What are the common pitfalls in cross-border payments? How to avoid these risks?

In today’s globalized market environment, cross-border e-commerce has become an important way for merchants to expand their international business. However, with the increase of business opportunities, cross-border payment also brings a series of risks. Each risk may affect the financial security and business reputation of merchants. This article focuses on selecting several common risk issues and briefly introduces response measures for everyone’s reference.

Legal compliance risk

The regulatory compliance risks of cross-border payments mainly involve tax regulations, payment regulations, etc. Below is a detailed introduction to these risks and their response strategies.

1. Tax compliance

Different countries have different regulations on personal and corporate taxation, involving Value Added Tax, customs duties, income tax, etc. For e-commerce sellers, handling taxes correctly is the key to avoiding fines and legal disputes.

Cross-border e-commerce often requires tax declaration in multiple countries. Lack of understanding of local tax regulations may lead to declaration errors or omissions.

Response measures: To address this, you can regularly consult with tax advisors, especially tax experts in major markets, to ensure that all tax operations comply with local legal requirements. Secondly, international tax management software can be used to help automate tax calculation and declaration processes and reduce human errors.

2. Payment regulations

Many countries have strict licensing requirements for Payment Gateways and Payment service providers. Unauthorized use of certain payment methods may violate local regulations.

Some countries have set restrictions on the amount and currency of cross-border transactions. Violating these regulations may result in the freezing or cancellation of transactions.

Response measures: Therefore, when conducting transactions, we should choose payment platforms with international recognition and local compliance, ensure the legality of payment channels, and clearly understand and comply with the transaction rules and restrictions of each country to avoid unnecessary legal risks.

Currency exchange risk

Currency exchange risk is an issue that cannot be ignored. This risk mainly stems from exchange rate fluctuations, which may lead to actual income being lower than expected or costs being higher than budgeted.

The following is a detailed risk description and resolution strategy:

1. Exchange rate fluctuations

The exchange rates between currencies often fluctuate, which may be driven by various factors such as politics, economic factors, or market sentiment. Unstable exchange rates can cause the actual amount received when converting receipts from one currency to the local currency to be lower than the expected amount at the time of the transaction.

Response measures: For this, forward contracts can be used to allow companies to trade at a predetermined fixed exchange rate, reducing the impact of exchange rate fluctuations on transactions, or multi-currency transactions can be used to diversify the risk of exchange rate fluctuations and avoid excessive dependence on a single currency.

2. Transaction costs

Cross-border remittances are usually accompanied by high conversion and service fees, which may erode profits. Different payment platforms and banks have different fees for currency exchange, and sometimes the high and low fees are as unpredictable as exchange rate fluctuations.

Response: Consider using a bank account or payment account that supports multiple currencies, so that multiple currencies can be reserved and used directly in the account, reducing the need for exchange per transaction.

Transaction fraud risk

When dealing with payments in cross-border e-commerce, the risk of transaction fraud is a major challenge. This risk can lead to financial losses, decreased customer trust, and even legal issues. The following is a detailed risk description and effective solutions for transaction fraud.

1. False orders

Scammers may use stolen credit card information or fake accounts to place orders. These orders may appear legitimate at first, but ultimately lead to payment disputes or refunds. The seller not only loses the goods, but may also need to bear the additional cost of refunds.

Response measures: Implement multi-layered order verification processes, such as Address Verification Service (AVS) and Card Verification Code (CVV) checks. These measures can help confirm the authenticity of payment information.

2. Refund fraud

Buyers may request a refund after receiving the goods, claiming that the goods were not shipped as described or were not received at all, even though this is not the case. In this case, the seller may be forced to refund without sufficient proof of transaction details.

Response measures: Machine Learning and artificial intelligence technologies can be used to analyze transaction patterns and identify abnormal transactions, such as unconventional large orders or orders from high-risk areas.

Summary

Some of the risk points mentioned above are important to pay attention to in daily life. In the specific transaction process, there are still many other issues, especially how to choose a suitable remittance channel. Here, we recommend a platform such as BiyaPay, which supports real-time exchange rate inquiry and exchange of more than 20 legal currencies and more than 200 digital currencies, integrates local transfer methods in most regions, and can achieve zero cost in the middle of bank remittance. It can be used for overseas remittance anytime and anywhere in most countries or regions around the world, with fast arrival speed and unlimited amount.

Finally, I hope everyone can be more vigilant, effectively avoid pitfalls, and ensure their own property safety.