Cross-border payouts: How they work + methods

Digital cross-border payouts are an increasingly common way to pay for goods or services in another country. Whether paying international sellers, gig economy workers, or consumer compensations and rewards, cross-border payouts can be essential to business growth and success.

Table of Contents

• What are cross-border payouts?
• Cross-border payout methods
• Benefits of cross-border payouts
• Challenges of cross-border payouts

What are cross-border payouts?

Cross-border payouts involve a business sending money to a recipient (individual or entity) in another country, often involving different currencies.

These payouts are crucial for businesses engaging in cross-border e-commerce. They enable businesses to foster international trade and growth by efficiently paying international contractors, suppliers, and employees.

As Allied Market Research reported, the global cross-border payouts market could reach $356.5 trillion by 2032, growing at a compound annual growth rate of 7.3% from 2023.² Experts largely attribute this growth to a rise in e-commerce transactions, international trade, and advancements in financial technology.

What's the difference between cross-border payments and cross-border payouts?

Cross-border payment is a broad term that describes any financial transaction where the sender and recipient are in different countries. This includes scenarios like a customer buying from an international online store or a company paying an overseas supplier.

On the other hand, cross-border payouts refer to instances where a business or organization initiates a payment to a recipient in another country. For example, a company pays a remote employee or distributes dividends to international shareholders.

Therefore, while all cross-border payouts are cross-border payments, not every cross-border payment qualifies as a payout. The key difference lies in the initiator and the purpose of the transaction.

Cross-border payout methods

Enterprises should be able to pay recipients in their preferred local payment methods globally, making it easy and convenient for payees to receive funds. They should also harness current payment trends like digital wallets and mobile payments to help reduce friction and improve payee experiences.

To that end, today’s businesses have several cross-border payment methods to choose from.

Traditional bank transfers

Businesses can set up traditional bank transfers using the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network to send funds from their bank account to a recipient’s bank account in another country.

Pros

• Widely available and accessible
• Security backed by established banking protocols

Cons

• Long lead times and compliance checks
• Higher costs from transfer and conversion fees
• Limited transparency

Local bank rails

Local bank rails, also known as payment rails, facilitate quick money transfers to global payees. Common networks that offer this type of payout include the Automated Clearing House (ACH) and Single Euro Payments Area (SEPA).

Pros

• Efficient transfers
• Uses local currencies
• No high transfer fees

Cons

• Requires established bank-to-business relationships
• Difficult with sellers in multiple locations
• Less visibility and control

Push-to-card and local payment methods

Push-to-card payments occur when a business deposits funds directly onto a payee’s debit or credit card. Additionally, region and popularity determine the availability of local payment methods, like digital wallets.

Pros

• Greater visibility and control
• Efficient transfers

Cons

• Fees for currency transfers and international payments
• Not available in every country

Payout providers

A specialized global payout provider can streamline and automate the payout process for businesses, saving them valuable time and resources. With the right payout provider, businesses can gain more control over their cross-border payment experiences and full visibility into the payout process.

For example, PayPal’s payout services support a range of payout methods — including bank transfers, virtual cards, and mobile wallets — so payees can receive funds in the way that makes the most sense for them.

Pros

• Streamlined operations and automated tasks
• Compliance management
• Reduced financial risk

Cons

• Can have limited gateway options
• Possible transaction fees

Benefits of cross-border payouts

When done efficiently, cross-border payouts can significantly advantage global businesses. Leveraging specialized solutions can streamline financial operations and support international expansion.

• Decreased costs: Payout providers often offer better exchange rates and lower fees than traditional banks, reducing the overall expense of international money transfers.
• Faster payment processing: Modern platforms utilize technology to accelerate international transactions, ensuring faster delivery of funds. This quicker processing may enhance cash flow and strengthen international partnerships.
• Improved visibility: Enhanced tracking and reporting features offer greater transparency over international payments. This allows for better financial management and easier reconciliation.
• Increased international reach: Reliable and convenient payout options facilitate seamless engagement with a global network of partners and employees. This ease of payment supports international growth and makes cross-border marketing more effective.

Challenges of cross-border payouts

There are many obstacles to making fast and successful cross-border payouts, including strict regulations, high costs, and the risk of fraud. Here’s a closer look at the complexities and challenges of sending global payments:

• Regulations and compliance: Cross-border payments can be subject to evolving global and local regulations. If businesses fail to comply, they risk legal and financial repercussions.
• Time consumption: With various parties involved, including the paying business, banks, global and local financial institutions, regulatory organizations, and payees, cross-border payouts can take several business days. Onboarding and verification processes also add to the time cost.
• Operational burden: Managing numerous global payouts may require businesses to have dedicated personnel for various processes, including manual data entry and reconciliation, addressing inquiries and troubleshooting issues, and maintaining compliance across various jurisdictions.
• Financial risk: Transactions may be vulnerable to fraud, such as identity theft and scamming. Businesses can also incur added costs for each payout, such as cross-border fees.
• Customer dissatisfaction: Slow, expensive, or inconvenient payout processes can negatively impact customer experiences. This dissatisfaction can lead to potential churn and loss of valuable customers or partners.
• Limited transparency: Depending on the specific cross-border payout method, transparency may be limited, especially around fees and processing times. This is especially true when there are multiple intermediaries or regulations.

Send and manage cross-border payouts with ease

Cross-border payouts are essential to business growth in a global economy. However, they can burden companies with high fees, complex regulations, and slow processes. Today’s enterprises need an end-to-end payment solution that can handle these challenges and more.

Learn more about accepting international payments and how it can transform your cross-border payout solutions.