By Business systems today are much more open compared to a few years ago. Easy access to information worldwide brings us closer to other countries, including cross-border business payments.
Online buying and selling transactions are now unavoidable, especially with the availability of online platforms and the increasing trend of online transactions due to the impact of the pandemic in recent years.
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The existence of marketplaces allows sellers and buyers from different countries to connect, leading to cross-border business payments. To understand how cross-border business payments work and their benefits, let’s explore the detailed explanation below.
Understanding Cross-Border Business Payments
Firstly, let’s understand what cross-border business payments mean. Quoting from the Bank of England, cross-border payments refer to financial transactions when the payer and the recipient are in different countries. Not only limited to financial transactions, but cross-border shipping is also a derivative activity of such transactions.
Sellers and buyers from different countries often handle cross-country orders from customers. The shipping services used are typically international shipping services, whether by air or sea.
Cross-border business payments can be conducted through various methods, such as bank transfers, credit cards, and e-wallets. You are probably already familiar with PayPal, right? It is also one of the cross-border payment methods.
Types of Cross-Border Transactions
Cross-border business payments can be classified into different types, including:
- Wholesale transactions: Typically occurs between institutions, companies, or other business entities. Wholesale transactions may involve loans, foreign exchange, equity trading, derivatives, and securities.
- Retail transactions: Generally occurs between individuals and businesses. Examples include B2B (business-to-business), C2B (consumer-to-business), and C2C (consumer-to-consumer) transactions.
Operation of Cross-Border Business Payments and Its Benefits
Each country has its currency, and domestic payment systems cannot directly connect with other countries’ systems. Therefore, in cross-border transactions, physical transfer of currencies does not take place.
International banks provide accounts for foreign counterparts along with other partner accounts. This enables banks to make payments in foreign currencies. The partners can be financial institutions or state-owned banks. The international account will be credited in one entity and debited by an equal amount in another entity.
For example, Bank A sends a message to Bank B, requesting them to make a payment to a customer. Bank B will then credit the recipient’s account with the funds held by Bank A in Bank B.
However, not all banks in the world are directly interconnected. In such cases, an intermediary called a correspondent bank is needed. The correspondent bank provides accounts that connect Bank A and Bank B, facilitating the cross-border payment process.
The Existence of QR Cross-Border as a Solution for Cross-Border Business Payments
A few months ago, the Bank of Indonesia conducted a pilot test of QR cross-border payments with neighbouring countries such as Malaysia and Thailand. This allows both countries to send and receive payments for goods and services using only QR codes.
The introduction of this feature plays a crucial role in enhancing transaction efficiency, supporting trade digitalization, investment, and maintaining economic stability. This payment method can also contribute to the success of micro, small, and medium enterprises (MSMEs).
Consumers from abroad find it easier to purchase local products, including in the tourism sector. Foreign tourists can make payments more conveniently and practically.
The Impact of Cross-Border Business Payments
As previously mentioned, one of the factors contributing to the increase in cross-border transactions is the presence of marketplaces. In Indonesia, Shopee is one of the largest marketplaces that enables cross-border transactions. This means it is highly possible for you to buy and receive orders from overseas.
Financial transactions and product shipments are facilitated through Shopee as an intermediary. Shopee has a wide market reach not only in Indonesia but also in Thailand, Vietnam, the Philippines, Malaysia, Korea, Taiwan, and the United States.
This cross-border capability on Shopee is made possible by the existence of the marketplace and its interconnected server network between countries. This enables sellers and buyers from different countries to transact easily.
Benefits for MSMEs through Cross-Border Business Payments
Now, let’s consider the perspective of micro, small, and medium enterprises (MSMEs). Typically, these businesses operate within their domestic market. However, with cross-border business payments, MSMEs can reap benefits.
Here are some advantages for MSMEs with cross-border business payments:
1. Expanded Market Reach
Cross-border payments enable entrepreneurs to market their products to a wider audience. In other words, they can sell their goods to various countries more easily. This, in turn, can boost sales and income.
2. Increased Competitiveness
Linked to the previous point, when MSMEs market their products internationally, it enhances their competitiveness. This drives them to improve the quality of their products.
3. Improved Quality Standards Domestically
With local products competing in the international market, business owners are compelled to elevate the quality standards of their products, as mentioned in the previous point.
4. Lower Operational Costs
Cross-border business payments help reduce operational costs. For example, shipping fees offered by Shopee for international shipments are often more affordable compared to manual shipping. Additionally, there are frequent promotions for free shipping.
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That concludes our understanding of how cross-border business payments work and their benefits. We hope this information is beneficial to you.
