Top 8 Challenges in Cross-Border Payments and How to Overcome Them

1. Expensive Transaction Fees and Hidden Costs in Cross-Border Payments

Cross-border payments involve multiple intermediaries, each taking their cut.

Intermediary Bank Fees

Payments travel through a network of correspondent banks, with each one charging a fee. These add up quickly, especially when payments pass through multiple institutions.

Compliance Costs

Banks must comply with many international regulations, including Anti-Money Laundering laws, Know Your Customer requirements and sanctions screening. The financial burden of compliance includes expenses for risk assessments, employee training, technology upgrades, and ongoing monitoring of transactions for suspicious activity. 

As these costs rise, banks frequently offset them by increasing fees or interest rates for their customers, or by reducing the availability or affordability of certain financial products and services.

Card Network Assessment Fees

For merchant transactions, cross-border fees apply when customers pay with cards issued by foreign banks. These include cross-border assessment fees (also known as international service assessment fees, or ISA), currency conversion fees, network processing fees and higher interchange rates for international transactions.

Impact on Businesses

These costs hit small and medium-sized businesses hardest, creating unpredictable expense management. The lack of transparency makes comparing costs difficult.

To reduce these fees and hidden costs:

1. Use fintech providers that cut out intermediaries and offer transparent fee structures.
2. Consolidate payment flows to reduce transaction volume and associated fees.
3. Negotiate with financial institutions for better rates, especially for high-volume transactions.
4. Offer alternative payment methods, such as digital wallets or cryptocurrencies, which often charge lower fees.

2. Long Settlement Times in Cross-Border Payments

When using traditional correspondent banking networks, cross-border payments can take 3–5 business days to settle. Time zone differences, multiple intermediaries, manual processing and regulatory checks all contribute to delays.

These slow settlements disrupt cash flow, strain vendor relationships and create uncertainty in financial planning. For instance, a European manufacturer relying on just-in-time inventory from Asia could experience production delays if international payments are slow to settle. If the supplier does not receive timely payment, they may delay shipment or halt production, resulting in missed delivery deadlines, stoppages, and ultimately lost sales opportunities for the European company..

Solutions are emerging to tackle these challenges. Real-time payment systems process transactions instantly, though cross-border real-time payments are still limited and expanding. 24/7 processing helps overcome time zone barriers.

SWIFT Global Payments Innovation (GPI) has improved speed and transparency by tracking payments in real time for participating banks. The Bank for International Settlements’ Project Nexus seeks to link domestic real-time systems globally to speed settlement, but is still in early development.

3. Complex Regulatory and Compliance Requirements

Cross-border payments must navigate a patchwork of regulations that vary widely across countries, creating substantial challenges for global businesses managing compliance in international transactions. Regulatory areas include anti-money laundering (AML), know your customer (KYC), sanctions screening and foreign exchange controls.

These requirements differ between jurisdictions, often creating conflicting standards. For example, KYC procedures that satisfy one country’s rules may not meet another’s. This regulatory diversity slows onboarding and transactions due to manual checks, raising operational costs. Businesses also face risks of penalties and reputational damage if they fail to comply, often requiring specialised expertise in each market they enter.

Regulatory frameworks are continually evolving, requiring ongoing monitoring and adaptation. Data privacy laws, such as GDPR, also impact compliance approaches as they have strict requirements for how personal data is handled, transferred and protected when payments cross borders.

To address these challenges, businesses can:

• Use automation tools to manage multi-country KYC and AML processes from a single dashboard.
• Adopt regulatory technology (RegTech) solutions to improve compliance efficiency.
• Partner with providers who hold the necessary licences across jurisdictions.
• Develop a thorough understanding of payment processing compliance to navigate regulations.

4. Lack of Transparency in Transaction Tracking

Traditional cross-border payments often provide limited visibility into transaction status, fees deducted and exchange rates applied. Complex fee structures make it difficult to compare costs across providers, hindering informed decision-making and undermining trust in the payment process. When final amounts differ from expectations, customer relationships can suffer and accounting becomes challenging.

This lack of transparency affects businesses in several ways:

• Accounting challenges: Without clear visibility into fees and exchange rates, reconciling international transactions is difficult.
• Cash flow management: Unpredictable costs make forecasting and managing cash flow a constant challenge.
• Damaged customer trust: Recipients receiving less money than expected due to hidden fees or unfavourable exchange rates can damage business relationships.

Many fintech platforms are addressing these issues with improved transparency:

• API-driven real-time visibility: Advanced platforms use API connectivity to provide senders and recipients with real-time payment tracking and upfront foreign exchange rate information. However, transparency levels can vary across providers.
• Transparent pricing models: Unlike many traditional providers, leading fintech companies offer upfront cost estimates without hidden fees. Some banks are also improving transparency, though not consistently.
• End-to-end tracking: Modern payment solutions allow businesses to monitor payments at every stage.
• Automated status updates: Real-time notifications keep all parties informed of payment progress, reducing the need for manual follow-up.

5. Currency Conversion and FX Risks in Cross-Border Payments

Currency conversion and foreign exchange risks can significantly reduce profits. Fluctuating exchange rates create pricing uncertainties and may lead to unexpected losses on international deals.

Transaction risk is the primary concern, as exchange rates can change between agreeing on a deal and making a payment. This volatility can substantially affect the amount paid or received.

A multi-currency business account that allows you to accept, hold and send funds in multiple currencies can help hedge against currency risk by allowing you to manage funds in multiple currencies and settle when rates are optimal. 

6. Limited Infrastructure in Emerging Markets

Emerging markets offer significant growth potential for cross-border payments but present unique infrastructure challenges.

Infrastructure Gaps and Limited Access

Many emerging economies face gaps in basic financial infrastructure, including limited access to traditional banking services, underdeveloped payment networks, unreliable internet connectivity (especially outside urban areas) and low smartphone adoption rates. These technological barriers make it difficult to reach potential customers and partners, particularly in remote regions where digital payment adoption remains low. Regulatory environments in some markets can further affect infrastructure development and fintech adoption.

Cash Dominance and Cultural Preferences

Despite growth in digital payments, cash remains the dominant payment method in many emerging markets due to deep-rooted cultural habits, distrust of digital systems and limited financial literacy. 

Fintech Innovations Addressing Infrastructure Challenges

• Mobile money platforms: Services like M-Pesa in Kenya use mobile networks to deliver financial services directly to phones, bypassing traditional banking. Users can deposit, withdraw, transfer funds and pay for goods using just their mobile devices.
• Digital wallets and superapps: In Brazil, Pix enables fast, real-time payments and transfers through an easy-to-use platform accessible via mobile apps and online banking. This innovation simplifies transactions and expands financial inclusion by providing a seamless alternative to traditional payment methods.
• Instant and real-time payments: Many emerging markets are building instant payment systems and upgrading settlement platforms. These systems can reduce transaction times from days to near real-time, improving speed and efficiency.
• Alternative credit scoring: Fintech companies leverage alternative data sources, such as mobile phone usage or transaction history, to assess creditworthiness for customers without traditional credit histories.
• Expanding agent networks: To serve unbanked populations, fintechs and partner banks establish networks of physical agents—small shops providing basic banking and payment services.

7. What to Look for in a Payments Provider for Cross-Border Transactions

Cross-border payments carry heightened security risks due to multiple parties and jurisdictions involved. To protect your business and customers, choose a payments provider that offers a robust, multi-layered security approach.

Key features to prioritise include:

• Advanced fraud detection using AI and machine learning: Look for providers that use real-time algorithms to analyse transaction data and flag suspicious activity before funds move.
• Real-time monitoring and risk assessment: The ability to instantly assess transactions helps prevent fraud and reduces financial exposure.
• Strong KYC and AML controls: Effective customer due diligence and information sharing ensure compliance with global regulations and lower fraud risk.
• Tokenisation of sensitive data: Providers should protect customer information by replacing it with secure tokens, minimising exposure during transactions.

Selecting a payments partner with these capabilities helps reduce financial losses, regulatory risk and operational disruption associated with cross-border transactions.

8. Data Privacy and Sovereignty Regulations

Data privacy regulations such as GDPR (EU) and PDPA (Singapore) create complex requirements that companies must navigate when handling personal and financial data across borders.

GDPR has the most far-reaching impact due to its extraterritorial scope. Any company processing EU residents’ data must comply, regardless of location. For cross-border payments, this means:

• Confirming valid legal grounds for data transfers outside the EU/EEA, typically through Standard Contractual Clauses (SCCs) or Binding Corporate Rules (BCRs). Recent rulings like Schrems II have increased scrutiny of these transfer mechanisms.
• Implementing strong security measures and data minimisation practices.
• Obtaining explicit consent for data processing.
• Appointing Data Protection Officers for large-scale processors.

APAC regulations like Singapore’s PDPA require equivalent protection in recipient countries for cross-border transfers. 

Non-compliance carries risks including significant fines, litigation and reputational damage. Data localisation laws and emerging regulations in regions such as Brazil’s LGPD add complexity.

To navigate these regulatory requirements, companies should:

• Map all cross-border data flows thoroughly.
• Implement appropriate transfer mechanisms (SCCs, BCRs) based on applicable regulations.
• Develop robust consent management systems handling both explicit consent and opt-out requirements.
• Regularly update data processing agreements with vendors and partners.
• Implement strong data security measures, including encryption and access controls.
• Create incident response plans for timely breach notifications.
• Designate Data Protection Officers where required.
• Conduct ongoing compliance monitoring and audits.

Make Cross-Border Payments Work for Your Business

Cross-border payments can be complex, slow and costly due to international fees, long settlement times, regulatory challenges and security risks. Fintech solutions are changing this by making international payments faster, more affordable and transparent with real-time tracking, streamlined compliance, smarter FX management and stronger security.

If cross-border payments challenge your business, now is the time to reassess. The right tools reduce friction and offer a competitive edge. Those who modernise today will be better placed to grow and succeed globally.

Whether you need to improve payments with one country or worldwide, Rapyd helps your business make smart, fast and cost-effective transactions. Contact Rapyd to learn more.