Global commerce has evolved significantly over the years, and today, there are numerous international payment methods, each with its own unique characteristics, benefits, and drawbacks.
It’s easy to feel overwhelmed by the international payment options available to businesses, so let’s demystify the key differences between more traditional international payment methods, such as Automated Clearing House (ACH), real-time gross settlement (RTGS), telegraphic transfers, and newer methods such as cryptocurrency, including stablecoins.
ACH, or Automated Clearing House payments
ACH payments are electronic transfers primarily used for domestic transactions within the United States and sometimes Canada. However, they are increasingly being adopted in other countries under different names, such as Single Euro Payments Area (SEPA) in the European Union.
ACH payments are known for their cost-effectiveness and ease of use, making them a popular choice for businesses and individuals.
ACH payments are typically processed in daily batches, which means they can take longer to process than RTGS payments. Because ACH payments take a few business days to settle, they may not be suitable for time-sensitive business-to-business (B2B) transactions. However, ACH payments are often more cost-effective than other methods, especially for high-volume, low-value transactions.
When do businesses use ACH payments?
Businesses that make frequent and low-value transactions will often turn to ACH payments as a cost-effective way of transferring funds. In addition, ACH networks are well-established in many countries, which makes them a readily available payment method. Despite their lack of speed, many businesses prefer ACH payments because they offer automated processing, reducing the need for manual intervention and minimizing errors.
RTGS payments
RTGS payments are known for their speed and accuracy. Typically operated by central banks and financial institutions, RTGS payments settle within a few hours (if not instantly), making them ideal for time-critical international transactions. They are also secure and irreversible once initiated, providing a high level of confidence in the settlement process.
When do businesses use RTGS payments?
Due to their unparalleled speed and certainty, RTGS payments are an excellent option for high-value international transactions that require immediate settlement, such as corporate payments. However, this benefit comes at a price, with RTGS payments being more expensive than alternative methods, particularly for low-value transfers.
The secure and irrevocable RTGS payments are also appealing because they minimize the risk of payment fraud or disputes.
EFT (electronic funds transfer) payments
EFT payments represent a broad category of electronic payments that encompasses credit/debit card transactions, direct deposits, ACH payments, RTGS, and more. They are commonly used for both domestic and international transactions, providing the flexibility and convenience to accommodate a wide range of transaction sizes and purposes.
EFT settlement times and costs can vary widely depending on the specific method used. However, EFT payments can be initiated online and easily tracked, making this method highly convenient and transparent.
When do businesses use EFT payments?
The appeal of EFT payments stems from their flexibility, which allows businesses to balance cost verses speed depending on their needs at the time of transaction. For example, if a small business in the United States needs to pay a supplier in Germany for a shipment of goods ACH payments may be cost-effective but too slow, while an RTGS payment might be too costly for the transaction’s value. In situations like this the flexibility of an EFT payment could provide a balanced solution.
Telegraphic transfers
A telegraphic transfer payment, often referred to as a wire transfer, is an electronic method of transferring funds from one bank account to another. It’s commonly used for international transactions.
Wire transfers offer extensive global reach, being available in nearly every country worldwide, and support a wide range of currencies. They are also considered a secure method for transferring funds because they are processed through established banking channels, which helps to reduce the risk of fraud or unauthorized transactions.
When do businesses use wire transfers?
With their global reach and expansive currency options, telegraphic transfers are a popular method for companies that operate on an international scale and need to transact in multiple currencies. These payments are easily traceable, with banks providing receipts and confirmations, offering a level of assurance to companies sending large amounts of foreign currencies across borders.
However, it’s important to note that fees are often applied to wire transfer payments on initiation and by intermediary banks along the way. Currency fluctuation can detract from the amount of funds that reach the beneficiary. Businesses must carefully consider the total costs involved before choosing telegraphic transfers as a payment method.
Cryptocurrency
Cryptocurrencies such as Bitcoin, Ethereum, and stablecoins have grown in popularity as a form of digital currency in the world of international business. Cryptocurrencies are decentralized, which means they aren’t controlled by a central authority (bank or government). Instead, they operate on a technology called blockchain that is maintained by a network of participants called nodes. This reduces the need for intermediaries, such as banks, to be involved in transactions, enabling fast delivery of funds and reduced costs.
The blockchain technology that cryptocurrency operates on records all transactions in a public ledger that is visible to anyone and isn’t easily altered or deleted. This transparency makes cryptocurrencies less susceptible to fraud than more traditional payment methods.
When do businesses use crypto payments?
An increasing number of businesses are starting to use cryptocurrency, stablecoins in particular, for international payments. Unlike traditional payment methods, which often involve high fees and unfavorable exchange rates, crypto offers a cost-effective and fast way to transact internationally. Cryptocurrencies are also viewed as ‘borderless’, bypassing the need to navigate different banking systems, simplifying the complexities of international trade.
Convera, for example, in collaboration with Ripple, a leading provider of blockchain-based enterprise solutions across traditional and digital finance, offers crypto-enabled payment and treasury solutions for businesses.
Navigating the world of international payments
In the realm of international payments, choosing the right method is a fine balance between speed, cost, accessibility, currency requirements, and security. ACH payments are a widely accessible, cost-effective option for low-value, non-urgent transactions. RTGS payments excel in speed and security, making them ideal for high-value, time-sensitive international transactions. EFT payments offer flexibility and versatility, while wire transfers offer extensive reach and security. As the newest kid on the block, stablecoins offer a fast and cost-effective alternative to traditional payment methods.
Ultimately, the best payment method for any given transaction will depend on the unique circumstances and priorities of the businesses involved. A B2B payments provider such as Convera can give your business flexibility and choice when it comes to speed, cost, and convenience, and guide you to make an informed choice.
