Cross-Border Payments: Cross-Border Payments Compliance

Cross-border payment is a transaction between two entities across the borders of different countries. 

Banks are obligated to comply with transaction requirements for every domestic transaction. This aspect of compliance is known as KYT- Know your Transaction compliance. It is usually done to ensure that ‘dirty’ money is not introduced into the financial system by criminals. 

This requirement also applies to cross-border transactions. However, in this case, it is a more stringent process as it involves different countries and may be slow.

The article addresses what cross-border payment is, what cross-border payment compliance is, the challenges associated with cross-border payments, and how to stay compliant while using cross-border payments.

What are Cross-Border Payments?

Cross-border payment is a financial transaction between two parties residing in different countries.

If you have at one point received money from a relative or friend who lives outside of your country, the process through which the money got to you is known as cross-border payment. It is otherwise known as cross-border transactions. These two terms will be used interchangeably in this article.

During the coronavirus pandemic in 2020, cross-border payment was the major life-saver for many South Africans and their families abroad. 59% of people in South Africa have reported that the family members and friends they sent cross-border payments to would not have been able to sustain themselves without that support over the last year financially. 

It is also estimated that 85% of people in South Africa will continue to use cross-border payments to send money abroad even after the pandemic is over, which is higher than the global average of 71%. Needless to say, cross-border has been and will continue to be a lifesaver for many South Africans and their families abroad.
 

Recommended: Top 10 Red Flags For Money Laundering Detection in the Financial Sector

How can Cross-Border Payments be done?

Cross-border payments can be done in several ways, the most common being:

• bank transfers
• credit card payments
• e-money wallets
• mobile payments.

What are the types of Cross-Border Payments?

There are several  types of cross-border payments:

• B2B (Business to Business) - B2B is the most common payment type. It involves business-only transactions.
• B2C (Business to Consumer) - B2C payments include interest payments and employee payroll.
• C2B (Consumer to Business) - C2B payments include international eCommerce purchases.
• C2C (Consumer to Consumer) - C2C is the least common cross-border payment type. It includes transactions on sites such as eBay where consumers buy from consumers.

See Also: Exploring Multilateral Platforms for Cross-Border Payments

How does Cross-Border Payment Work?

Cross-border payment, an international transaction, involves transferring money across different countries. 

It involves a greater level of complexity. This is because they often involve multiple banks and can incur significant charges at various payment points. 

Additionally, exchange rates between currencies and taxes in each country must also be taken into account.

What is Cross-Border Payments Compliance?

Cross-border payment complaint is the process of financial institutions with international-based customers complying with several strict country-specific regulations.

It is important that financial institutions monitor transactions to ensure they are not exposing themselves to illicit finance. This process is called Transaction Monitoring. Failure to do this attracts fines from the agency in control of financial compliance.

What are the Challenges with Cross-Border Payments: Complex Processing of Compliance Checks

Already, cross-border transactions without compliance checks come with their challenges which include the long duration it takes for the recipient to receive the money due to factors such as:

What are Cross-Border Payment Challenges?

What are the common cross-border payments challenges? Some of the most common cross-border payment challenges include: 

• Different time zones
• High funding costs across multiple currencies for the sender’s bank
• Long transaction chains that cause delay
• Varying data standards and formats across jurisdiction, systems and message networks, which is needed to confirm the identity of the sender and recipient.
• Limited technology supporting cross-border transactions like the dependence on batching processing and absence of real-time monitoring which leads to delays in payment and trapped liquidity

Among these many challenges of cross-border payment, of notable is the issue of complex processing of cross-border payments compliance checks. Factors such as:
 

• Different rules that guide compliance checks in different countries
• The name of the account holder in a different language which may take time for verification
• Different documents requirement for identity verification in the sender’s country and in the recipient’s country
• Lack of transparency.
   

All these may contribute to a difficult and stressful cross-border payments compliance process. 

Achieving Cross-Border Payments Compliance With Youverify

How can financial institutions stay compliant with cross-border transactions?  All financial institutions are expected to own a KYT product which helps them ensure they meet statutory requirements.

Youverify KYT is an automated solution that helps organizations meet their regulatory requirements by monitoring cross-border transactions and identifying suspicious activity. It uses advanced algorithms to analyze transactions in real time and detects unusual patterns that could indicate potential fraud or money laundering. 

With Youverify KYT product, you can:

• Reduce AML operational costs by automating manual processes
• Satisfy compliance guidelines and avoid AML fines
• Manage and monitor customer activities using a risk-based approach based on pre-evaluated risk assessment.
• Improve the public trust in your products and services.

Join 100+ leading companies leveraging Youverify Global KYT Solution for cross-border payment compliance. Request a demo today.