Moving money across borders is fundamentally more complex than domestic payment processing. Every transaction must traverse multiple financial systems, currencies, and regulatory frameworks, each with its own settlement conventions and messaging protocols. For financial institutions, this complexity can translate into operational challenges, increased costs, and heightened compliance risk.

As global transaction volumes increase and interoperability becomes both a regulatory and commercial imperative, understanding how cross-border payments function and where friction still exists has never been more important. This article will provide a foundational overview of cross-border payments, the systems that support them, and the broader forces driving modernization across global payments.

How cross-border payments work

Cross-border payments are transactions that move funds between parties in different countries, navigating not just physical distance but also divergent financial systems, regulatory regimes, and messaging standards. This inherently multi-jurisdictional process introduces complexity at nearly every layer of the transaction, from initiation and routing to settlement and reconciliation. While domestic payments often benefit from real-time clearing systems and uniform regulatory oversight, cross-border payments must bridge a fragmented global landscape. 

Cross-border payments fall into two broad categories: retail and wholesale. 

• Wholesale cross-border payments support interbank transfers, corporate treasury operations, foreign exchange settlements, and capital market transactions. These flows are typically high-value, time-sensitive, and subject to stringent liquidity and risk management requirements and often rely on systems such as SWIFT, Continuous Linked Settlement (CLS) for financial exchange settlement, or real-time gross settlement (RTGS) interlinks facilitated through central banks.

• Retail cross-border payments, on the other hand, involve smaller-value transactions between individuals or businesses. Use cases range from remittances and cross-border eCommerce to freelance payments and tuition transfers. These payments tend to be higher in volume and more varied in origin, with greater sensitivity to cost and speed; they’re also subject to greater regulatory scrutiny, depending on the corridor.
  
  Crucially, many retail payments still rely on infrastructure built for wholesale flows. As a result, they inherit the same data constraints and lack end-to-end visibility, creating inefficiencies disproportionate to their value.

The legacy infrastructure challenge

Most traditional cross-border payments move through correspondent banking networks, which use a chain of bilateral relationships between financial institutions to route funds internationally. These relationships are often supported by SWIFT messaging standards and traditional nostro/vostro account arrangements. But, while widespread, this model introduces system friction:

• Multi-leg routing increases latency and cost, especially when intermediary banks are needed for less common currencies or jurisdictions.
• Data truncation is a frequent issue due to legacy formats, which offer limited structure and force institutions to drop or reformat critical information during message conversion.
• Settlement is non-instantaneous, with finality often dependent on local clearing systems or manual intervention.
• Transparency is limited, particularly for end users, as status updates depend on asynchronous confirmations between intermediaries.

Consider a business in the U.S. paying a supplier based in Indonesia. The transaction might route through a U.S. correspondent, a euro-clearing bank, and a local Indonesian bank, each imposing its own foreign exchange (FX) spread, processing delay, and risk controls. Tracking such a payment can require separate inquiries with each intermediary, with no standard service-level agreement (SLA) or guarantee of transparency.

Real-world applications for cross-border payments

These limitations become more visible when mapped to actual use cases. 

Remittances, for example, represent a critical financial lifeline for millions of households globally but often carry high fees and unpredictable delivery timelines. Small businesses selling internationally face FX risk and reconciliation delays that can stall cash flow. Even large corporations may find it difficult to maintain payment consistency across multiple subsidiaries due to regulatory divergence or clearing limitations.

Cross-border payments support a wide range of payment flows, including:

• Remittances
• B2B supplier payments
• Cross-border eCommerce
• Gig economy payouts
• Recurring global disbursements

Each of these requires some degree of interoperability across payment rails, standards, and regulatory environments, none of which is guaranteed by default. 

Evolving payment methods and newer rails

A broader ecosystem of payment methods has emerged in response to the pain points of traditional systems. Some of these payment methods build on existing infrastructure, while others attempt to bypass it entirely:

• Bank wires remain common for high-value B2B payments, particularly when participants are well-integrated into the correspondent banking network. These transactions typically rely on SWIFT messages and settle through bilateral nostro arrangements. While reliable, this method remains relatively slow, with settlement times taking one to three business days.
• Credit and debit card networks facilitate many low-value cross-border consumer transactions. Though fast and widely accepted, these can come with high interchange and FX fees and may be less suited for B2B or account-based payments.
• Global ACH solutions use batch-based, cross-linked clearing systems to reduce costs for recurring payments. These methods are less expensive than wires but often lack real-time settlement or rich remittance data, complicating reconciliation.
• E-money wallets and mobile money services such as Alipay, M-Pesa, or GCash offer digital alternatives for consumers, particularly in markets with limited traditional banking infrastructure. However, cross-network interoperability remains limited, and FX conversions are often opaque.
• Digital currencies and wallets introduce programmable, token-based payment models. Stablecoins and pilot central bank digital currencies (CBDCs) have shown promise for real-time cross-border settlement, but face hurdles in regulation, anti-money laundering/combating the financing of terrorism compliance, and institutional adoption.
• Online platforms such as PayPal, Wise, Strip, and Amazon Pay abstract many of the technical complexities by creating closed-loop systems that manage FX, compliance, and settlement internally. While convenient, they aren’t always interoperable with external bank systems and often charge a premium for the value-added services they provide.

Each of these methods introduces trade-offs around cost, speed, traceability, settlement finality, and compliance readiness. For institutions tasked with supporting cross-border flows at scale, understanding the mechanics and constraints of each channel is essential to designing a future-ready payments strategy.

The hidden frictions slowing down cross-border payments

Despite their ubiquity in global commerce, cross-border payments remain some of the most complex and costly financial transactions to execute. These challenges stem not from a single point of failure, but from the interaction of fragmented systems, regulatory misalignment, and reliance on legacy infrastructure. These systemic inefficiencies create friction that affects both institutional and retail participants.

High costs

Cost is one of the most persistent and visible challenges. A cross-border transaction often involves multiple financial institutions, each layering on its processing fees, FX conversion charges, and compliance overhead. Unlike domestic real-time payment systems, where settlement costs are often negligible, cross-border payments must account for intermediary fees along the routing chain, often with no standardized disclosure at the point of initiation.

FX conversion creates further opacity. Rates are frequently marked up from wholesale interbank prices and, depending on the institution or corridor, the FX spread alone can make up a significant portion of the transaction cost. 

In lower-volume corridors or exotic currencies, spreads tend to widen due to lower liquidity and higher perceived risk, compounding the issue. For financial institutions, managing this risk may involve pre-funding accounts or relying on third-party FX providers, both of which introduce cost and complexity.

Efforts to reduce costs, such as multilateral netting arrangements, correspondent banking consolidation, or alternative FX models, have gained traction but remain unevenly implemented across the industry.

Slow processing times

Speed continues to lag behind user expectations, especially compared to domestic instant payment networks. In many cross-border flows, settlement can take two to three business days, largely due to batch processing cycles and non-aligned operating hours between institutions in different time zones. When a transaction involves multiple intermediaries, each participant may introduce its own cut-off times, manual review processes, and compliance checks.

The underlying infrastructure contributes significantly to these delays. Many cross-border transactions continue to rely on SWIFT messaging, which offers limited structured data and often requires translation or augmentation downstream. These messages may be sufficient for basic value transfers, but they lack the granularity required for real-time processing, automated reconciliation, or intelligent exception handling.

The lack of synchronized settlement systems between countries means that even if a message were transmitted instantly, the underlying movement of funds still depends on the operating hours and settlement windows of the local clearing systems involved.

Limited transparency

The end-to-end flow of a cross-border payment is often opaque. The sender may initiate a payment with little clarity on when funds will arrive, which intermediary banks will be involved, or what fees will be deducted along the way. For financial institutions, this transparency complicates both customer service and operational risk management.

This is, in part, due to the absence of a unified tracking mechanism across the transaction chain. While Swift GPI introduced tracking IDs and SLAs in certain corridors, adoption is inconsistent, and not all institutions pass through or respect metadata required for full traceability. In corridors where GPI is not in use, payment inquiries often require manual investigation through each intermediary in the chain, each of which may operate on different systems or hold incomplete information. 

Limited visibility also affects reconciliation. When payments arrive stripped of essential remittance details or reference data (often due to message truncation or field mapping issues), receiving institutions must spend additional time resolving exceptions or contacting the sender for clarification. This is especially problematic for corporations managing high volumes of cross-border receivables or attempting to automate reconciliation against enterprise resource planning (ERP) systems.

Accessibility barriers

Beyond operational friction, there are systemic barriers to participation in the cross-border payments ecosystem, particularly for institutions in emerging markets and for underbanked populations globally.

De-risking practices among large international banks have reduced the number of active correspondent banking relationships, especially in high-risk or low-volume jurisdictions. As global banks retreat from these markets to manage compliance exposure, smaller local institutions may be left without access to international payment networks altogether. This trend has led to the exclusion of entire regions from efficient cross-border flows. 

For consumers and small businesses, the issue is compounded by limited access to financial services or digital infrastructure. In regions with low banking penetration, access to cross-border payments relies on cash-based intermediaries or informal remittance channels, which can be both costly and insecure. Even in digitally connected economies, the availability of interoperable payment options remains inconsistent. A user with a mobile wallet in one country may be unable to send funds to a recipient in another simply due to the lack of technical or regulatory alignment between providers.

At a systemic level, these accessibility gaps reflect a lack of harmonization in regulatory frameworks, technical standards, and network connectivity, challenges that no single institution or market participant can resolve alone.

The technologies transforming cross-border payments

The traditional cross-border payments landscape is being reshaped by a wave of innovation, driven not just by technical progress but also a fundamental rethinking of how money should move across borders. While no single cross-border payment solution addresses all pain points, several key developments are pushing the industry toward a future of lower-cost, faster, and more accessible international payments:

Fintech-led digital payment platforms

Fintech companies have played a central role in redefining the user experience for cross-border payments. By building closed-loop systems and bypassing parts of the traditional correspondent banking network, these platforms offer improved speed, lower costs, and greater transparency.

What makes these platforms effective is their UX design and the architectural decisions behind them. Many employ intelligent routing engines that dynamically select optimal corridors based on factors such as cost, liquidity, and risk. Others leverage local clearing arrangements and pre-funded accounts to achieve near-instant settlement in supported corridors. 

These platforms also introduce application programming interfaces (APIs) that enable businesses to embed cross-border payments into their platforms, allowing for automation, faster reconciliation, and better integration with ERP and treasury systems.

Blockchain and crypto: more than just settlement

While public cryptocurrencies are not widely used for regulated cross-border payment flows, blockchain technology has introduced meaningful innovations at the infrastructure level.

Permissioned blockchain networks are being tested as alternatives to correspondent banking rails, particularly for settlement and message synchronization. These networks can enable atomic settlement, where funds are transferred simultaneously and irrevocably across two parties, reducing counterparty risk and eliminating the need for pre-funding.

The real value isn’t necessarily in the tokens themselves, but in the ability of distributed ledgers to provide synchronized, immutable records of payment instructions, improving reconciliation and compliance transparency.

The rise of CBDCs

CBDCs represent one of the most consequential developments for cross-border payments, even though most initiatives are still in early stages. Unlike crypto assets, CBDCs are fiat-backed and issued directly by central banks, making them credible candidates for sovereign digital money.

Cross-border CBDC projects, such as Project mBridge — which involves Hong Kong, China, Thailand, and the United Arab Emirates — are exploring how central banks can enable direct, peer-to-peer transfers between CBDC systems without the need for intermediaries or pre-funded accounts. These models suggest a future where cross-border payments could be settled instantly, with legal finality and programmable controls embedded directly into the currency.

Key considerations still need to be addressed: cross-border interoperability, identity frameworks, capital controls, and real-time FX mechanisms. But, if these challenges can be solved, multi-CBDC platforms could dramatically reduce cost and risk across high-volume corridors.

Interlinking domestic fast payment systems

Perhaps the most promising near-term innovation is the effort to interconnect national real-time payment systems. Rather than create a new global standard, this approach builds on what already works domestically. 

Projects such as Project Nexus and regional initiatives aim to connect domestic instant payment infrastructures via standardized APIs, directory services, and real-time FX conversion protocols.

Benefits include:

• Real-time cross-border settlement using existing domestic rails
• Lower cost by avoiding correspondent banking intermediaries
• Increased accessibility by leveraging national identity or proxy systems

While this model still depends on regulatory cooperation and shared technical standards, it offers a pragmatic path forward, especially for consumers and small and medium-sized enterprise payments between markets with modern domestic infrastructure.

Navigating cross-border payment compliance at scale

Cross-border payments are subject to intense regulatory scrutiny, primarily driven by global efforts to combat money laundering, terrorist financing, and financial crime. At the heart of these controls are anti-money laundering (AML) and Know Your Customer (KYC) requirements, which mandate that financial institutions verify customer identities, monitor transaction behavior, and report suspicious activity. These obligations apply at multiple points in the payment chain, meaning a single transaction may be screened and reviewed by several parties, each applying its own policies based on local risk assessments and regulatory expectations.

The complexity increases exponentially when transactions span jurisdictions with different regulatory frameworks. Varying definitions of beneficial ownership, inconsistent data retention laws, and conflicting privacy rules can all impede compliance and delay settlement.

For instance, a payment initiated in a country with strict data protection laws may encounter friction when routed through an intermediary in a jurisdiction requiring full transaction transparency for AML screening. In such cases, institutions must balance conflicting obligations, protecting customer data while fulfilling legal reporting requirements.

A lack of standardized compliance protocols also makes automation difficult. Institutions are often forced to reconcile different KYC thresholds, documentation requirements, and sanction lists manually or through bespoke interactions. This fragmentation not only drives up operational costs but also increases the likelihood of false positives, delayed transactions, and regulatory penalties.

For payment providers operating at scale, staying compliant across multiple regions demands a robust, adaptive compliance framework capable of managing evolving obligations without compromising speed or customer experience.

Building a borderless future

The evolution of cross-border payments is actively underway, with market pressure, regulatory momentum, and technological capability all aligning around a shared vision: Payments that are faster, cheaper, more transparent, and universally accessible.

Several trends are shaping this trajectory:

• Real-time expectations are now the norm. Whether driven by domestic real-time payment systems or digitally native platforms, users increasingly expect cross-border payments to settle within seconds, not days.
• Cost compression is accelerating, particularly in corridors where fintechs or wallet-based models can route around traditional correspondent banking fees.
• Transparency is moving from value-add to baseline requirement, with tracking tools, upfront fee disclosures, and real-time confirmations becoming standard in competitive offerings.

But technology alone can’t carry the future of cross-border payments. Sustained progress depends on coordinated action, especially in how national systems and regulatory frameworks connect.

As a result, international initiatives are gaining traction. The G20 cross-border payments roadmap, spearheaded by the Financial Stability Board (FSB) and the Bank for International Settlements (BIS), sets out concrete targets for speed, cost, access, and transparency by 2027. At the technical level, standardization efforts — most notably, the global adoption of ISO 20022 — are laying the groundwork for richer data exchange and interoperability between systems.

Equally important is the growth of multilateral partnerships, such as previously mentioned Projects Nexus and mBridge. These partnerships illustrate how countries can align infrastructures to enable real-time, cross-border flows using existing domestic systems as the foundation.

The long-term vision is clear: a more open, interoperable global payments ecosystem, where cross-border transactions are as seamless as local ones. The challenge now lies in execution, bridging regulatory divides, modernizing legacy systems, and embedding shared standards into the fabric of international finance.

Simplify cross-border payments with a unified, future-ready platform

As global demand for faster, more transparent cross-border payments continues to rise, financial institutions must modernize their infrastructure to keep pace with evolving standards, technologies, and customer expectations.

Volante’s Cross-border Payments Solution offers a single, cloud-native platform for processing a wide range of international payment types, including Swift GPI, Visa B2B, Ripple, digital currencies, and more, while reducing operational costs, accelerating settlement times, and enhancing compliance and visibility.

See for yourself how Volante powers financial institutions’ modernization journeys in this case study with prominent Mexican bank, Afirme. And, when you’re ready to discover how we can help future-proof your cross-border payments strategy, book a meeting with one of our cross-border payments experts.