"The current state of cross-border payments is not fit for the 21st century."&nbsp;

Mr. Ravi Menon, the Managing Director of the Monetary Authority of Singapore, said this in his speech at the <a href="https://www.bis.org/review/r221011b.htm">Annual SWIFT International Banking Operations Seminar</a>, 2022.

The <a href="https://www.pwc.in/assets/pdfs/the-indian-payments-handbook-2022-2027.pdf">Indian Payments Handbook 2022-07</a> explains two prevalent challenges with cross border payment solutions –high transaction cost and the long duration for end-to-end settlement of cross-border payments. The average price of receiving inward remittance is 6% at present. The United Nations is working on reducing this cost to 3% by 2030. In fact, it is one of their Sustainable Development Goals (SDG).

Furthermore, according to the Handbook, India is the largest market for inward remittance flow, making seamless cross-border transactions crucial for the economy.&nbsp;

However, these challenges serve as the biggest threats to the business landscape. It means letting go of a significant sum in every transaction and delays in receiving payments. These factors trigger critical issues such as cash flow, reduced profit margin and increased debt.

Payment platforms, like Skydo, aim to revolutionise the sector by making cross-border payments more efficient and cost-effective. Let's understand the pros and cons of cross border payment solutions in detail and how to choose the right payment gateway.

Currently, the most common ways to send money across borders are through banks, credit cards, e-money wallets, and mobile payments. These methods often depend on systems like SWIFT or the related payment platform. As a result, international transactions are usually slower, more expensive, and less transparent than domestic ones.

Hence, cross border payment solutions are fundamental for business growth and expansion. Here is how they help businesses receive global payments seamlessly by tackling regulatory challenges.

Many businesses are sceptical of offering their services or products to international clients because of payment delays. However, cross border payment solutions like Skydo help receive cross-border payments quickly by incurring low costs.

This enables entrepreneurs to expand their business globally, get access to a large client base, and boost revenue.

Cross border payment solutions can accelerate transactions and optimise cash flow. The processing time for global payments through banks is around 5-10 days. However, it can take up to a month if the transaction gets stuck due to regulatory challenges or inadequate details.&nbsp;

Digital payment gateways like Skydo significantly reduce the processing time for cross-border payments by opening a virtual bank account for your business in another country.&nbsp;

This way, the client can remit the money to your virtual bank account in the respective country, which will pass through the Skydo platform and into your bank account maximum within T+2 days. You can further track this whole journey through the tracker available against each invoice.

3. Currency Conversion and Risk Management

In tech service exports, businesses often lose money due to currency conversion fees and additional hidden charges. Skydo’s cross border payment solution offers transparent currency conversion by displaying real-time exchange rates.

They also offer competitive exchange rates and help businesses calculate the accurate currency cost compared to traditional banks.

Some payment gateways also help manage currency conversion risk by offering hedging options. It allows businesses to hold their payments securely in case the value of the foreign currency depreciates.

4. Enhanced Security and Fraud Prevention:

According to a <a href="https://www.pymnts.com/news/b2b-payments/2022/56-percent-businesses-are-concerned-about-cross-border-payments-fraud/">survey</a>, fraud in global payments is a concern for 56% of businesses. Moreover, 52% of them also consider data theft during payment transactions as one of the significant risks in international payments.

cross border payment solutions mitigate this risk by offering enhanced security measures. Payment gateways use artificial intelligence systems to detect and stop fraudulent activities.



Learn more: <a href="https://www.skydo.com/blog/how-skydo-increased-success-rate-on-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Breaking Barriers, Bridging Borders: How Skydo Increased Success Rate on International Payments</a>

While cross border payment solutions have been a game changer for businesses in expanding their services to international markets, there are four significant challenges - cost, speed, access and transparency.&nbsp;

High transaction cost is a significant roadblock to receiving global payments. The complexities arise primarily because a) multiple currencies are involved and b) various channels or levels in payment flow, such as banks, payment facilitators and payment operators exist.

The <a href="https://www.google.com/amp/s/www.livemint.com/brand-stories/how-to-save-on-international-money-transfer-rates-fees/amp-11687963871859.html">average cost of international wire transfers</a> is between $15-$75 per transaction. Therefore, before you choose a payment gateway, research and compare the transaction value in-depth, currency conversion, and processing fees charged by cross border payment solutions. Moreover, you must be aware of any hidden costs levied by the payment service provider.

Regulatory challenges and adherence to international financial compliances are massive obstacles while dealing with cross border payment solutions. Businesses have to navigate through anti-money laundering laws in foreign countries. Global payments often get stuck in regulatory processes, leading to unnecessary delays.

<a href="https://fbj.springeropen.com/articles/10.1186/s43093-020-00013-0">Studies</a> suggest that foreign exchange rate volatility harms cross-border imports and exports. Multiple currencies are involved, and the value can change at the time of the payment. If the value of the foreign currency decreases, your earnings in Indian currency might take a direct hit.

The best way to avoid exchange rate risk and receive accurate payments is to quote proposals in INR.

Learn more: <a href="https://www.skydo.com/blog/how-much-forex-fees-do-you-pay-on-your-international-transactions?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">How Much Forex Fees Do You Pay on Your International Transactions</a>

"The biggest issue is when I receive a wire: What does it relate to? What invoice specifically or a combination of invoices does it relate to?” — A large company in Chicago during the <a href="https://www.frbservices.org/binaries/content/assets/crsocms/news/research/wire-transfer-research.pdf">B2B Wire Transfer Payments Study</a> commented.

Receiving global payments through wire transfer does not provide much remittance information, making it difficult to reconcile payments with invoices, especially if multiple invoices are sent to a single client.

According to a <a href="https://www.frbservices.org/binaries/content/assets/crsocms/news/research/wire-transfer-research.pdf">study</a>, 94% of people consider remittance information valuable. However, cross border payment solutions often fail to provide this information, leading to extra manual efforts.

A seamless customer experience is the backbone of an efficient global payment system. However, business owners and account managers are forced to spend time choosing the suitable currency, dealing with currency exchange rates and resolving language barriers on cross-border payment platforms.

Moreover, businesses often have to worry about data security, facing regulatory challenges, payment delays and hidden charges, making the whole process cumbersome.

Learn more: <a href="https://www.skydo.com/blog/don't-stay-in-the-dark-anymore-monitor-your-international-payments-from-sender-account-to-your-account?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Don’t Stay in the Dark Anymore: Monitor Your International Payments From Sender Account to Your Account</a>

Another issue with cross border payment solutions is the disruption of digital payments through technical glitches, downtime, or software failures. This can lead to delays or failure in receiving global payments. It further results in loss of revenue, extra transaction charges, operational inefficiencies, and customer dissatisfaction.

However, you can mitigate the risk caused by downtime by creating a contingency fund that they can use in emergencies. You must also recommend negotiating the payment terms with the customers and vendors to receive advance payments.

The world is witnessing an <a href="https://www.mckinsey.com/~/media/mckinsey/industries/financial%20services/our%20insights/the%202022%20mckinsey%20global%20payments%20report/the-2022-mckinsey-global-payments-report.pdf">embedded finance revolution</a> where individual consumers and businesses are not relying solely on banks for their financing needs. Finding the most suitable payment gateway becomes more stressful. Here is a quick and simple guide to help you shortlist the ideal cross border payment solutions for your business.

When onboarding vendors, it's crucial to assess if they can effectively address your unique business challenges and contribute to your growth.

You can understand payment gateways like a business vendor or a partner. However, before collaborating with them, you should evaluate your business requirements, such as the frequency, volume and nature of payment transactions, and your business goals.&nbsp;

You should also consider or explore payment gateways to assess various aspects like credit card acceptance, online checkout experience, transaction volume, security, international transactions, returns, and integration with your e-commerce platform.

A seamless returns and refunds process through the payment gateway can enhance customer satisfaction.

Assess the payment gateway's integration with your e-commerce platform to ensure smooth data flow between systems.

Evaluate the reporting and analytics features provided by the payment gateway for informed business decision-making.

Consider the quality of customer support offered by the payment gateway as it can be crucial in resolving issues promptly.

Understand the fee structure associated with the payment gateway, including setup and transaction fees, to align it with your budget.

Ensure the payment gateway can accommodate your business's future growth without significant disruptions.

Once you assess your business needs, you must choose the right payment gateway whose features align with your business requirements.&nbsp;

One of the best ways to do this is to conduct comprehensive market research, shortlist popular payment gateway providers, and consider the pros and cons and the features offered by the service providers.

To ensure that cross border payment solutions offer a frictionless payment journey, you can consider factors like transaction fees, quick customer support, and simple integration into your existing accounting system.

A key feature of embedded finance is that non-financial customers get easy access to financial products and technologies. It may, however, serve as a drawback for business owners who are unaware of fintech products or technologies.

Hence, before you integrate cross border payment solutions, you can consult business advisors or financial experts to find the ideal payment gateway for your business. They can assess your business needs, do risk assessment, and cost analysis, and ensure that the platform solves the regulatory challenges.



How Uniqueside.io found the right cross-border payment solution with Skydo

In July 2023, Manoj Ahirwar, Founder, <a href="http://uniqueside.io/">Uniqueside.io</a> embarked on a new journey as he left his job in Singapore to start his software development company, Uniqueside. The dream was taking shape, but a significant hurdle awaited me in the realm of payment platforms.&nbsp;

His first client payment through PayPal was cut down by hefty fees, leaving him with just $2,850 out of a $3,000 payment. This substantial loss prompted him to search for a more cost-effective and efficient solution to accept payments from the United States.

This quest led me to <a href="https://www.skydo.com/blog/top_5_wise_alternatives_for_international_payment">Wise</a>, a platform promising lower fees. However, while Wise's user interface was impressive, its data functionality left much to be desired. Moreover, obtaining the Foreign Inward Remittance Certificate (FIRC) proved complex and time-consuming.&nbsp;

In September, he acquired another client, and his troubles with Wise escalated. Attempting to set up a Wise account for the new client led to a frustrating 10-day project delay. He took to Twitter to share his woes, hoping to find a better solution.

<a href="https://twitter.com/manoj_ahi/status/1709642671718039945?t=Vbmh_1dikntVvvnetmReZg&amp;s=19">His tweet</a>&nbsp;caught the attention of the Google algorithm, which began suggesting alternative payment platforms. It was through this recommendation that he stumbled upon Skydo.

"Skydo has been a game-changer for my software development company, Uniqueside. After struggling with exorbitant fees and inefficiencies on other payment platforms, I stumbled upon Skydo, and it was a breath of fresh air. The onboarding process was smooth, the user interface was top-notch, and the team was receptive to user feedback.&nbsp;

Skydo has saved me money and valuable time, allowing me to provide better service to my clients. It has become my primary payment platform, and I couldn't be happier with the decision. Skydo has become an invaluable partner in the success of Uniqueside."

Currency exchange fluctuations, conversion fees, and complex regulatory challenges create potential delays, making cross-border payments nothing less than a nightmare for businesses.

Cross-border payment solutions enable businesses to expand their business globally. However, despite the various benefits, they also pose significant challenges for businesses, making it difficult to manage their core business activities. Hence, choosing the right payment gateway not only improves efficiency but also helps you save on extra costs.

One-stop cross-border payment solutions like Skydo streamline global payments and rescue businesses from getting entangled in the web of regulatory challenges.

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Request a demo</a> with Skydo to receive cross-border payments seamlessly and unlock global opportunities for your business!

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Facilitating international transactions as an international business is as common as sipping a morning coffee. Yet, they must navigate a hidden financial obstacle: Forex markups. These stealthy charges on foreign exchanges can silently chip away at a company's profits, leaving you blindsided by unexpected costs.&nbsp;

Picture this - you've just closed an excellent business deal overseas, only to see a large chunk of your earnings disappear due to hidden fees. This is the danger of Forex markups; many times, these fees are hidden, until it's too late. These charges appear minimal at first look but add up quickly, resulting in much higher costs for businesses of all sizes.&nbsp;

These hidden expenses lurk at every step, whether you're a multinational company procuring supplies from overseas or an IT export startup paying distant developers in a different currency. But what if there was a way to bypass those unexpected fees, reduce lengthy wait times, and sidestep cumbersome paperwork?&nbsp;

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> makes it easier for businesses to identify and reduce hidden costs to keep more profits. Here’s how.

An issue that frequently arises in international trade is managing <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border payments</a>. With their complex fee structures and lengthy processes, traditional banks have been the default choice yet completely outdated. Enter Skydo, a platform designed to alleviate these issues and promote transparency and efficiency.

When you receive an international payment via Skydo, you get real-time exchange rates for your transactions. This way, you get the most accurate and competitive rate in the market without any <a href="https://www.skydo.com/blog/hidden-fees-in-bank-rates?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">hidden charges</a> while achieving complete value for money on your transaction.

Our straightforward pricing model makes it easy for you to forecast your expenses. For transactions under USD 2,000, a fee of USD 19 is applied. For those exceeding this threshold, the fee is USD 29. With our transparent approach, you can have peace of mind knowing exactly what you're paying for.

Imagine the savings your business could achieve by eliminating the cumulative costs of traditional banks for international transactions! With Skydo's currency conversions, businesses can save up to 10 lakhs annually. Don't just take our word for it; verify these savings using our<a href="http://bit.ly/3MOk7P0"> convenient savings calculator</a>.&nbsp;

The Skydo platform is meticulously designed to cater to global and emerging enterprises' needs. Our user-friendly interface offers a seamless experience, making international transactions straightforward and efficient.&nbsp;

With Skydo, setting up an international account is quick and hassle-free. In just 5 minutes, you can establish an account that upholds the highest legal compliance standards. No more lengthy processes, only business agility.

Skydo streamlines the entire payment process and brings transparency, cost savings, and unparalleled ease of use. With a range of innovative features, Skydo is the modern solution to age-old payment challenges. Here's the step-by-step process that makes cross-border transactions hassle-free and profitable for your business.

Step 1: Setting up your international bank account

With Skydo, it's a breezy <a href="https://www.skydo.com/blog/seamless-payment-experience-with-international-bank-accounts?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">5-minute</a> affair. All it takes is a straightforward KYC process, entering your business details, uploading a few documents and voilà, you're ready to roll.

Need to bill your clients? Create and send professional invoices at zero cost. With Skydo, invoicing isn't just free; it's incredibly intuitive.  

<a href="https://www.skydo.com/blog/transforming-your-invoicing-experience-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Click here</a> to learn more about how to use Skydo’s invoicing tool free of cost.

Let your customer take the stage. They make local payments, enjoying the comfort and confidence of dealing within their region.

Step 4: Hello, Skydo international accounts

As soon as your client completes the payment, the funds are securely tucked in your Skydo international account, ready for the next move.

The funds begin their voyage, moving smoothly to Skydo's trusted bank partners in India.

Your money gets converted into INR. Rest assured, it's getting the best rates in town.

Step 7: A Warm welcome to your Indian bank account

Without much ado, the money finds its way to your Indian bank account, ready for you to use as you see fit.

An added service most valued by our customers–you get your FIRA and Skydo payment receipts generated, keeping everything above board and crystal clear.

In an era where clarity and transparency are essential, Skydo is leading the charge to set new standards for global financial transactions. With this innovative payments platform, you're not just adopting a system – you're joining a movement towards open, honest dealings.&nbsp;

See the difference firsthand with a <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">quick demo</a>. Experience the Skydo advantage and be at the forefront of this transformative trend in cross-border payments.

Q1. What are Forex markups, and how do they impact international business transactions?

Ans: Forex markups refer to the additional charges imposed on currency conversion in international transactions. They impact businesses by increasing costs, affecting profit margins, and potentially deterring international trade.

Q2. What steps can businesses take to identify and reduce hidden costs in international transactions?

Ans: Businesses can identify hidden costs in international transactions by thoroughly reviewing contracts, understanding exchange rate mechanisms, and leveraging technology to track transaction fees and fluctuations in currency values.

Q3. How can I assess the true cost of Forex fees on my international transactions?

Ans: To assess the true cost of Forex fees, businesses should calculate the total expenses, including transaction fees, currency conversion charges, and any other associated costs incurred during international transactions.

Q4. What types of Forex fees should I be aware of beyond transaction fees?

Ans: Beyond transaction fees, businesses should be aware of additional Forex fees, such as spread costs, intermediary bank charges, and potential regulatory fees, which can contribute to the overall expense of international transactions.

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‘Good Things Take Time,’ and for hypothetical situations, this may give you hope and keep you going. But what about real-life situations? Is it good that you stand at the corner of the shop waiting for your online payment to succeed? Do you always have time to stand and look at the ‘Processing’ box, taking minutes while you think about the limited cash you have with you?

Now, imagine the same when you execute foreign currency transactions with the receiver in a foreign country, expecting you to pay immediately. A slow transaction processing speed can present you or your business in an unprofessional light and result in losing suppliers or vendors.

Almost every bank in India has different processing speeds for international transactions. The following factors explain the reasons behind fluctuating transaction speeds.

Every bank in India processes foreign currencies at different speeds as they rely on complex systems and operations to manage transactions, customer interactions, and regulatory compliance. Some key factors that can impact the processing speed of banks include the following.

The technology infrastructure of a bank, including its hardware, software, and network capabilities, plays a critical role in processing speed. Modern, well-maintained systems are more likely to handle transactions quickly and efficiently.

Correspondent banks have extensive networks and relationships with other banks worldwide. They can route payments through the most efficient and cost-effective channels, reducing delays and transaction costs. However, with such extensive interconnected transactional systems, it is a hassle for a bank to execute transactions quickly.&nbsp;

While this network is designed to optimise the routing of international payments, it can also introduce some complexity. Each bank involved in the transaction needs to verify and process the payment. The more intermediaries involved, the more potential points of friction or delay in the process.

For example, an Indian business seeks to make an international payment of USD 10,000 to a U.S. supplier. To do this, the Indian business bank (Bank A) must use the services of correspondent banks in the U.S. due to its lack of a direct presence there. The payment travels through three banks: Bank A, Correspondent Bank X, and Correspondent Bank Y. Each bank conducts checks and verifications, potentially leading to delays and increased costs.&nbsp;

Additionally, international transactions can span different time zones and require communication between banks in various regions worldwide. This can lead to time lags as banks coordinate and confirm the transfer of funds. Delays may occur due to differences in working hours, holidays, or operational procedures across different countries.

The better the link between the two banks, the faster the processing time.&nbsp;

Since <a href="https://www.skydo.com/blog/the-complete-guide-to-capital-and-current-account-transactions">foreign currency transactions fall under FEMA</a>, correspondent banks must assist respondent banks in navigating the complex regulatory landscape of cross-border transactions. If the correspondent bank is well-versed in international banking regulations and compliance requirements, the processing time often takes less time.&nbsp;

Geographic reach significantly impacts the speed of foreign currency processing in international banking. Variations in time zones, specific payment timings, and using batch processing introduce delays. Banks operate within their local time zones, which can lead to misaligned working hours.&nbsp;

Batch payments, weekends, and holidays can further affect processing times. Banks with a global presence have an advantage, but real-time or emergency payments may come at a higher cost.

Notably, a specific category of banks can process these payments, known as AD-1 banks.

What are AD-1 Banks and Why do AD-1 Banks Process Foreign Currency Faster than Others?

Banks are categorised into AD-1 (Authorised Dealer Category 1) and AD-2 by the Reserve Bank of India (RBI). AD-1 banks are a significant presence in the international financial market and are authorised by the RBI to deal in foreign exchange transactions. These banks have a more extensive network of correspondent banks and are better equipped to facilitate foreign currency transactions more efficiently.&nbsp;

AD-1 banks provide a NOSTRO account service denominated in various foreign currencies. These accounts are held with correspondent banks or financial institutions in the respective foreign countries where the currencies are used. Therefore, for your business, you must choose an AD-1 category bank that provides a NOSTRO account service.

A NOSTRO account refers to an account held by a bank in a foreign country, denominated in the currency of that particular country. The term "NOSTRO" is derived from the Latin word for "ours," emphasising that a foreign bank owns the account.&nbsp;

These accounts facilitate international trade and transactions by enabling banks to hold funds in various currencies, simplifying cross-border payments and settlements. NOSTRO accounts help manage foreign exchange and reduce the need for correspondent banking arrangements, fostering efficient global financial operations for institutions engaged in international trade and finance.

NOSTRO accounts hold foreign currency at another bank in the respective country.&nbsp;

Here's a NOSTRO Account example to help illustrate how it works.

Let's consider US Company (A) and Indian Team (B).

This way, NOSTRO accounts enable banks to facilitate cross-border transactions by maintaining balances in various currencies in foreign banks. These accounts act as liquidity buffers, ensuring the bank has sufficient funds in foreign currencies to process international payments and settle obligations.Most NOSTRO accounts are integrated with the <a href="https://www.skydo.com/blog/why-was-a-certain-amount-deducted-from-my-swift-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">SWIFT (Society for Worldwide Interbank Financial Telecommunication)</a> messaging system. It sends payment instructions through SWIFT messages to its correspondent bank, which holds the NOSTRO account in the beneficiary's currency.&nbsp;

The correspondent bank can then execute the payment using the funds in the NOSTRO account. This process enables real-time or near-real-time settlement of cross-border transactions. NOSTRO accounts are also called VOSTRO accounts from the point of view of the foreign bank (Bank B).&nbsp;

What is a VOSTRO Account? &amp; VOSTRO Account Example

A Vostro account is a financial arrangement where a domestic bank holds a bank account on behalf of a foreign bank or financial institution, denominated in the local currency of that country. Functioning as a form of correspondent banking, Vostro accounts facilitate foreign banks in executing transactions and delivering services in markets where they lack a direct presence.&nbsp;

Bank of America, based in the USA, aims to conduct business in India. To achieve this, they need to maintain an account with an Indian bank. Bank of America collaborates with ICICI Bank in India and opens an account with Indian Rupees (INR) as the currency. This account is called a VOSTRO account, and ICICI Bank is the domestic bank that holds it on behalf of Bank of America.

In this case, ICICI Bank provides various services to Bank of America, such as processing transactions, providing credit facilities, and managing the account. As a foreign bank, Bank of America can conduct business in India without having a physical presence there because of the VOSTRO account held by ICICI Bank.

NOSTRO accounts also play a pivotal role in the <a href="https://www.skydo.com/blog/get-the-most-out-of-your-forex-savings-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">currency exchange</a> process or currency conversion. If a bank needs to convert one currency into another to complete a cross-border payment, it can do so through its NOSTRO accounts.&nbsp;

For example, if Bank A in India wants to send Euros to a beneficiary in Europe, it can request the bank to use its NOSTRO account with a European bank to convert INR into euros for making the payment.&nbsp;

Nostro account charges for international transactions typically vary between <a href="https://navi.com/blog/nostro-account/">$15 and $30</a> per transaction. When individuals send money abroad, their banks facilitate the transaction through NOSTRO accounts, incurring these fees. These charges contribute to the cost of conducting cross-border financial activities, reflecting the complexity of international transactions.

Difference Between NOSTRO and VOSTRO Accounts?

Here is a table describing the difference in NOSTRO vs VOSTRO accounts in detail.

Redirecting to Another Bank - Optimising Processing Speed

Banks strive to create effective and speedy foreign currency processing as it contributes to more customers who execute cross-border transactions. However, there may be some technical, regulatory, or geographical restrictions for the bank to have a slow foreign currency processing time. In such cases, banks redirect the transactions to other banks to optimise the processing speed, called transaction redirection.&nbsp;

The primary objective is to achieve faster, more cost-effective, and more reliable settlement while leveraging the capabilities and networks of other banks or intermediaries. Transaction redirection works on correspondent relationships principle with other global banks and financial institutions.Transaction redirection often involves utilising NOSTRO accounts to optimise the processing of cross-border transactions.&nbsp;

For example, let’s say you request Bank A in your country to make a certain payment to a foreign beneficiary. To fulfil the payment request, Bank A can redirect the payment transaction to the correspondent bank's NOSTRO account and instruct the bank to debit the NOSTRO account with the funds and credit them into the recipient’s account.&nbsp;

Transaction redirection streamlines foreign currency payments by leveraging the correspondent bank’s technical infrastructure and NOSTRO accounts to ensure quick payment processing. Transaction redirection can help mitigate risks associated with currency fluctuations, settlement failures, and regulatory compliance.However, some correspondent banks may charge fees for processing transactions through their NOSTRO accounts, which can negate potential cost savings. Furthermore, relying on correspondent banks for transaction redirection introduces counterparty risk. If the correspondent bank encounters financial difficulties or becomes insolvent, it can disrupt transaction processing and potentially lead to losses.

Future Trends in Foreign Currency Processing

Global economies are witnessing a shift to digital technologies, revolutionising how individuals or companies do business. A significant contributor to the success of global businesses is the foreign currency processing time, which makes or breaks the cross-border transactional system.&nbsp;

The ongoing efforts to improve international remittance transfers have also garnered the <a href="https://www.bis.org/fsi/publ/insights43.pdf">attention of leaders</a> from major economies, international financial institutions (IFIs), and standard-setting bodies (SSBs).&nbsp;

Their primary goal is to simplify and reduce the costs of <a href="https://www.skydo.com/blog/4-reasons-you-need-fira-for-your-export-remittances?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">sending remittances</a>, a crucial issue in the global development agenda. This commitment to reform began in the early 2000s, with the G8 and G20 groups taking significant steps and committing to cut costs.&nbsp;

Even the United Nations (UN) included reducing remittance expenses as a target within the Sustainable Development Goals (SDGs).

Recent developments, such as <a href="https://www.imf.org/en/Blogs/Articles/2020/10/19/blog-a-leap-forward-on-cross-border-payments">the G20 Roadmap</a> in collaboration with IFIs, SSBs, and central banks, are aimed at lowering the expenses of cross-border payments, including remittances and enhancing the transparency, accessibility, and transaction speed of these international financial transactions.&nbsp;

Alongside these reforms, the <a href="https://www.bis.org/fsi/publ/insights43.pdf">Financial Action Task Force (FATF)</a> is conducting a review to identify areas where differing anti-money laundering and counter-terrorism financing regulations or their implementation might hinder the efficiency of cross-border payments, especially in the remittance market.

Here are some key future trends likely to expedite foreign currency processing further.

1. Blockchain and distributed ledger technology

Blockchain and DLT offer a secure and transparent ledger to record and verify foreign currency transactions. <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Leveraging blockchain and DLT</a> can significantly lower the foreign currency processing time and cost by providing real-time settlement and removing the need for intermediaries.

Digital cross-country payments are increasing in volume with each passing day, and most countries are upgrading their payment systems. The upgrade focuses on integrating advanced technologies such as APIs (Application Programming Interface) and payment systems such as RTGS (Real-Time Gross Settlement) to enhance the speed and efficiency of foreign currency processing.&nbsp;

Most countries, including India, are looking to update and amend the rules of foreign currency transactions. For example, the Ministry of Finance recently amended FEMA to bring International Credit Card payments by resident Indians outside India within the LRS limit of USD 2.5 lakhs. Such enhanced regulatory frameworks promote innovation in the cross-border financial sector and enhance transaction tracking, transparency, and speed.

The introduction of NOSTRO accounts by AD-1 category banks has proven to be a game-changer in facilitating the seamless execution of cross-border payments. These accounts act as liquidity buffers, ensuring banks have sufficient foreign currency to process international transactions efficiently. NOSTRO accounts, often integrated with the SWIFT messaging system, enable real-time or near-real-time settlement of these transactions.

Looking ahead, the landscape of foreign currency processing is poised for further transformation. Emerging technologies like blockchain and distributed ledger technology promise heightened security and transparency, while real-time data and payment systems are set to revolutionise the speed and efficiency of cross-border transactions. Enhanced regulatory frameworks, aimed at promoting innovation and transparency, are also on the horizon.

As global economies continue to evolve and digital technologies reshape the business landscape, the future of foreign currency processing holds the promise of faster, more cost-effective, and more <a href="https://www.skydo.com/blog/real-time-tracking-of-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">transparent cross-border transactions</a>. These developments are not only reshaping the way we conduct international business but also have far-reaching implications for the stability of the global financial system and the growth of economies worldwide.&nbsp;

Ans: A NOSTRO account in banking is a foreign currency account held by a domestic bank in another financial institution, typically in the country's currency where the foreign bank is located.

Ans: A NOSTRO account is required to facilitate international transactions, allowing banks to hold foreign currency for smoother cross-border payments and settlements.

Q3. What is NOSTRO, VOSTRO, and LORO account?

Ans: NOSTRO, VOSTRO, and LORO accounts refer to accounts held by one bank in another. NOSTRO is the foreign account held by a domestic bank, VOSTRO is the local account held by a foreign bank, and LORO is an account held by an intermediary bank on behalf of others.

Q4. How to perform NOSTRO reconciliation?

Ans: NOSTRO reconciliation involves comparing and matching a bank's NOSTRO account records with its corresponding banks to ensure accurate and error-free transactions.

Q5. What is the difference between NOSTRO and VOSTRO accounts?

Ans: The main difference between NOSTRO and VOSTRO accounts lies in perspective: NOSTRO is the foreign account from the home bank's viewpoint, while VOSTRO is the local account from the foreign bank's viewpoint.

Ans: To open a NOSTRO account, a bank typically establishes relationships with correspondent banks abroad, following due diligence and compliance with regulatory requirements.

Q7. Which bank is best for international transactions?

Ans: The best bank for international transactions depends on fees, exchange rates, and network coverage; popular choices include HSBC, Citibank, and JPMorgan.

Q8. How do I transfer money to my NOSTRO account?

Ans: A NOSTRO account is a bank service and not an account that an individual owns. If you want to transfer a certain amount in foreign currency, your bank will do the needful through their NOSTRO account, ensuring that funds are available in foreign currency.

Q9. What is the purpose of a NOSTRO account?

Ans: The purpose of a NOSTRO account is to facilitate international trade and transactions by holding foreign currency and streamlining cross-border payments and settlements.

Q10. In which currency is the NOSTRO account available?

Ans: NOSTRO accounts are available in various foreign currencies, depending on the needs and preferences of the bank, such as USD, EUR, GBP, etc.

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The increased adoption of digital payments has catalysed a movement towards a cashless society. Electronic payments grew by <a href="https://www.mckinsey.com/industries/financial-services/our-insights/the-chessboard-rearranged-rethinking-the-next-moves-in-global-payments">19% in 2021</a>, and the <a href="https://www.fisglobal.com/en/global-payments-report">2022 FIS Global Payments Report</a> predicts that this rapid digitalisation will bring down cash usage to 9.8% in 2025 from 17.9% in 2021. The convenience, speed, and hygiene benefits of digital payments have appealed to consumers and will consequently lead to a decline in cash usage.&nbsp;

To reinvent themselves to the changing landscape, Payment Service Providers (PSPs), Financial institutions (FIs), merchants, and corporations are attempting a shapeshift to deliver on customer expectations through innovative and efficient solutions.&nbsp;&nbsp;

This intersection of factors has resulted in new trends emerging in the global payments landscape. This article takes a deep dive into the trends that will drive value in the future.&nbsp;

Real-time payments are transactions that are processed and settled instantly, providing immediate availability of funds to the recipient. Unlike traditional payment methods that involve delays and batch processing, real-time payments enable businesses to send and receive funds in a matter of seconds, even across different financial institutions.

These payments have emerged as a growing trend in business transactions, revolutionising payment processes and enhancing the efficiency and speed of financial transactions. The Q2 of 2022 saw <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/real-time-payment-networks-grow-but-banks-still-search-for-uses-72411002">15% of the total volume</a> on The Clearing House’s RTP network going to instant payroll.&nbsp;

As an IT export service provider, you often operate in a dynamic environment, delivering services remotely and engaging with clients globally. Real-time payments enable you to receive payments promptly, eliminating delays and providing immediate confirmation of successful transactions. This improves cash flow and allows you to focus on delivering exceptional services without being hindered by payment processing bottlenecks.

Small businesses, especially, are finding real-time payments a boon as they enhance cyber security and fraud detection, and improve <a href="https://www.skydo.com/blog/customer-journey-mapping-the-secret-sauce-of-global-companies?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">customer experience</a> and overall financial management.&nbsp;&nbsp;&nbsp;&nbsp;

Cryptocurrencies and Blockchain in Instant Global Payments

Blockchain technology is a decentralised, distributed ledger that records transactions across multiple computers, providing transparency, stability, and security. Cryptocurrencies, such as Bitcoin and Ethereum, are digital assets that leverage blockchain technology as a means of exchange and store of value.

Cryptocurrencies have been gaining prominence as alternative payment modes. Thousands of merchants accept Bitcoin as a payment mode today, and a few countries such as El Salvador and the Central African Republic (CAR) have accepted Bitcoin as a legal tender. Similarly, blockchain-based payments are also gaining prominence, especially in cross-border payments.&nbsp;

However, certain challenges and considerations for <a href="https://www.skydo.com/blog/decoding-withholding-tax-an-i-t-export-service-providers-toolkit-for-simplifying-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">IT export service</a> providers in using blockchain technology and cryptocurrencies for cross-border payments are regulatory compliance and cryptocurrency volatility.

<a href="https://www.pymnts.com/study/cryptocurrency-blockchain-and-cross-border-payments-business-digital-innovation/">58% of cross-border</a> businesses use at least one cryptocurrency, and 56% use blockchain technology. Another report finds that <a href="https://www.pymnts.com/study/cryptocurrency-blockchain-and-cross-border-payments-business-digital-innovation/">61% of FIs</a> realise the need to offer access to cryptocurrency payments, but only 10% support such decentralised payments.&nbsp;

Thus, while blockchain technology and cryptocurrencies can change the face of cross-border payments, it’s important to consider the challenges to making an informed payment-related decision.

Harnessing the Power of Artificial Intelligence and Machine Learning in Payment Processing

AI and ML analyse vast amounts of transactional data to identify patterns and detect emerging ones to improve security, fraud detection, and risk assessment. Chatbots for automated customer service support is another use case where AI and ML are finding utility in payments.&nbsp;

The FinTech industry is increasingly using AI and machine learning technologies to enhance payment processes by automating data analysis for quicker and more accurate customer insights. By leveraging AI and ML capabilities, FI’s can efficiently improve the accuracy of the predictions for improved decision-making.&nbsp;

IT service exporters can develop and deploy AI-powered solutions that enhance payment security, optimize risk management, and deliver exceptional customer experiences. They can leverage these technologies to build intelligent payment systems, integrate fraud detection capabilities, and develop advanced analytics tools for risk assessment. You can also consider partnering with a payment gateway like <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> that provides all these features and more.

By embracing AI and machine learning, IT service providers can differentiate themselves in the market, attract new clients, and provide innovative solutions to businesses in the payments industry.

An outcome of the global pandemic is the increasing use of contactless payment facilities, where Australia was the<a href="https://www.visa.gp/visa-everywhere/innovation/contactless-payments-around-the-globe.html"> biggest market for contactless cards at 92%</a> market share. This shift towards a more seamless and practical payment method affects how businesses and IT service providers shape the ultimate customer experience around digital payments.

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