Everyday as you wake up, global expansion is happening all over. Multinationals are taking over the emerging high growth markets like wild-fire. Well, cross-border ecommerce has been growing at a tremendous rate in the last couple of years with different reports showing how crazy it has been and what we can expect in the coming days. 

For instance, a report by Statista shows that the global B2C cross-border e-commerce is estimated to reach a whopping $7.9 trillion by 2030. Compare this to its value in 2021, which stood at approximately $785 billion, and you will notice the crazy upscale. Now, when we get to cross-border payments, you’ll be amazed. International payments have been increasing at a consistent rate of approximately 7 to 8 trillion USD year-on-year, reaching around $156 trillion in 2022. Well, according to the UK Bank of England, this value might reach $250 trillion by 2027.

But what actually is driving this growth? And the answer is simple: globalization! Well, you see, as globalization takes over, customers are finding it a bit easier to buy what they want, be it locally or internationally. In fact, businesses are accepting a variety of local payment methods, making it easier than ever to make cross-border payments. 

Take for instance a payment service like Worldline geo expansion service which allows for customers to use their local cards to pay for international transactions. Businesses are integrating with such payment services to ensure that international transactions are happening as seamlessly and cheaply as possible. 

Dealing with cross-border payments

Now, it would be very difficult for multinationals to function properly if making cross-border transactions was complicated. Just imagine how hard it would be for a business (or the customers themselves) if the transactions took a long time to process and sometimes ended up being declined. Business will just end very fast. 

However, businesses have found out a number of ways to deal with cross-border payments that allow them not only to evade higher fees but also lower authorization rates. These two things can affect the profitability of the business as they compete in the new markets leaving it in the trenches.

The difference between local and cross-border payments

It is common sense that cross-border payments and local processing are not treated exactly the same. Actually, there are significant challenges that face international transactions that you wouldn’t find in domestic ones. For example, payment processing over international borders can be time-consuming and can be stopped at any time, leading to delays and bad experiences for the ones involved. This can be due to AML checks, incomplete payment information or other screening measures.

Another major challenge is legal issues. You see, different nations have varied civil laws which may lead to differently interpreting various agreements. Finally, different countries have different tax issues which at times might lead to double taxation. In short, what we are trying to say is that all these challenges are not found with local transactions as they operate under the same laws. 

In comes local acquiring

You might have heard of this term before but maybe don’t have a good idea what it is. Now, unlike cross-border acquiring, where the issuer and acquirer are located in different countries, for local acquiring, you can get an acquiring bank that is in the same country as your customers. Well, this is considered a local transaction and hence it will not incorporate the challenges faced by international transactions. Actually, it creates that local relationship that you need to get high approval rates and control costs. 

Now, let’s talk a little about improved authorization. Now, the rate of authorization is the percentage of attempted transactions that a cardholder’s bank (whether international or local cards) approves. But why do these rates tend to be higher with local acquiring? As mentioned above, this process makes the transactions local, meaning that there are no cross-border factors affecting them. 

Additionally, local acquiring reduces the financial strain that comes with cross-border payment processing. For example, MasterCard charges 0.6% for transactions done using USD. Visa, on the other hand, charges 0.8% on transactions done using USD on cards from foreign banks. And mark you, these charges are excluded from Visa’s standard assessment fee of 0.11%. Now, when it comes to foreign cross-border charges, MasterCard charges 1% while Visa does 1.2%. You can see the difference here already. 

However, domestic acquiring comes with its own challenges. You see, as much as you can set up domestic acquiring relationships with banks in different countries, at the end of the day, you end up having many partners to manage. This becomes hard to handle, especially when market rules in different countries change. If you don’t have good market knowledge of each country, then it might get crazy for you. Also, it is a tiring process to change the whole system once the regulations change. Nonetheless, you can work with one payment provider that helps manage domestic acquiring solutions. 

Wrapping up

As we've clearly noted, cross-border payments have been making tremendous growth in recent days. Actually, there has been a consistent trend even though there have been a number of challenges. However, with the incorporation of domestic (local) acquiring methods, life has become easier. Well, not only for merchants but also for customers. Now, traders can make transactions without having a worry that their transactions will not be approved or transaction costs will not reduce their profits.