Cross-border payouts explained

The global economy is both smaller and larger than it used to be. Smaller because payments systems and providers have made it so much easier to engage in cross-border trade; larger because that ease of doing business is driving economic growth. 

Cross-border payouts are a big part of this global economy, allowing businesses to make monetary disbursements to parties in multiple countries in their local currencies. This has opened up all sorts of opportunities, including discovering remote talent and partnering with previously inaccessible businesses. 

In this article, we explain cross-border payouts, why they’re so important, the fees involved, and how you can choose the right cross-border payout service for your needs. 

What are cross-border payouts?

Cross border payouts allow parties that are located in different countries to conduct financial transactions with each other. These transactions often involve businesses transferring funds in different currencies to sub merchants or freelancers, and can utilize a variety of payment methods depending on the needs and preferences of the recipient. For example, payouts can be made directly to both credit cards and bank accounts. 

Why cross-border payouts are crucial in a global economy

Cross-border payouts play a vital role in our increasingly globalized, internet-enabled world, where commercial relationships are no longer restricted by regional boundaries. For businesses with international ambitions, cross-border payouts have many benefits, including: 

• Helps expand your business opportunities - previously, regional differences in financial systems made it hard for businesses to trade internationally. Cross-border payouts make it easy to conduct financial transactions with new customers, suppliers and business partners, breaking down economic barriers and opening up new business opportunities 
• Good for remote workers - cross-border payouts open up your business to a global workforce. Whether you discover talent in Albania or Antigua, you can payout in local currencies and in their preferred method, ensuring productive working relationships with remote workers
• Economic growth - by opening up a global world of work, trade, and tourism, cross-border payouts are stimulating mutually beneficial economic growth
• Competitive advantage - accessing remote talent or business partners in new markets can give you an edge over rival businesses who might be restricted to more local opportunities 

Key components of cross-border payouts

If you’re considering using cross-border payouts, here are the key components you should be aware of: 

• Understanding exchange rates and their impact - exchange rates dictate how much a cross–border payout will cost you and how much the recipient will get once any fees have been deducted. It’s important to understand this to ensure transparency and avoid nasty surprises after a transfer 
• Navigating international payment regulations and compliance - regulations and compliance change from region to region. To ensure successful cross-border payouts, merchants need to ensure they are prepared to comply with any local requirements
• Transaction speed and costs - it can take up to five days for an international transfer to process and settle, so any recipients need to be aware that there may be a delay before they receive their funds. You should also factor in the higher costs of cross-border transactions: as well as exchange rates, abiding by local regulations, and other fees charged by third parties in the transaction flow can add to your costs 

Difference between cross-border payments and cross-border payouts

The key difference between cross-border payments and cross-border payouts is subtle but important for merchants to grasp. A cross-border payout is a disbursement of money from your business to an entity in another country, which could be to a contractor in exchange for their services or a dividend payout to a shareholder. A cross-border payment is the act of two parties in different countries engaging in a transaction, and generally refers to a buyer sending money to a seller in exchange for goods or services. 

Learn more: How to improve instant payouts

Dealing with cross-border payout fees

Much that is documented about the cost benefits of an optimized payment operation focuses on money coming in. But businesses also stand to lose out if they don’t look at what they're paying for money going the other way.

The ecosystem of payouts is riddled with complex processes and invisible go-betweens. With most payouts still routing from bank to bank via multiple correspondent institutions using legacy technology processes, businesses are at high risk of being negatively impacted by:

• The fees, often hidden, that banks levy
• Long processing time for payouts
• Inefficient manual reconciliation

In the end, all of the above falls off the bottom line. But, more importantly, it inhibits scalability and growth for businesses and is a barrier to providing good customer service.

Companies that transact across borders are even more vulnerable. A payout to another country can cost up to 10% of the transfer value, with some banks charging fees over £30, about $36.50, per payment processed.

Here is a guide to the key costs relating to payouts and how businesses can make sure they're not paying more than they need.

Routing

There’s no avoiding using the banking network to process a bank transfer payout. But merchants can cut the complexity, and so the cost, of the journey the money takes. There are typically two banks involved in a payout for domestic payments: the payer’s and the payee’s.

But when payouts move across national borders, they also move across different banking networks that form the global correspondent banking network. These networks were never designed to work in harmony, and different data standards, regulations and fraud prevention measures — to name just a few — mean they often don’t. Intermediary banks step in to facilitate the path of the payout. And for that, they take a cut. The more complex the payout route, the more intermediaries are needed, and so the more costly it gets.

To avoid dealing with the complexity and cost of traditional bank transfers, payouts can be made through alternative channels such as cards. With Visa Direct and Mastercard Send, businesses can leverage the schemes' global presence and unified network of account holders to push funds to customers. Visa and Mastercard are as ubiquitous for pushing payouts to customers as they are for collecting payments.

Exceptions

A complex payout path doesn’t just hike costs, it also jeopardizes the payout being successful. There are multiple reasons why a payout can fail. Some are the responsibility of the payer, such as not having the necessary funds or credit limit or inputting incorrect information about the payee. Other times the payer is at the mercy of data incompatibility between banking systems, regulations and standards. This forces businesses to navigate and understand the local requirements in every country they send to — or risk the payout failing. For businesses operating at a global scale, this is a huge undertaking that will ramp up payout costs significantly.

FX conversion

The apparent cost of converting one currency into another is the bank's commission, or other brokers, for doing it. Less scrutinized is the difference between the FX rate agreed with the payee and the rate used for conversion. This difference is usually caused by fluctuations in currency values between the time the payout is initiated and the currency conversion. And without full visibility into rates and control over the transactions, there’s no possible way of guaranteeing what amount the payee will receive.

Learn more: Guide to FX payments

Operational costs

A successfully processed payout is the expected outcome for a business. Failed payouts introduce a measure of the unknown, as the business typically needs to investigate the cause of failure and take remedial action to correct and reprocess the payout. In many organizations, these investigations and corrections are costly as they are done via staff performing manual tasks.

A lack of data and insight into failure reasons only serve to impede and slow down the ability to correct failed payouts, further increasing the cost of operations for the business and negatively impacting customer experience. Thus the more resources are needed to handle exceptions and the cost of making payouts increases.

Finally, there's also the cost of connecting and maintaining connections to the disparate systems required to make payouts at scale. It's not uncommon for businesses sending payments globally to have five or more direct integrations to domestic payment networks. And connecting to a new network can usually take six months or more.

Take the pain out of payouts

Inefficient payouts are a hidden cost that blight every business. Solving this inefficiency can go a long way towards reducing costs, maximizing profits, and, most of all, increasing customer satisfaction.

The good news is that it's solvable. The payments innovation that's taken place in the past decade has put in place all the components for a radically different cross-border payment ecosystem.

By choosing a partner that's built its payouts solution for the 21st century, businesses can hook into this next-generation network through a single integration, allowing them to access every payout method in every geography without the technical overhead. And once connected, businesses are afforded the flexibility, visibility and control to drive optimizations and efficiencies across their payouts process, turning it from a costly confusion to competitive advantage at scale.

Get in touch to see how Checkout.com allows merchants to turn payouts into a competitive advantage with simple, convenient options that help funds get to customers faster.

Choosing the right cross-border payout service

The right payment service provider for your business should be hot on global payment trends, and ready to facilitate payouts in each of the regions you operate in. 

Checkout.com has built payout journeys for ambitious, global businesses. We allow you to send payouts to more than 170 countries and deliver funds in more than 100 currencies to both cards and bank accounts. Card payouts can be made within minutes, and bank accounts on the same day, avoiding the delays that can impact international transactions. You also get full visibility of exchange rates based on market-leading rate sources, so you and your payees have full transparency. 

Finally, our built-in compliance management makes it easy to keep on top of regional regulations as theft evolve, so you can manage risk with confidence. 

Find out more about payouts with Checkout.com.