3 challenges of cross-border transactions that every business owner should overcome
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Tapping into the international market is probably on your bucket list as a business owner. This can either be to buy or sell products and services. Either way, expanding your brand into foreign markets can help you increase revenue and customer base.
Whatever country you choose to collaborate with, one thing that’ll become your ‘partner’ is cross-border transactions or payments.
These transactions are the backbone of international trade, facilitating business between entities located in different countries. Additionally, they create opportunities for global expansion and revenue growth.
According to Forbes, the total addressable market (TAM) of B2B cross-border payments in 2023 was a staggering $39.3 trillion. By 2030, it is expected to reach $56.1 trillion TAM, growing by 43%. Despite the impressive growth, these payments come with some distinct challenges that business owners must overcome.
In this blog post, we’ll discuss the common hurdles of transactions in the international trade marketplace.
#1. Currency exchange rates and fluctuations
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Cross-border financial transactions come with roadblocks that bleed a company’s cash flow with unpredictable and unfair exchange rates. Factors like monetary policy changes and interest rate differences affect foreign exchange rates. As a result, the profitability of trade with businesses in other nations may be erratic.
These fluctuations can directly influence the following:
- Profitability from the payments
- Overall transaction costs
- Disrupt financial planning
For instance, the financial institutions of the countries you’re trading may offer a wide spread between the interbank exchange rate and the rate they are willing to offer you. In addition, interest rate decisions by the central bank of your country or your trading partner’s country may upend your exchange rate predictions for the year. Due to that, you’ll have to navigate expensive exchange rates that eat up your profits..
How can you solve this issue?
Using okoora’s Automated Business Currency Management (ABCM) solution to enhance the efficiency of cross-border payments can be a wise decision. This software helps monitor business cash flows for foreign exchange risk. With this, businesses can execute and optimize currency exchanges, mitigate fluctuation risks, etc.
The currency management market is expected to grow at a 17.5% CAGR between 2022 and 2031, proving the growing need for its services. Do you want to know the key features of such cross-border payment services? These include the following:
- Fee-less transfers
- Direct transfers to bank accounts
- Supports and accepts payments for multiple currencies
#2. Compliance and regulatory issues
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Reports suggest that 67% of corporate risk analysts predicted a shift from simple compliance to a more strategic approach in the next few years. Moreover, professionals believe keeping their organization compliant with relevant policies, regulations, and laws is very important.
As a business owner, you’ll need to adhere to territorial regulations and manage risks for international payments. Examples include implementing strategies to prevent money laundering and protecting privacy.
When you start with international payment, one thing that keeps creeping up is regulatory and compliance issues. The common challenges include the following:
- Changes in the regulatory frameworks
- Legal and tax regulation issues
- Different trade policies
Failure to abide by these regulations can lead to legal disputes and penalties.
Solution for this
Adherence to the standards, rules, and regulations applicable to cross-border transitions is non-negotiable. The best way to do it is by understanding these requirements in the first place and integrating them into the business process.
Some might say that engaging with tax and legal experts specializing in international law can provide valuable guidance. They’ll surely help you manage compliance and regulatory challenges of wholesale or retail cross-border payments.
As a result, you can ensure legal conformity and enhance your brand’s reputation in the global market.
#3. Fraud and security risks
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Any type of online payment can be vulnerable to fraud. When it comes to cross-border payments, the risk amplifies. Your business can be at a security risk of identity theft, payment scams, and cyber attacks.
Thankfully, ABCM enhances cross-border payment efficiency by ensuring robust security measures and employing encryption protocols. With its help, you can secure authentication methods.
As a result, you get to navigate a safer cross-border payment landscape.
The bottom line
As you can see, even a single cross-border payment can have its challenges. Examples include fluctuating exchange rates, compliance or regulatory risks, cyber attacks, etc. That’s why you should consider collaborating with a reliable cross-border payment provider like okoora.
The right cross-border payment methods can increase ROI, reduce the need for resources, increase control over international transactions, etc.
Are you ready to leverage safe, secure, compliant, and affordable currency transactions in your cross-border operations?