Keeping Cross-Border Payments Friction-Free

Listen to Keeping Cross-Border Payments Friction-Free (11 mins):

The report found cross-border payments surged by a remarkable 410% in March 2021 compared to January 2021. But after more than a year of lockdowns, some customers could experience unnecessary friction with their international payments. Here’s what banks need to understand about the cross-border payments landscape.

4 Main Cross-Border Payment Categories

There are numerous reasons why someone would want to make international payments. Here are the four most common categories of cross-border payments.

Money transfers

Millions of people based in different countries around the world are significant financial contributors to their families. This can include migrant workers based overseas sending remittances or using money services like Western Union, Wise, MoneyGram, PayPal, or international wires to send funds back home to loved ones. It also includes remote and gig workers doing jobs for international employers.  

High-value international transactions

Other cross-border payments are initiated for high-value transactions. This can include payments for large-scale assets like real estate purchases or luxury items like art, jewelry, or vehicles.

Card-present transactions

International travelers are required to make card-present international payments with their physical credit cards and debit cards. These travelers can include groups like tourists, expats living abroad for work, or business travelers.

Card-not-present (CNP) transactions 

This group includes people who make international eCommerce purchases from merchants and organizations based abroad making business payments. It can also include business-to-business (B2B) transactions such as merchants buying goods from overseas suppliers.

A Perfect Storm for Cross-Border Payment Pain

It’s not like anyone reading this needs a reminder that much of the world has been cooped up for over a year because of the pandemic. Vaccine rollouts are underway in many global communities and are enabling many people to resume the normal pre-pandemic routines they used to know. As more vaccines are distributed worldwide this trend will only increase.  

The trouble with attempting to resume these activities is that some customers will inevitably encounter false positives when they attempt to make payments at restaurants or bars again. That’s because some financial institutions will look at historical data and flag payments made at businesses as risky. And that’s just domestic payments. When it comes to cross-border transactions, many FIs are likely to be even more risk-averse. Cross-border payments were already considered higher risk prior to the pandemic. They will be even more complex to manage given the context of the past 18 months of historical data.

This risk-averse attitude can come back to haunt consumers as they travel again. Imagine, if you will, traveling abroad for the first time since the pandemic began. But when you make your first purchase upon arrival, your card is declined. This is because the purchase is happening outside your local domestic area. You’ll have to use a different payment option if the card gets locked. 

FIs will suffer repercussions from customers if they endure this kind of experience during their travels. Customers will complain to branch managers or even regulators about what happened to them and demand an explanation for the FI’s actions. More immediately, a customer who has endured a negative experience could downgrade the bank-issued card to second in wallet position or lower.

How to Make Cross-Border Payments Seamless

Here’s what banks can do to ensure cross-border payments progress smoothly and safely as international travel picks up again. 

Look for trust, not just fraud

Many banks approach fraud prevention by looking at the elements of risk involved in a transaction. As important as it is to consider risk, however, it’s just as important to look for elements of trust. 

There are multiple other facets that can help FIs to trust transactions. Consider the history of the money transfer agency or the country of origin and destination involved in a money transfer. Remember, the money transfer firm will be as concerned about its own reputation as FIs are about theirs. The transaction is most likely legitimate if a representative is standing by their recent transfer and performed in-person verification.

Following the customers’ recent activities can also establish trust. For example, it’s a logical conclusion that they’re traveling if their mobile device was recently used at JFK Airport in New York and several hours later they made a purchase at London’s Heathrow Airport. Updating travel rules that tie device geolocation to purchases helps FIs trace the customer’s trail of data breadcrumbs. This creates a clearer picture of the customers’ activity and makes their international payments more trustworthy. 

Shift away from domestic-first models

For merchants, one of the biggest pain points for cross-border payments relates to accepting payments from internationally-based partners. For example, it may be hard for some businesses to accept payments from certain regions or challenging to make foreign currency conversions. This is because some acquiring FIs have adopted a domestic-first approach to transactions that don’t account for global payments. This adds a layer of friction if transactions are limited to the local currency instead of accounting for international payment methods. 

Shifting to a global acquirer model that enables more international services can help address some of the merchant- and transaction-based friction. One way to do this is by modeling non-domestic behavior and fraud independently since if you model at the overall level you will inevitably get domestic bias. Instead, build a clear and independent international strategy by reviewing the top five countries outside the domestic region for appropriateness and differences compared to domestic rules.

Stay connected with customers

Reaching out to customers directly is one of the most effective ways to reduce friction and build strong customer loyalty. FIs should develop a strong communication strategy and encourage customers to notify them of any international travel plans. Using SMS-based or mobile-app communications to check in on customers will not only keep cross-border payments secure, but many customers will appreciate their FI’s communication efforts, especially when they are traveling internationally in an unfamiliar region. 

Know where fraudsters thrive

Most of the advice listed so far addresses friction in customers’ cross-border payments journeys. But fraud remains a serious problem. Friction-filled issues with overseas payment transactions can be compounded if fraudsters get their hands on sensitive information. 

High-value cross-border transactions are the most tempting targets for fraudsters and warrant the most protection. If customers are looking to purchase valuable goods internationally – such as a villa or a vehicle – fraudsters could exploit vulnerabilities in the process. This could include malicious misdirection fraud. For this fraud to work, fraudsters will email a victim pretending to be a real estate agent or broker claiming that their account information has changed. Next, they’ll provide a different bank account to send their deposits. If the victim goes along with their instructions, they could lose vast sums of money that are almost impossible to recover.

Banks should focus their fraud prevention efforts on the transactions and schemes that offer the highest value to fraudsters. This will both keep transactions secure and prevent banks from adding unnecessary friction to legitimate customers’ payments. 

Customers are on the move again. Banks need to shift beyond the patterns they learned during the pandemic and look at how customer activities are changing. Taking a global view of customer activity will enable cross-border payments to progress seamlessly and earn loyalty in the process. 

As global consumers emerge from lockdowns, fraudsters are eager to take advantage of the latest behavioral changes. Download our eBook, Feedzai Financial Crime Report Q2 2021: The Dollar Takes Flight, to learn more about the scams that pose the greatest threat to consumers and banks in the post-pandemic world.