We have just welcomed 2019, which will be one more year where technology demand and trends will be driven by globalization. In the era of globalization, businesses are very frequently obliged to operate across borders and to carry out international transactions, international money transfers and relevant on-line payments. This is for example the case with major e-commerce enterprises, which ship items worldwide, but also with digital enterprises that engage in complex, globalized supply chain interactions. As such, these enterprises must also receive and accept payments across different countries. In this context, they also need to process cross-border payments in flexible and efficient ways. To this end, it’s important that they understand how the cross-border on-line payment process works, which companies provide relevant services and gateways, as well as what are the fees involved. The latter pieces of information will help them select and partner with the proper payment services provider(s).
In principle, international cross border payments are the ones where the merchant and the client reside in different countries. The execution of such a payment can be based on different payment infrastructures including credit cards, debit cards and PayPal. Cross border payments are an integral part of supply chain financing transactions, such as e-commerce transactions.
In several cases, cross border payments may also entail foreign currency conversion. In particular, the price of a cross-border transaction includes a domestic charge, an additional assessment fee known as ISA, as well as the foreign currency conversion fee (if any). These fees impact both the merchant and the client (e.g., the cardholder) and are generally determined based on two main criteria:
From a technical perspective, on-line cross-border payments are performed based on appropriate gateways, which are conveniently called cross-border payment gateways. These gateways are established and operated by payment services providers. They typically provide the following services:
Despite these features, payment gateways remain vulnerable to cyber-crime, which can cause disruption to cross-border payments and the completion of the associated transactions. During the last couple of years, several payment services providers are experimenting with decentralized solutions based on blockchain technology. Such solutions hold the promise to alleviate shortcomings associated with the centralized natures of gateways, which can become a single point of failure.
Blockchain infrastructures enable the validation of digital transactions in a fully decentralized way i.e. without involving a third-party. As such they provide benefits in cases where data must be exchanged across different parties in a secure and trustful way. In the context of cross-border transactions, the deployment of blockchain infrastructures offers the following benefits:
Despite the hype that is associated with blockchain projects, there are already payment services providers that have joined enterprise blockchains in order to support cross-border payments. The above benefits make blockchain based payment services providers appealing to potential customers.
Regardless of the technology used, international money transfers and cross-border payments are expected to be on the rise. This is due to the increase of e-commerce and supply chain transactions, but also a result of increased migration, given that immigrants are very frequently transferring money to their home countries. In this landscape, understanding the pros and cons of each on-line cross-payment services solution (e.g., payment gateways) is vital for all relevant supply chain participants. In the short and medium term evaluating existing payment gateway solutions is needed. In the longer term it’s always good to keep an eye on emerging technologies such as blockchain.
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