How Does International Payments Work?

Why International Payments Fees Are Important? 

If you’ve been ever wondering how does international payments work, then please keep reading on. 

It is important to understand how international payments work and how the fees for such payments are derived. On top of that, to comprehend the impact of correspondence banking network (or payment routes) and currencies, and why this process can be complex sometimes. 

For businesses or individuals wishing to make international transactions, transaction fees might impact the final cost of such transaction and become a burden if these transactions are needed on a frequent basis. 

Another reason that understanding those fees It is possible to avoid them. Using a well- established banking partner or payments specialist can save ton of money. They are going to use smart payments routing to avoid expensive correspondent banks and ultimately make the transaction cheaper. 

Understanding International Payments Process 

By initiating a transaction to send money abroad, a complex system of reconciling and balancing between banks and financial institutions starts.  

So for a bank to implement a cross-border transaction, it must have both currencies or must exchange one currency for another in order to execute the payment. The bank will have a relationship with other banks to conduct a foreign transaction which is outside of their own network. Because of this, international payments involve more financial institutions than you can see.  

Here comes the term – correspondent banking. The correspondent bank will be used by a domestic bank to service such international payment request form a client, by leveraging the correspondent banks payment routes, or banking relations in other words. 

The correspondent bank will be holding different bank accounts with different banks nostro and vostro accounts. Generally, banks that are in correspondent relationship will hold accounts for one another for the purpose of transacting internationally. 

So logically, if more institutions are involved in a transaction – there will be more fees. So choosing a provider or a bank that manages its payment routes efficiently is important if you wish to save on fees.  

Currency Exchange For International Payments 

Most of the international payments will be conducted in foreign currency. For that reason, the currency exchanged is involved in the transaction and can be a huge part of the total cost.  

Moreover, it is reasonable to compare the exchange rate offered by your bank to a mid-market rate or a currency’s current buy/sell value on the FX market. If this excise is done correctly, it will reveal what a huge margin is being charged by the bank for a simple currency exchange transaction. 

While banks are getting direct market access to foreign exchange, they pay mere fractions of a percentage for their own conversions. While end clients are being charged sometimes up to 1% for their conversions. 

One reason why independent payment platforms are more transparent and flexible is that  they are focusing solely on delivering the best experience and cost value ratio for payments and FX, while traditional banks have a variety of focus or lack business development efforts to optimise in specific areas.  

How To Make International Payments? 

The natural question is how to make international payments and save money not only on sending the funds but also on the currency conversions. And why some payments specialist are able to offer those services cheaper. 

The best payments specialists will offer cross-border payments in a vast payment network with lower costs, by negotiating bulk deals with banks around the globe. Such providers are also able to offer clients greater flexibility, efficiency and advice besides the lower fees.  

On the foreign exchange part, some specialists are also getting very small fees for FX as they are buying in bulk. So their aggregate volumes are very high and it makes sense for the prime broker to give a great deal. 

In order to find such payments specialist that will provide cheap payments solution and currency conversion, there are some steps to be done. We have an article on what to take into account before signing up with any payments platform here 

Furthermore, we recommend our readers to check out our partners IFX Payments that are specialists in payment routes and foreign exchange. IFX are able to offer payments in 100 currencies to 120 countries with a transparent and low fees for both payments and foreign exchange. Below you can see the benefits of their multi-currency account: 


How To Receive International Payments?

Sometimes usual bank accounts are not able to receive international payments in more than a few currencies. And it can cause some difficulties for businesses that have clients overseas. 

This happens because of the bank’s inability to offer multi-currency accounts that are able to send and receive funds in many currencies. Instead, a lot of traditional banks suggest having a multiple sub-accounts with them that each is dedicated to different currency. 

Having many accounts each for only one currency might not be the most convenient way to deal with international payments. Having a single account for all currency exchange and payments needs is the way to go. 

The multi-currency account solution offered by IFX Payments is a single account that will serve for ALL international payments and currency exchanges that you or your business have. 

The account from IFX will enable you to receive payments from across the globe in 40 different currencies. As the account is multi-currency, this means that when international payment will hit your account, it won’t be automatically converted to the accounts main currency. It will stay as it is and there will be no fees for incomings payments either. 


All in all, understand how fees for international payments are derived and how the process look like, will help you to save a great deal of costs. We hope that this article was helpful! 

Suggested Articles

Leave a Comment

Your email address will not be published. Required fields are marked *