Cross-border payments are payments in which the payer and the receiver are in different countries. They include money that people abroad send home to their families, called remittances, and money that businesses, freelancers and students pay or receive from other countries. India receives more remittances than any other country, and it also earns a great deal from services, such as software and design, paid for from overseas.
A cross-border payment is slow and costly for three reasons. First, it often passes through a chain of banks, because banks in different countries hold accounts with each other. This is called correspondent banking, and each bank in the chain may take a fee and a day. Second, the money must be converted from one currency to another. Someone usually adds a margin on the exchange rate, called a forex markup. Third, the payment must follow the rules of both countries.
Take, for example, a nurse from Kochi who works in a hospital in London. Every month, she sends £500 to her parents in Kerala. She opens a remittance app and types the amount. The app shows the exchange rate and its fee before she pays. It checks her name against sanctions lists, through sanctions screening, as the law requires. The app converts the pounds into rupees. A cross-border payout network then pays the rupees into her parents' bank account in Kerala, often within minutes. The parents see about ₹63,000 credited, and can spend it with their UPI app straight away.
Businesses have different needs. Consider a freelance designer in Indore whose client in the United States owes her $800 for a logo. She uses cross-border payment collection to receive the money in rupees, with the paperwork that India's export rules require. A company that trades in several countries may keep a multi-currency account, which holds dollars, euros and rupees in one place. A family paying a university abroad uses international education payments, so that the fee reaches the right student's account.
At the end of each payment, the companies must also match every amount received to the right payment, a job called reconciliation.
Countries are now linking their real-time payment systems directly. India's UPI is already linked to Singapore's PayNow and to Nepal's payment system, for transfers between people. With such a link, a transfer moves from one country's system to the other without a chain of banks.