Cross border Payments vs Money remittances: Key Distinctions

The number of people sending money across borders is increasing day by day owing to various purposes. Individuals, immigrants, businesses, consultants, freelancers, and many people are sending money to various countries in multiple currencies via diverse electronic modes as the means to pay for products, services, friends, or family offered globally.

Remittances prevail as a channel of income for many families as overseas workers send money back to their families through it. And cross-border payments facilitate payment to people/parties or businesses around the world for both personal and professional objectives.

In most cases, common people consider cross-border payments and remittance to be the same. Yet, they are different technically on various grounds such as purpose, types, regulation, exchange rates, cost, operational time, applicability, etc.

Let us explore in detail the distinct difference between cross-border payments and money remittance in the following section.

Specification	Cross-border Payments	Money Remittance
Definition	Cross border payments are the funds transfer which are primarily made between two parties belonging to different countries in exchange for goods or services provided by individuals and businesses. Cross border payments involve both personal and business-related money transfers across borders.	Money remittance is a sum of money that is transferred from the Individual to the other residing in same or different country. It is primarily done on personal grounds to satisfy the financial needs of one’s family or promote their standard of living by offering education, purchasing properties etc. Money remittance corresponds to any type of money transfer that occurs between two parties either domestically or internationally.
Purpose	Most possibly, cross-border payments are used to transfer funds between two different countries to pay employees, suppliers, partners, etc.For example: Online purchase from different countries, Paying the importer in export business.	Money remittance is specifically used to transfer funds between two individuals.For example: Sending money to friends, paying tuition fees for students studying abroad.
Types	The payments are sent between countries through digital payment platforms such as PayPal and wire transfers.	The payments are transferred between the individuals in different as well as same countries via the following ways: Cash, Cheques, Bank transfers, Electronic money transfer, Credit, and Debit card payments.
Regulation	Cross-border payments are administered by a set of regulations pertaining to the countries involved. In the European Union, the Payment Services Directive (PSD2) sets out several requirements for cross-border payments, including customer identification, record keeping, and reporting. Other countries may have different regulations, and there may also be additional restrictions, such as foreign exchange rates, international wire transfer regulations, and sanction lists.	The Financial Action Task Force (FATF) is an intergovernmental agency that monitors the regulation of money remittance. To address money laundering, the financing of terrorism, and the financing of proliferation, all governments ought to conform to the FATF Recommendations. The FATF encourages all countries to adopt certain measures such as KYC guidelines, and anti-laundering regulations effectively in their own systems. KYC guidelines require banks to verify the identity of their customers, and anti-money laundering regulations require banks to monitor suspicious transactions. By adhering to these regulations, banks can help to prevent the use of their services for illegal activities.
Time	As cross-border payment deals with business transactions in most cases, the payment takes a certain time, from weeks to months at times, depending on the payment service provider.	Since specific amount is transferred through money remittance, the payment is transferred in real time like the credit/debit card payment.
Security	Significant security breaches in the cross-border payments regime are typical. As regulations vary across nations, hackers have the accessibility to have control over the payment when the payments are transferred into a country that holds a lethargic security policy and regulation.	Compared to cross-border payments, money remittances are secure as it is regulated by FATF, and no deviation of regulation is available in the sender/receiver’s country.
Volume	Any volume of payment shall be transferred between nations in cross-border payments.	Generally, small/sizeable volume of data is remitted in money remittance.
Currency	In cross-border payments, the payment is transferred to the receiver in the currency of the sender’s country.	Conversion of the sender’s foreign currency to receiver’s local currency is involved in money remittance and hence the payment is received by the receiver in their local currency.
Exchange rates	In cross-border payments, the payment is exchanged at the receiver country’s currency rate.	In money remittance, the payment is exchanged to local currency based on the sender country’s exchange rate.
Application	Cross-border payments are meant for both professional and personal use. Most international business transactions take place through cross-border payments.	Money remittance is used for personal use like sending money to family members living abroad, paying their bills etc.
License	There is no license requirement for cross-border payments. Yet, it is essential that the payment service providers must adhere to the rules and regulations of the countries engaged. Authorization from the respective nations is mandatory for the payment service providers to offer cross-border payment services within the European Union.	Every country has its own regulatory body to approve the remittance service providers to offer money remittance services. In the UK, the Financial Conduct Authority (FCA) is responsible for offering licenses to the money-remittance service providers. The application process for obtaining licenses is different across countries.
Cost	As payment service providers are a vital part of cross-border payments, they need to be compensated and hence the cost of cross-border payments is comparatively higher.	The cost of money remittance to overseas countries is lower when compared to cross-border payments.

Cross-border Payments
Definition Cross border payments are the funds transfer which are primarily made between two parties belonging to different countries in exchange for goods or services provided by individuals and businesses. Cross border payments involve both personal and business-related money transfers across borders.
Purpose Most possibly, cross-border payments are used to transfer funds between two different countries to pay employees, suppliers, partners, etc.For example: Online purchase from different countries, Paying the importer in export business.
Types The payments are sent between countries through digital payment platforms such as PayPal and wire transfers.
Regulation Cross-border payments are administered by a set of regulations pertaining to the countries involved. In the European Union, the Payment Services Directive (PSD2) sets out several requirements for cross-border payments, including customer identification, record keeping, and reporting. Other countries may have different regulations, and there may also be additional restrictions, such as foreign exchange rates, international wire transfer regulations, and sanction lists.
Time As cross-border payment deals with business transactions in most cases, the payment takes a certain time, from weeks to months at times, depending on the payment service provider.
Security Significant security breaches in the cross-border payments regime are typical. As regulations vary across nations, hackers have the accessibility to have control over the payment when the payments are transferred into a country that holds a lethargic security policy and regulation.
Volume Any volume of payment shall be transferred between nations in cross-border payments.
Currency In cross-border payments, the payment is transferred to the receiver in the currency of the sender’s country.
Exchange rates In cross-border payments, the payment is exchanged at the receiver country’s currency rate.
Application Cross-border payments are meant for both professional and personal use. Most international business transactions take place through cross-border payments.
License There is no license requirement for cross-border payments. Yet, it is essential that the payment service providers must adhere to the rules and regulations of the countries engaged. Authorization from the respective nations is mandatory for the payment service providers to offer cross-border payment services within the European Union.
Cost As payment service providers are a vital part of cross-border payments, they need to be compensated and hence the cost of cross-border payments is comparatively higher.

Money Remittance
Definition Money remittance is a sum of money that is transferred from the Individual to the other residing in same or different country. It is primarily done on personal grounds to satisfy the financial needs of one’s family or promote their standard of living by offering education, purchasing properties etc. Money remittance corresponds to any type of money transfer that occurs between two parties either domestically or internationally.
Purpose Money remittance is specifically used to transfer funds between two individuals.For example: Sending money to friends, paying tuition fees for students studying abroad.
Types The payments are transferred between the individuals in different as well as same countries via the following ways: Cash, Cheques, Bank transfers, Electronic money transfer, Credit, and Debit card payments.
Regulation The Financial Action Task Force (FATF) is an intergovernmental agency that monitors the regulation of money remittance. To address money laundering, the financing of terrorism, and the financing of proliferation, all governments ought to conform to the FATF Recommendations. The FATF encourages all countries to adopt certain measures such as KYC guidelines, and anti-laundering regulations effectively in their own systems. KYC guidelines require banks to verify the identity of their customers, and anti-money laundering regulations require banks to monitor suspicious transactions. By adhering to these regulations, banks can help to prevent the use of their services for illegal activities.
Time Since specific amount is transferred through money remittance, the payment is transferred in real time like the credit/debit card payment.
Security Compared to cross-border payments, money remittances are secure as it is regulated by FATF, and no deviation of regulation is available in the sender/receiver’s country.
Volume Generally, small/sizeable volume of data is remitted in money remittance.
Currency Conversion of the sender’s foreign currency to receiver’s local currency is involved in money remittance and hence the payment is received by the receiver in their local currency.
Exchange rates In money remittance, the payment is exchanged to local currency based on the sender country’s exchange rate.
Application Money remittance is used for personal use like sending money to family members living abroad, paying their bills etc.
License Every country has its own regulatory body to approve the remittance service providers to offer money remittance services. In the UK, the Financial Conduct Authority (FCA) is responsible for offering licenses to the money-remittance service providers. The application process for obtaining licenses is different across countries.
Cost The cost of money remittance to overseas countries is lower when compared to cross-border payments.

Cross-border payments and money remittances are the two crucial fund transfer methods that assist individuals and businesses by facilitating international payment across the globe. They possess unique features and are employed by users based on their requirement scenario.

We hope that we have explored extensively the differences between cross-border payments and money remittance in detail here, bringing insight into their operation, purpose, application, efficiency and many more.

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