Put in the most basic terms, international payments are financial transactions conducted between parties, each located in a different country, that usually involve the exchange of currencies.
These transactions are crucial for global trade, investment, and economic development. They enable businesses to purchase goods and services from overseas suppliers, expand into new markets, and attract foreign investment. Individuals, for their part, use international payments for things like travelling, remittances, and online purchases from foreign vendors.
Since Ireland’s economy heavily relies on international trade and investment, making efficient cross-border transactions is essential for businesses engaged in import/export activities.
Furthermore, Irish businesses expanding beyond SEPA or dealing with non-euro currencies still encounter challenges, such as currency exchange risk and transaction costs. This underlines the importance of understanding and effectively managing international payments.
Key components of international payments
Before we delve deeper into the types of international payments – and the challenges associated with them – let’s take a brief look at some key components:
- Traditional banks, in serving as intermediaries, provide services like wire transfers, letters of credit, and foreign exchange operations.
- Currency exchange allows parties to convert one currency into another, making possible the given transaction (whose value depends, in part, on exchange rates fluctuations).
- Regulatory frameworks ensure compliance with laws and regulations of the countries involved, covering areas such as AML, sanctions, and foreign exchange controls.
All three components play a vital role in ensuring smooth and secure transfer of funds across borders and maintaining financial stability and integrity.
Types of international payments
International payments come in four basic varieties:
- SWIFT facilitates cross-border payments by providing a messaging network that banks use to send the relevant instructions.
Example: a business in Ireland importing goods from China may use SWIFT to credit funds to the supplier’s bank account in yuan.
- SEPA allows for euro-denominated payments to take place within the EU states, Iceland, Liechtenstein, Norway, Switzerland, and Monaco.
Example: an Irish citizen may use it to transfer funds to a friend’s bank account in Germany without any significant fees or delays.
- Foreign exchange (FX) payments involve converting one currency into another to enable the relevant transaction to take place internationally.
Example: a tourism company in Ireland paying for hotel accommodation in Japan may make an FX payment, converting euros into yen at the prevailing exchange rate.
- Cross-border transactions encompass various forms of international payments, including SWIFT, SEPA, and FX payments.
Example: a multinational corporation headquartered in Ireland may use cross-border transactions to transfer funds between its subsidiaries in different countries.
Each type of international payment serves specific purposes and caters to different needs, but collectively they facilitate seamless financial transactions across borders, supporting global trade and investment.
International payment challenges
Among the challenges associated with international payments, three deserve a special mention.
The first, currency fluctuations, can significantly impact transaction value (as pointed out in the previous section), thereby hampering profitability and complicating budgeting. The second, fees incurred as a result of currency conversion and international transfers, can eat into margins. And finally, the third – regulatory compliance – can further increase complexity and risk when dealing with multiple different jurisdictions.
Businesses in Ireland can address these problems effectively by adopting the following strategies. If possible, they should always hold funds in multiple currencies to hedge against currency fluctuations and reduce conversion costs. Staying up to date with exchange rates through reliable financial platforms or services is crucial for making informed decisions. In addition, choosing a financial provider that offers simple processes, excellent support, and a set of tools to mitigate currency risks can streamline international transactions even further.
It is also crucial to prioritise compliance, which can be done by staying abreast of regulatory changes and partnering with experts in international trade law, hiring compliance specialists, or working with an embedded finance provider that offers compliance as a service.
International transactions – Ireland’s role
Ireland holds a significant position in the global economy, thanks mostly to its export-oriented economic model, English language proficiency, and membership in the European Union. Its strategic location as a gateway between Europe and North America further enhances its appeal to international trade.
The country’s EU membership grants its companies access to a vast single market, enabling them to benefit from trade agreements jointly negotiated by the bloc. Additionally, Ireland’s skilled workforce, business-friendly government policies, and robust infrastructure serve to further underscore its importance as a key player on the global marketplace.
Growth of international payments in Ireland
International transactions in Ireland saw significant growth in 2022, reaching 3.5 billion, which amounts to over €10.4 trillion. Payments within the country were dominant, representing 68% of the total volume, but only 34.4% of the total value. Credit transfers, direct debits, card-based payments, and e-money transfers were among the most prominent methods used.
Credit transfers and direct debits went up noticeably, with domestic credit transfers in the last quarter of 2022 reaching €956 billion, and direct debits totaling €281.8 billion over the period between Q1 2022 and Q2-2023. The majority of direct debits occurred domestically, accounting for 93.8% in value and volume alike.
Likewise, card-based payment transactions continued to rally, particularly in 2023, with significant quarter-on-quarter increases in both value and volume. E-money transfers also showed fairly substantial growth, driven mainly by domestic transactions, but also seeing a prominent rise in transfers to the rest of the world.
These figures highlight Ireland’s overall robust participation in the global economy, with a strong emphasis on domestic transactions, along with significant engagement with other EEA countries and the world economy as a whole.
Tips for efficient international transactions
Businesses and individuals in Ireland can optimise their international payment processes by implementing the following strategies:
- To minimise fees, make sure to compare rates offered by different financial institutions and then choose a provider with the most transparent fee structure.
- Efficient risk management can be achieved by using hedging tools, such as forward contracts or options, which allow locking in exchange rates in advance.
- When it comes to regulatory compliance, a good option is to select a reputable partner, such as ConnectPay, that offers not only integrated compliance, but also secure, efficient payment solutions.
Technology and innovation in international payments
As is widely recognised, technology – and fintech solutions in particular – has revolutionised the international payment landscape by offering faster and more cost-effective alternatives to traditional banking methods.
Licensed electronic money institutions (EMIs) leverage advanced technology to enable users to exchange currencies and send international payments swiftly and affordably. To enhance transaction efficiency, they provide a wide range of innovative platforms and tools, such as real-time payment processing, transparent fee structures, and user-friendly interfaces.
Fintech companies streamline the payment process by offering shorter payment rails for transactions, cutting out intermediaries, and reducing transaction times and costs. More generally, tech-driven solutions provided by licensed EMIs are reshaping international payments, offering users more convenient, efficient, and cost-effective alternatives to traditional banking channels.
Understanding payments for platforms
Payments made through platforms play a crucial role in the modern economy, facilitating transactions between businesses and consumers across geographical boundaries. These platforms enable businesses, especially those operating online, to scale and expand beyond their local markets, reaching a global audience. As businesses grow and seek to internationalise, the ability to accept payments in multiple currencies becomes paramount. Platforms can provide robust solutions that allow businesses to accept payments at their checkouts in various currencies, including EUR, USD, GBP, and others.
In terms of challenges, the major one has to do with navigating complex regulatory landscapes across different jurisdictions to ensure compliance with a variety of financial regulations and data protection laws. Other risks and challenges include those related to currency exchange fluctuations and maintaining payment transaction security and integrity – both important to building trust with consumers and preventing fraud.
Despite these challenges, platform payments also offer significant opportunities for businesses, including additional revenue streams, access to a broader customer base, and enhanced competitiveness in the global marketplace. By leveraging such platforms, Irish companies would become able to capitalise on the opportunities presented by international payments to drive growth and expansion.
Key considerations for platform payments
When making or receiving payments, businesses should prioritise several factors to ensure smooth transactions. First, choosing a payment provider that puts a premium on customer success and experience is imperative. A partner who understands the intricacies of your business and offers tailor-made solutions can streamline the payment process.
Additionally, businesses should consider the complexity of international payments, which involves navigating various regulations, standards, and requirements. Selecting a payment provider with expertise in handling international transactions can mitigate risks and ensure compliance.
Furthermore, robust customer support is essential for addressing any challenges that may arise during payment processing. Having access to responsive and knowledgeable support staff can help resolve issues promptly and maintain uninterrupted payment flows.
Above all, businesses should focus on selecting a payment provider that offers tailored solutions, understands the nuances of international payments, and provides excellent customer support to ensure a smooth and efficient payment experience for themselves and their clients alike.
Main takeaways
- International payments are vital for global trade, investment, and economic development, enabling businesses to expand and individuals to conduct different transactions.
- Traditional banks, currency exchange, and regulatory frameworks are the key components of international payments, ensuring smooth and secure fund transfers.
- SWIFT, SEPA, foreign exchange (FX) payments, and cross-border transactions serve specific purposes, facilitating seamless financial transactions globally.
- Currency fluctuations, fees, and the complexity of regulatory compliance pose significant challenges, which can be addressed through applying several different strategies.
- Ireland holds a significant position in the global economy, leveraging an export-oriented economic model, EU membership, and strategic location.
- In 2022, international payments – especially credit transfers, direct debits, card-based payments, and e-money transfers – in Ireland grew significantly, further solidifying the country’s importance in the global economy.
- Strategies for efficient international transactions include fee minimisation, efficient risk management, and prioritising regulatory compliance by choosing reputable partners like ConnectPay that offer integrated compliance and tailored payment solutions.
- Fintech solutions are revolutionising the payment landscape, offering faster and more cost-effective alternatives, with licensed EMIs leveraging advanced technology for efficient transactions.
- Platforms play a crucial role in facilitating international transactions and enabling businesses to scale globally.
- When it comes to choosing a payment platform, focus on customer experience, compliance, and robust support, selecting a provider with expertise in handling international transactions for smooth and efficient payment processes.
