What Happens When Money Crosses Borders? Understanding Cross-Border Payments

You send money to another country. You enter the amount, check the details and press send.

It feels simple.

But when money crosses a border, there can be more to the journey than meets the eye. Different currencies, payment systems, financial institutions and processing requirements can all play a part in how a payment moves from sender to recipient.

That is why understanding how cross-border payments work can be useful.

Whether you are sending money to family overseas, paying for a property abroad or settling an invoice with an overseas supplier, understanding what happens along the way can make international payments easier to navigate.

So, what exactly is a cross-border payment? How does the process work? What are the different types, how much can they cost, and why might some payments take longer than others?

Let’s follow the money.

What Are Cross-Border Payments?

In simple terms, a cross-border payment generally involves moving money between countries or across a national border as part of the payment journey.

Put simply, if money needs to move from one country to another, it will generally involve a cross-border payment.

You might make one without giving it much thought.

For example:

• An individual in the UK sends money to a family member overseas.
• A UK buyer pays for a property purchase in another country.
• A business pays an overseas supplier.
• A company pays an international contractor.
• An organisation moves funds between accounts held in different countries.

You will also hear the term international payments used in a similar context. In everyday financial language, the two terms are often used interchangeably. Broadly, “international payment” describes a payment involving another country, while “cross-border payment” highlights the fact that the payment involves movement between countries or across a national border. The precise terminology can vary according to the payment service and context.

The payment itself may look much like any other transaction on your screen. The difference is what can happen behind that familiar “send” button.

The payment may involve different currencies, payment networks, financial institutions and jurisdictions. Depending on the payment method and circumstances, other institutions may also form part of the payment route.

For anyone sending money abroad, understanding those moving parts can help explain why the cost, timing and process may differ from a domestic payment.

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How Does the Cross-Border Payment Process Work?

The cross-border payment process can vary depending on the countries involved, the currencies being used, the payment method and the institutions involved.

At a high level, however, the journey can look something like this:

Sender → payment instruction → currency conversion where applicable → payment routing → processing → settlement → recipient

Here is what each stage means in simple terms.

1. The payment instruction

First, the sender provides the details needed to make the payment.

This can include the recipient’s name, account details, destination country, currency and amount.

Getting these details right matters. Incorrect or incomplete payment information can cause a payment to be delayed, rejected or require correction, depending on the payment route and circumstances.

For certain international payments, account information such as an IBAN or SWIFT/BIC details may be relevant. An IBAN checker or SWIFT checker may help users check whether relevant details appear correctly formatted before making a payment, although such tools do not replace confirmation of the recipient's payment details.

The exact information required depends on the destination and payment method.

2. Currency conversion, where applicable

If the sender and recipient use different currencies, the payment may need to be converted.

For example, a UK business paying a supplier in euros may need to exchange pounds for euros as part of the transaction.

The exchange rate used for the transaction helps determine how much of one currency is received in another, while applicable charges or an exchange-rate margin can also affect the overall amount.

A currency converter can provide a useful indication of exchange rates, although the rate shown by a converter may not necessarily be the rate available for a particular transaction.

For businesses making regular payments in different currencies, fluctuations in exchange rates can also create currency exposure. This is one reason currency risk management can form part of wider financial planning.

For businesses that regularly manage payments or receipts in different currencies, understanding how currency movements may affect their finances can be part of the wider process. Where appropriate, a business may also choose to discuss its requirements with a qualified currency specialist before making a transaction.

3. Payment routing

Once the payment has been instructed, it needs to travel through the relevant payment infrastructure.

The route can vary.

Some payments may move through established banking or payment networks, while other arrangements may involve additional financial institutions or intermediaries.

The important point is that an international payment does not necessarily move in one simple leap from one bank account to another.

There can be several steps between the sender and recipient.

4. Processing and applicable checks

Payments may also be subject to processing and checks required by the relevant institutions, payment systems or applicable requirements.

These checks may form part of the payment process, depending on the payment, provider and circumstances.

They do not necessarily mean that something is wrong with a payment. Such checks can form part of how financial institutions and payment providers process transactions.

5. Settlement

Settlement is the stage at which the relevant institutions complete the financial obligations associated with the transaction.

The point at which a payment is settled and the point at which funds become available to the recipient are not necessarily identical in every payment journey.

That distinction can help explain why pressing “send” does not always mean the recipient sees the funds immediately.

What Are the Different Types of Cross-Border Payments?

There are several types of cross-border payments, and the payment method used may depend on who is sending the money, who is receiving it, the countries and currencies involved and the purpose of the payment.

Common examples include:

Bank transfers

A bank transfer can be used to move money from an account in one country to an account in another.

These can be used for personal payments and business transactions, including payments to overseas suppliers or transfers connected with property-related expenses.

International money transfers

An international money transfer is a broad term for moving money between countries.

Depending on the provider and arrangement, this can include bank-based transfers and other payment services.

The relevant considerations can include the amount being sent, the currency, destination, applicable charges and expected timing.

Card payments

Cards can also be used for international purchases.

For example, someone travelling abroad may use a debit or credit card to pay for goods or services.

The transaction may involve currency conversion if the purchase is made in a currency different from the cardholder’s account currency.

Digital wallets and other payment methods

Depending on the country and service involved, digital wallets and other electronic payment methods can also facilitate international transactions.

Availability, currencies, fees and processing times vary between providers and destinations.

Business payments

Businesses make cross-border payments for many reasons.

These can include:

• paying international suppliers;
• settling invoices;
• paying contractors;
• receiving funds from overseas customers;
• managing international payroll;
• transferring funds between business accounts.

For companies regularly dealing with overseas suppliers or customers, international business payments can form an important part of day-to-day financial operations.

It is worth noting that payment methods and payment purposes are two different ways of categorising cross-border payments. The categories can therefore overlap.

How Do Cross-Border Payments Differ From Domestic Payments?

At first glance, sending £1,000 to someone in another country can look much like sending £1,000 to someone in the UK.

The difference is what happens around the payment.

A domestic payment will generally be processed within the payment infrastructure of one country, although the exact route can vary.

A cross-border payment may involve:

• two or more countries;
• different currencies;
• different payment systems;
• different banking arrangements;
• different regulatory or processing requirements;
• additional institutions or intermediaries, depending on the route.

This does not mean every international payment is complicated.

It means there can be more variables to consider.

A useful way to think about it is this:

A domestic payment is often a journey within one financial system. A cross-border payment may be a journey between systems.

Those additional variables can affect timing, cost and the information required to make the payment.

Why Do Multiple Currencies Add Complexity?

Currency is one of the most obvious differences between domestic and international payments.

If you send £1,000 to a recipient who needs euros, the recipient is not simply receiving “£1,000 in euros”. The pounds need to be converted into euros.

The amount received can depend on the applicable exchange rate, as well as any relevant charges or exchange-rate margin.

Exchange rates can change over time.

For someone making a one-off payment, the difference may be relatively straightforward to understand.

For a business making regular international payments, however, repeated currency conversions can become a more significant consideration.

Imagine a business paying a European supplier every month.

The invoice might be for €50,000 each time, but the sterling cost can vary if the exchange rate changes.

That is where currency exposure can become relevant to business planning.

It is also why businesses making regular international payments may wish to understand their approach to currency risk management.

The key point is simple:

The currency you send and the currency your recipient receives can affect the overall economics of a payment.

How Much Do Cross-Border Payments Cost?

The answer is: it depends.

There may be more than one cost to consider when making an international payment.

These can include:

Transfer fees

A provider or financial institution may charge a fee for processing a payment.

The amount and structure can vary.

Exchange-rate considerations

If money is converted from one currency to another, the exchange rate used for the transaction matters.

There may be a difference between a reference or market rate and the rate offered for a particular transaction.

Intermediary charges

Depending on the payment route, another financial institution may be involved and charges may apply.

Receiving-bank charges

The recipient’s bank or financial institution may also have its own charges, depending on the payment and account arrangement.

This is why looking only at a single advertised transfer fee may not provide the whole picture.

For an individual, the key question may be:

“How much will the recipient receive?”

For a business, it may be:

“What will this payment cost us in total?”

Both are useful questions.

The answer can depend on the currencies, amount, destination, payment route and provider.

How Long Do Cross-Border Payments Take?

Not every international payment follows the same timetable.

The time taken can depend on factors such as:

• the currencies involved;
• the payment route;
• the payment system used;
• bank cut-off times;
• weekends and public holidays;
• intermediary institutions, where applicable;
• receiving-bank processing;
• applicable checks and procedures.

The availability of faster payment technology does not necessarily mean that every cross-border payment will reach the recipient instantly.

There is also an important difference between initiating a payment and the recipient having access to the funds.

A sender may receive confirmation that a payment instruction has been submitted, while the payment may still need to pass through further stages before the recipient can use the funds.

For businesses, understanding expected timing can be particularly important.

An overseas supplier may have its own payment deadline. A property transaction may have a completion date. A business may need to manage cash flow around expected outgoing and incoming payments.

Where timing matters, businesses may wish to understand the relevant cut-off times and payment arrangements before initiating a transaction.

What Are the Common Challenges With Cross-Border Payments?

The challenges can differ depending on whether you are an individual or a business.

For individuals

Personal international payments can be connected to many everyday circumstances:

• buying property overseas;
• paying education costs;
• supporting family members;
• relocating;
• purchasing goods or services;
• managing finances while living or travelling abroad.

For these payments, the key considerations may be the exchange rate, total cost, payment timing and accuracy of the recipient details.

For businesses

Businesses can have more regular and complex requirements.

An organisation might need to:

• pay overseas suppliers;
• receive payments from international customers;
• pay contractors in another country;
• manage multiple currencies;
• make recurring international payments;
• move funds between accounts;
• manage cash flow across several markets.

For smaller businesses in particular, repeated international payments can become an operational task rather than an occasional transaction.

An earlier Currency Solutions article, streamlining cross-border payments for SMEs, explores this subject from an SME perspective.

Because that article was published earlier, it should be read as an earlier perspective rather than a statement of current market conditions.

What Should You Consider When Choosing a Cross-Border Payment Solution?

There is no single payment solution that is necessarily right for every person or business.

The right considerations depend on what you need to do.

1. Total cost

Look beyond a headline transfer fee.

Consider the overall cost of the transaction, including applicable fees and the exchange rate.

2. Currency requirements

If you regularly make payments in several currencies, check whether the currencies you need are supported.

A business with regular international activity may also consider whether a multi-currency business account fits its operational requirements.

3. Timing

Consider how quickly payments are expected to be processed and when the recipient is likely to have access to the funds.

Where payment deadlines matter, understand the relevant cut-off times and possible variables.

4. Transparency

Look for clear information about relevant costs, exchange-rate arrangements and payment requirements, so you can understand what you are being charged and what the payment involves.

Clear information helps you compare like with like.

5. Payment information

Accurate recipient details are essential.

Depending on the payment, information such as an IBAN or SWIFT/BIC may be required.

6. Tracking and support

For businesses making regular payments, being able to understand the status of a payment and access appropriate support can be useful.

7. Regulatory status

When choosing a financial services provider, it is sensible to understand the firm's regulatory status and which services and activities are within the scope of the relevant regulatory framework.

No single feature makes a provider right for everyone. Regulatory status is one consideration; it does not, by itself, mean a particular provider or service is suitable for your circumstances. The important thing is to consider the service against your own requirements.

What Is Changing in Cross-Border Payments?

The world of international payments continues to evolve.

Payment systems are becoming increasingly digital, while businesses and individuals expect greater visibility over how and when money moves.

There is also continued attention on payment speed, transparency, interoperability and the infrastructure supporting international transactions.

For businesses, developments in the currency markets can also matter.

Exchange rates can be influenced by factors including economic data, interest-rate expectations, political developments and broader market conditions. Businesses with international exposure may therefore keep an eye on currency market insights when considering their wider currency requirements.

However, “faster” does not automatically mean “instant”, and a newer payment technology does not remove every variable from an international transaction.

The practical question is not simply whether payments are becoming faster.

It is whether the payment method, infrastructure and service are suitable for the particular transaction.

The Takeaway: Cross-Border Payments Have a Journey

A cross-border payment can look remarkably simple from the outside.

You enter the details.

You check the amount.

You press send.

Behind that small action, however, there may be currency conversion, payment routing, processing, settlement and other stages before the recipient has access to the funds.

For individuals, understanding the journey can help when planning a significant payment abroad.

For businesses, it can be even more important when international payments form part of regular operations.

The useful questions are therefore not only:

“How much am I sending?”

but also:

“In which currency?”

“What will the recipient receive?”

“What might the payment cost?”

“How long could it take?”

“What information is required?”

A little understanding can make a cross-border payment feel far less like a leap across the map and much more like a journey you can plan for.

If you have questions about a particular currency payment or international transfer requirement, you can speak to a currency specialist to discuss your circumstances.