Handling international payments comes with challenges and risks that can impact financial stability. This guide provides practical tips for managing these risks effectively.

International payment processing or cross-border payments involve multiple risks, including currency fluctuations, regulatory compliance risks, fraud, and operational challenges. A scalable payment gateway can significantly help manage these risks by providing flexible and robust solutions and risk management tools tailored to the needs of growing businesses.

Here’s a deeper look at the most common risks and coping strategies.

Currency fluctuations

Constant changes in the exchange rates between different currencies can affect the value of payments when converting from one currency to another.

For example, a U.S.-based company receives payments from European clients in euros. If the euro weakens against the dollar after the payment is received but before the bank converts it, the company will receive fewer dollars than initially expected. It can impact profit margins and financial forecasting.

How to minimise the impact of currency fluctuations

Effective currency risk management helps stabilise cash flow and protect profit margins. Businesses should regularly monitor currency trends and market conditions while processing international payments.

One of the most effective strategies for minimising the impact of fluctuations is to have multicurrency accounts. Maintaining accounts in different currencies helps minimise conversion losses for global businesses.

Businesses can also implement hedging to protect themselves against the adverse effects of currency fluctuations. By using financial instruments like forward contracts, companies can lock in exchange rates for future transactions, thereby reducing uncertainty and stabilising their financial planning. Unlike spot contracts, which are settled immediately, forward contracts are settled at a future date.

Fraud

Payment fraud and security breaches manifest through various methods, and the risk is elevated in cross-border transactions due to differing security standards and fraud detection capabilities across countries.

Common fraud scenarios include:

  • Identity theft and phishing. Fraudsters use stolen personal data to make unauthorised transactions. Phishing scams trick individuals into providing sensitive information, which they misuse for fraudulent activities.
  • Fraudulent chargebacks. In a typical scenario, a fraudulent entity uses stolen credit card information to purchase from a foreign business. When the legitimate cardholder disputes the charge, the company faces chargebacks, resulting in financial losses.

How to fight fraud

Usually, payment gateways offer a range of fraud prevention technologies, including enhanced verification processes, such as multi-factor authentication and advanced fraud detection systems, to ensure the legitimacy of transactions. Also, their real-time fraud monitoring capabilities and tools help detect and prevent suspicious activities promptly.

Relying on a payment processing partner with advanced security measures can help businesses process international transactions with lower fraud risks.

Regulatory risks

Different countries have varying regulations regarding payment processing, anti-money laundering (AML), and know your customer (KYC) requirements. Furthermore, businesses involved in payment card transactions must adhere to the Payment Card Industry Data Security Standard (PCI DSS) to protect cardholder data and avoid security breaches. All these regulations help businesses avoid legal penalties.

For instance, if you run a business and consider expanding into the European Union, you must comply with the General Data Protection Regulation (GDPR) for data privacy and the Payment Services Directive 2 (PSD2) for payment services.

Mitigation strategies

Proper regulatory compliance ensures smooth and legal international transactions. Hedre’s how you can achieve it.

  • Stay informed and updated. Monitor changes in regulations in the countries where you operate or plan to expand regularly. This will help you stay compliant and avoid surprise legal penalties.
  • Implement compliance programs. Develop and maintain compliance programs tailored to meet the regulatory standards of each country you operate in. These programs should include regular staff training and continuous process updating.
  • Engage legal and compliance experts. Consult with or hire a legal professional specialising in international laws to help you navigate complex regulatory environments. Their expertise can provide guidance and offer solutions tailored to your business needs, ensuring you meet all the required regulations.

Operational risks

This type of cross-border payment risk involves the logistical and infrastructural issues in managing international payments, including payment delays, processing errors, and differences in banking practices.

For example, a company may experience payment delays due to differences in banking hours and holidays between countries, causing cash flow issues.

Mitigation strategies

For effective operational risk management, businesses should employ several advanced strategies:

  • Partnering with local experts. Relying on local banks and payment processors in target markets, you can utilise their in-depth knowledge of regional practices and regulatory environments. This partnership can help navigate local complexities and ensure compliance.
  • Processing automation. Implement payment systems that automate key processes like transaction routing and reconciliation. It’ll reduce the likelihood of manual errors and accelerate transaction processing times.
  • Monitoring and alerting systems. Deploying sophisticated monitoring tools that track transactions in real time, you’ll be able to identify anomalies and potential issues as they arise.
  • Unified payment management. Opting for a payment orchestrator, you’ll get a centralised dashboard to help you gain a holistic view of all payment activities. Such dashboards should integrate data from various payment channels and systems, providing actionable insights and enabling efficient management of cash flows and operational risks.

Conclusion

International payment processing is full of challenges, but with the right risk mitigation strategies and tools close at hand, you can effectively navigate them. If you operate in international markets or only plan the expansion, focus on currency risk management, regulatory compliance and legal risks management, and enhancing your payment processing security. Thus, you’ll ensure smooth and secure international transaction flows and bolster your business’s financial stability and growth.