What Is Global Payment Processing And How Does It Work

Operating in today’s global world of work imposes managing client and employee payments across different regions of the world. However, global payments are a complex topic that comes with a vast number of challenges that require an expert approach.

In this guide, we explore global payments, including the mechanisms, benefits, and challenges related to these transactions. Stay tuned.

The basics of global payment processing 

Global payment processing refers to the mechanism by which organisations make financial transactions to parties located in other countries. To allow businesses and individuals to send and receive international payments, global payments include a couple of important components:

• Payment gateways refer to the technology that facilitates transaction authorisation and security during the transmission of payment data between the parties. 
• Financial institutions such as banks are responsible for the payment transfers themselves, including the currency conversion management and compliance with regulations.
• Payment processors are the intermediaries between the two parties, responsible for validating and processing the transactions and ensuring that the payment reaches its intended destination.

How global payment processing works

The process of facilitating global payments is much more complex than the one for conducting domestic payments, including the following steps:

Payment initiation

Global payment processing starts when the organisation initiates a transaction, whether it’s to employees, contractors, clients, suppliers, or other parties that are located in different parts of the world. The initiation starts by filling out information such as the recipient, payment amount, and other relevant details. 

Payment authorisation

Once the payment information is filled out, the transaction goes through an authorisation process. The authorisation process includes verifying the legitimacy of the transaction and versatile security checks to ensure that the person who initiates the payment has the authority to do so. 

Transaction processing

After successful authorisation, the transaction moves to processing, where the payment information and details are handed over to the relevant financial institutions and payment networks. Transaction processing includes routing the payment to the recipient’s bank and ensuring that the funds are debited from the payment initiator’s account. 

Currency conversion

When it comes to sending payments to recipients in different locations of the world, the process includes currency conversion - converting the payment amount from the payer’s currency to the recipient’s currency. 

Currency conversions often impose rates and fees for the service, which are determined by the foreign exchange market or the financial institutions involved in the transaction. 

Processing completion

Once the funds are processed and converted into the recipient’s currency, the next step includes processing the transaction and finalising the process. The processing step may involve intermediary banks, correspondent banks, or clearing houses, depending on the complexity of the global payment network. 

Compliance and security in global payments 

Compliance and security are among the most important aspects of global payments, ensuring integrity, confidentiality, and legality of transactions. Below is an overview of the most important security and compliance measures of global payments:

Encryption

Encryption is among the mandatory security measures in global payment processing and involves the encoding of sensitive payment details and personal data. When it comes to encryption of online transactions, the process often includes Transport Layer Security (TLA) and Secure Socket Layer (SSL) protocols to prevent unauthorised access to sensitive information.

Multi-factor authentication

Multi-factor authentication is a security mechanism that requires individuals to provide two or more forms of identification before they conduct a transaction. This mechanism provides an additional layer of security by combining elements such as passwords, tokens or mobile devices, and sometimes even biometric data. 

Tokenisation 

Tokenisation refers to the replacement of sensitive data, such as credit card numbers, with unique tokens to reduce the risk of data breaches. Tokenisation is often used in global payments, as it also provides an extra layer of protection for both of the parties involved in the transaction.

Secure payment gateways

Payment gateways act as intermediaries between the transaction parties and financial institutions to handle the transmission of the payment data. Secure payment gateways use encryption and other security mechanisms to provide extra protection of sensitive data during the transaction.

Compliance with international financial regulations

Compliance with international financial regulations is a crucial element to ensure both legal protection and ethical processing. Such regulations may include anti-money laundering (AML) laws, know-your-customer (KYC) procedures, and a vast of other protection regulations.

Staying compliant with international financial regulations helps prevent illegal financial activities, ensures transparency in global transactions, and protects the integrity of the global financial system. 

Data privacy laws

Global payments often involve the transfer of personal data across borders. In order to protect the involved parties’ privacy rights, it’s crucial to adhere to data privacy laws, such as the General Data Protection Regulation (GDPR) in the European Union. 

Regular audits and assessments

Conducting regular audits and assessments is necessary to identify and address potential vulnerabilities in mechanisms of global transactions. Regular testing helps ensure that all the security measures remain effective against global payment security threats. 

Currency conversion and exchange rates 

The process of currency conversion allows transactions to occur smoothly while using different currencies. In this section, we’re doing an overview of the mechanism of currency conversion in global payments.

Determination of exchange rates

In basic terms, the exchange rate is the representation of the value of one currency in terms of another. Exchange rates typically fluctuate based on several factors, such as, for example, economic indicators, geopolitical events, and market demand. 

When it comes to determining exchange rates, the process involves financial institutions, currency markets, and central banks. In global payments, the exchange rate is used to convert the payment amount from the payment initiator’s currency into the recipient’s currency. 

Real-time and forward exchange rates

Real-time exchange rates refer to the current rates at which currencies are exchanged. In some cases, businesses may conduct transactions using rates that are agreed upon in advance - forward exchange rates to provide predictability and enhanced stability in international transactions. 

Currency conversion fees

Financial institutions and payment processors often charge fees for their currency conversion services. Conversion fees may vary widely between different service providers, and it’s essential for businesses to be aware of them when choosing a payment processor. 

The impact of exchange rates 

The impact of exchange rates makes for a significant consideration for businesses and individuals who engage in global transactions. As mentioned above, exchange rates are subject to fluctuations, which may affect transaction costs, pricing strategies, and overall profitability. 

To avoid the significant impacts of fluctuations in exchange rates and maintain stable financial management, businesses and individuals who engage in global transactions should be careful when choosing a global payment processor. 

Benefits of global payment processing 

Global payment processing is especially beneficial for businesses that engage in international transactions. Here are some of the key advantages.

Facilitating international trade

Global payment processing enables businesses to engage in cross-border transactions and facilitate international trade. This can be quite beneficial for businesses that are involved in working with global clients, as it allows them to send and receive payments efficiently across different countries.

Expanding market reach

With the convenience of global payment processing, businesses can expand their market reach by offering their products and services in different countries of the world. Global payment processing also allows businesses to accept payments in different currencies, making it more convenient to conduct business operations on a global scale. 

Enhancing fraud protection

To reduce the risk of fraudulent activities and enhance the overall security of transactions, global payment processors incorporate advanced security measures, such as encryption, multi-factor authentication, and various fraud detection tools. 

Global payment processors must also ensure compliance with international security standards to help businesses meet regulatory requirements and maintain greater credibility and trust. 

Enhancing scalability and flexibility

Global payment processing solutions are often scalable, which enables businesses to adapt to growth and increase global transactions. Such payment processing solutions may also offer greater customisation to address businesses’ specific needs and provide greater flexibility. 

Challenges in global payment processing 

As much as global payment processing facilitates international transactions and allows simplified global expansion, there are also a lot of challenges that need to be addressed carefully. Below, we’re outlining the most common global payment processing challenges and giving short insights on how businesses can overcome them. 

Cultural and language barriers

Different countries have different languages, cultural norms, and business practices, which may cause miscommunication and, hence, hinder the effectiveness of payment processing.

To avoid miscommunication and misunderstanding, it’s essential to choose a payment processor that offers multilingual support. Having customer support and documentation available in multiple languages can be helpful to successfully bridge communication gaps and enhance understanding. 

Payment disputes

Payment disputes can arise due to misunderstandings and miscommunication, delivery issues, and even dissatisfaction with services or products. 

To avoid payment disputes, businesses should communicate policies and terms of service clearly to the relevant parties, implement a strong customer support system, and choose a payment processor that features a well-established payment dispute resolution mechanism. 

Chargebacks

Chargebacks refer to the process when the customer disputes a charge with their card issuer, leading to the reversal of the transaction. 

To reduce the likelihood of chargebacks, businesses should implement fraud prevention measures, maintain clear communication regarding refund and return policies, and respond promptly to chargeback disputes with detailed evidence and documentation.

Regulatory compliance

Different countries have different regulatory requirements for conducting financial transactions. 

In order to avoid potential legal issues, businesses should stay informed about financial regulations and compliance standards, as well as collaborate with payment processors that nurture a strong commitment to regulatory compliance in different regions.

Choosing a global payment processor

In simple terms, a global payment processor is a company or a service provider that facilitates the electronic transfer of funds between the two parties of an international transaction. Global payment processors have a very important role in enabling businesses to send and accept payments from third parties and engage in cross-border transactions.

Choosing the right payment processor is a crucial decision that will determine the organisation’s engagement in international transactions. Keep reading our guide on how to pick a global payment processor that is suitable for your business needs. 

International coverage

It’s important to choose a payment processor that has a wide global presence, especially in the countries where you want to expand and conduct transactions. Some payment processors may also partner with banks, financial institutions, and other providers to expand their network and offer a wider global coverage to their clients. 

Currency support

Ensure that your payment processor supports payments in multiple currencies so that you can easily send and accept payments from stakeholders from different countries in the world. Also, it’s important to ensure that the specific processor offers competitive exchange rates to minimise the costs associated with global transactions.

Payment methods

Selecting a processor that supports multiple payment methods, such as credit cards, digital wallets, and diverse local payment options, will ensure more flexibility for both parties of the transaction. Payment processors should also be adaptable to new payment trends to accommodate the needs of different businesses. 

Transaction fees and pricing

Businesses that collaborate with payment processors should always be aware of their fee and pricing structures. More specifically, it’s important to understand how your processor calculates the pricing, the various transaction fees, currency conversion fees, and any other associated costs. 

When choosing a payment processor, it’s also a good strategy to compare different providers and stay cautious about any hidden fees that could impact the overall cost of processing the transaction. 

Customer support

Customer support is among the major considerations that will determine the whole processing experience. Hence, assess the availability and responsiveness of your payment processor, as this will ensure that your issues are addressed promptly and expertly. 

It’s also recommended to opt for a processor that supports multilingual support so that you can easily overcome language barriers and facilitate smooth communication. 

Security and compliance

When choosing among multiple payment processors, it’s advisable to prioritise providers that are implementing strong security measures and protection.

Encryption, tokenisation, and compliance with industry standards such as PCI DSS are just a few of the examples that you should carefully assess. Payment processors should adhere to international financial regulations and data protection laws to protect sensitive customer data and ensure legal compliance.

Scalability and integration

Choosing a suitable payment processor is rather a strategic decision, as their scalability and ability to handle an increasing volume of transactions without compromising quality and performance will widely impact your business growth. 

Apart from accommodating your business needs, your payment processor should also be able to integrate with your existing payment systems, websites, e-commerce platforms, and other important components of your business operations to ensure smooth payments. 

Reliability and reputation

Researching your processor before making a decision will give you insights into their reliability and reputation. Therefore, it can be helpful to look for online reviews, testimonials, case studies, and user experiences to ensure that you’re getting the optimal value for your business. 

Additional services, tools, and features

Except for smooth payment processing, many providers will offer additional solutions to elevate the entire payment experience. This may include data analytic tools, tax reporting and optimisation features, and other solutions to streamline your global payments. 

Global payments with Native Teams

Native Teams is your all-in-one platform, offering simplified payment solutions for successful global work. Within the centralised Native Teams platform, you can facilitate simple and secure global payments, organise the management of your finances for maximum transparency, and optimise tax obligations to save more money. 

Payment requests

Easily send payment requests to your global clients, whether you’re seeking an automated solution or you want to send one-time requests. 

Client invoicing 

Take advantage of a client invoicing tool to bill your global clients without the headaches of setting up a company or worrying about compliance.

Multi-currency virtual wallet

Our multi-currency digital wallet is designed to centralise the management of your finances in the preferred currency - from topping up and sending money to instant cross-wallet transfers and currency conversions. 

Native Teams card

Native Teams will provide you with a physical or virtual Native Teams card with worldwide acceptance, so you can enjoy transparent in-store and online payments wherever you are.

Payroll calculator

Our users can take advantage of a simplified payroll calculator, adjusted to 65+ countries, to determine salaries, taxes, and other contributions accurately and timely. 

Euro IBAN

Users of Native Teams’ global payment solutions get a dedicated Euro IBAN to ensure simple and transparent global transactions and streamlined management of finances. 

Withdrawals to a local bank

Utilising the Native Teams platform, you can easily withdraw money to a local bank and enjoy the flexibility of managing your finances in your own currency.

Expense categorisation

The Native Teams platform features expense categorisation, allowing you to separate business from personal expenses to facilitate more transparent financial management and ensure compliant tax reporting. 

3rd party integrations

To ensure maximum flexibility for our users, the Native Teams platform allows 3rd-party integrations, letting you optimise your workflows and have an even smoother experience on the platform. 

Curious about how Native Teams can simplify your global payments? Visit our Payments page or schedule a free demo call with our team to learn more. 

Wrapping up 

Global payments offer a vast of opportunities to embrace international transactions and expand your business in new markets. However, it’s also a very complex topic, as it involves a comprehensive process, multiple parties, and security and compliance matters. 

In order to facilitate safe and transparent global transactions, businesses must consider choosing a reputable payment processor that prioritises security, law compliance, and pricing transparency and can accommodate the unique needs of each business. 

Ready to embrace transparent and secure global payments to elevate your business? Get in touch with our team to see how Native Teams can help!