International Payment Instruments: Getting to Know the Methods and Benefits for Your Business

Published on
December 14, 2023
Written by
Ekky Pramana

Globalization and digitalization have compelled the banking and financial industries to undergo further development. With the increasing opportunities for import and export activities, the market pressure for an international payment instrument that is both easy and fast is growing. This drives the banking and financial industries to continuously enhance their international payment systems to accommodate business needs.

Not only that, but globalization and digitalization also offer opportunities for small and medium-sized business owners to market their products internationally and tap into new markets. However, these SME owners naturally require an international payment tool that is not burdensome, as existing international payment systems often impose significant fees, posing a challenge for SME owners whose businesses are still in the early stages of development.

International payment tools are not only crucial for business players. With globalization and digitalization, these systems are now essential for individuals as well. For instance, parents who wish to send money to their children studying abroad or those who want to purchase products or services online from international websites.

What is an international payment tool? 

After seeing how international payment tools are needed by various parties, it's worth understanding what is meant by international payment tools.

An international payment tool is a system and method used to facilitate financial transactions between countries. Typically, these systems are facilitated by banks or other financial institutions to provide convenience for businesses to receive and send money, as well as process all financial transactions between countries and different currencies.

After understanding what an international payment tool is, it's also worthwhile to take a closer look at various methods of international payment and the benefits of international payment systems for business players.

International Payment Methods

When selecting an international payment method, several considerations may influence business players, including the regulations of the two countries involved in the business, the transaction amount, the risks associated with the transaction, and the payment agreements between the parties involved in the transaction. However, here are some of the most commonly used international payment methods:

Wire Transfer/Bank Transfer

Wire transfer or bank transfer is one of the most commonly used international payment methods. This method involves electronically transferring funds directly from the buyer's account to the seller's account through a bank or specific financial institution. Examples of popular international payment methods using wire transfer in society include PayPal and Wise. Many wire transfer service providers offer competitive and affordable service fees to increase transaction volumes, benefiting both business and individual users.

Cash in Advance

This international payment method can reduce the risk of fraud by requiring the buyer to make payment before the product or service is delivered.

Letter of Credit (L/C)

A letter of credit is issued by a bank or financial institution, providing payment assurance to the seller for a transaction requested by the buyer. This method is considered advantageous for both parties as it reduces the risk of fraud from both the seller and the buyer.

Credit Card

Credit cards are another popular international payment method. They are widely accepted, and buyers are not required to make direct payments at the time of purchase. Sellers, however, still receive payment assurance. Credit cards offer flexibility as an international payment method, but they typically come with administrative fees and less favorable exchange rates.

Escrow Account

This international payment method involves a third party, which holds the funds sent by the buyer to the seller until all business contract requirements are met. However, for this method to work, a neutral and trustworthy third party is required.

Does my business need a payment system?

After learning about various international payment methods, you might be wondering if your business needs to adopt and offer an international payment system for your customers. To help you determine whether it's necessary for your business to provide international payment methods, it's worthwhile to examine some advantages and disadvantages of international payment tools.

Advantages of International Payment Tools

If you're looking to expand your market, or trying to grow your digital business, there are several advantages of implementing international payments for your business that you can consider.

Expanding into Foreign Markets

By embracing digitalization and various international payment methods in your business, you indirectly open opportunities to reach clients or consumers from other countries. This, in turn, promotes your products or services to international consumers.

Fraud Risk Mitigation

One reason you might hesitate to expand your business internationally is the risk of fraud by unknown parties, especially when conducting transactions with clients or entities you are not familiar with. However, by implementing the right international payment methods, you can minimize these risks. If you are considering expanding your business internationally, you might want to try adopting international payment methods such as Letters of Credit or Credit Cards, which can reduce the risk of fraud by buyers.

Effectiveness and Efficiency

In the past, international financial transactions required more complex procedures. However, with the advancement of the internet, technology, and the global financial industry, international financial transactions have become easier and more affordable. Consequently, companies can implement more efficient operations and offer easier and diverse international payment options for their customers.

Shortcomings of International Payment Tools

After understanding some advantages of international payment tools, it's also worthwhile to look at some drawbacks to help you make informed decisions.

Transaction Costs

Despite some international payment methods offering competitive fees, others still impose relatively high charges. This can be a consideration and a burden for some business players, especially Small and Medium Enterprises (MSMEs), as it adds to the operational costs and makes it challenging for the offered products or services to compete with others.

Currency Exchange Rates

In international financial transactions, differences in currency values are inevitable. However, many international payment providers and methods often set relatively high currency exchange rates. This becomes a burden for business players and can impact the profits and losses incurred.

Different Regulations Applies 

Each country has different legal rules and regulations, affecting the complexity of international financial transactions between one country/region and another. In-depth knowledge and research are required from business players to determine the most suitable international payment method based on the regulatory conditions in the respective countries.

Aspire Payment Gateway as an option to expand your business

As a partner in developing your business, the Aspire Business Account is designed to assist you in expanding your business to international markets by providing the convenience of opening virtual accounts in various currencies such as IDR, SGD, and USD.

Through the Aspire business account, enjoy the ease of sending and receiving international payments in a variety of currencies (up to 30 international currencies from 130 countries) on the same day, with transparent transaction fees and competitive foreign exchange rates. You also don't need to worry about hidden fees in your transactions because, by using the Aspire business account, we display all service charges and the predetermined currency exchange rates upfront, ensuring transparency in all transactions conducted through the Aspire business account.

On top of that, Aspire also offers payment gateway services where by implementing Aspire's payment gateway to your business, it allows your business to accept international payments with low and transparent MDR fees. Not only that, the payment gateway also offers various payment methods that are accepted both domestically and internationally that can be chosen according to your clients' preferences, including: Credit Card, Transfer to Virtual Account, various e-wallets, QRIS and also various other digital payment method options. 

With an easy integration process and 24/7 user service via phone, chat, or email, your business can immediately accept digital payments both domestically and internationally without any worries. Want to know more about how Aspire's payment gateway can be the solution to grow your business? Learn more about Aspire's payment gateway here.

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ABOUT THE AUTHOR
Ekky Pramana is a seasoned writer specialising in business finance and management. With a writing history at Tech in Asia, Teknoverso, and various other publishers, he leverages his market expertise to empower and educate first-time founders in managing their businesses better.
Ekky Pramana
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