possible?

Selecting a suitable payment gateway is crucial. A good gateway should handle multiple currencies and offer robust security features. It should also comply with international payment regulations to minimize legal risks. The right platform will also provide tools for analyzing payment data, which can help in identifying and addressing any inefficiencies.

Compliance with international finance regulations is often one of the biggest challenges for businesses making cross-border payments. It's essential to find a payments partner that will help you understand and keep compliant with the regulatory landscape in the countries where you operate. 
Currency fluctuations can significantly impact the cost-effectiveness of cross-border payments. Implementing foreign exchange management strategies is essential. For example, Checkout.com mitigates transactional FX risk by locking in FX rates from the moment of transaction capture to settlement, enhancing transparency in reporting and reducing costs. Make sure you find a solution with an FX API that will allow you to preview rates before transactions, aligning with your operational needs as this will help streamline your operation.

Additionally, customizing settlement times to match the local time zones of the regions in which you operate can simplify currency management and align with your business's liquidity needs, allowing for multiple settlements in the same currency.

Predictable settlement reporting is another benefit to partnering with the right PSP, enabling businesses to manage cash flows effectively with clear, understandable data on settlement timings. Access to detailed transaction data helps in forecasting and increasing cash flow predictability, identifying opportunities to reduce costs, and enhancing revenue. This transparency extends to understanding specific charges like scheme and interchange fees, providing insights into operational costs, and highlighting potential areas for efficiency improvements.

Payment routing refers to the path a transaction follows from payer to recipient. Optimizing this path can reduce transaction costs and increase success rates. Finding the right PSP to partner with will give you access to advanced software solutions that automatically route payments in the most efficient way, considering factors like cost, speed, and payment success rates.

Build the right strategy

Optimizing your cross-border payment setup requires a combination of the right technology, strategic financial planning, and strong partnerships. While there are many challenges, the rewards of a well-structured international payment system are significant. Businesses that proactively adapt their payment processes can enhance their operational efficiency and improve their global market presence.

The trick is to find a PSP that can help you optimize cross-border transactions while also offering local acquiring so you can build a thorough payment strategy that is right for your business goals.