How To Accept Cross-Border Payments In India?

All major businesses in India face a similar issue of accepting cross-border or international payments. Especially if you’re a SaaS-based company or a digital service provider, you will look for US, UK or Europe clients.

You may even use an international accounting system like ProfitBooks to raise invoices to your US-based clients in US Dollars or any other currency you like.

Now working with international clients will require you to accept international payments in India, and we’re sure you don’t want to pay heavy forex fees.

How do we navigate international payments in India then?

In this article, we’ll cover what cross-border payments are and how you can accept international payments in India, with as little fees and hassle as possible!

What Are International Payments?

International, or cross-border, payments are financial transactions between people or businesses in different countries. Simple.

Imagine sending money to a friend abroad – that’s cross-border! These payments can involve banks, online services, or even credit cards, but often come with fees and currency exchange hassles.

If you don’t want to accept cross-border payments, check – best payment gateways in India.

Why Do You Need A Guide On International Payments?

Making a payment simple using your bank account can be tricky. With so many middlemen involved, you try sending $100, and the beneficiary will receive only $90 (for example). This is frustrating, as logically, sending money should be simple, and most importantly, FREE.

This is why, a guide like this can help you, by explaining methods (bank transfers, apps etc.), comparing costs and speeds, and offering step-by-step instructions. A guide on this equips you to send and receive money abroad confidently. It also tackles common worries like fees and fraud, keeping you informed and secure.

How International Payments Work in India

In India, you have options for sending money abroad. Banks rely on other banks, called correspondents, to move the money between countries.

Imagine you’re buying something overseas. Here’s how your payment goes on its journey:

1. You give your bank the money and tell them who to send it to.
2. Your bank sends it to a correspondent bank in India with those details.
3. The money goes to a central bank for approval.
4. If approved, it heads to the seller’s country’s correspondent bank.
5. Finally, it lands in the seller’s account.

This network of banks takes time, so expect 5-6 business days for your payment to arrive.

What Are The Methods For International Money Transfer?

• Wire Transfers: Traditional bank-to-bank transfers.
• Electronic Funds Transfer (EFT): Digital transfer of funds between financial institutions.
• Mobile Payments: Payments made via mobile apps or services.
• Digital Wallets: Services like PayPal or Alipay that store and transfer digital currency.
• Cryptocurrency Transactions: Utilising digital currencies like Bitcoin for international payments.

Payment Gateways & Why They Are Popular

A common option for companies of all sizes to accept foreign payments is through international payment gateways.

By serving as a go-between for companies and consumers, an online payment gateway guarantees quick and safe transactions.

A payment gateway is an essential part of an e-commerce ecosystem, particularly in B2C situations requiring online checkouts, in order to guarantee safe and effective transactions.

In order for merchants to accept cards and other payment methods like Paypal, they must use a payment gateway.

The payment gateway safely records the payment details when a consumer makes a purchase. After that, it sends the data to the acquiring bank or payment processor.

Subsequently, the payment processor gets in touch with the customer’s bank to confirm and approve the payment.

3 Most Widely-Used Payment Gateways in India for International Payments

Here are the three most widely used payment gateways, all known for their secure and efficient processing:

• Razorpay: Leading the pack is Razorpay, known for its competitive fees and focus on innovation. They offer a user-friendly platform that integrates seamlessly with various e-commerce platforms, making them a popular choice for businesses of all sizes.
• PayPal: A global giant, PayPal is a trusted name in international payments. It boasts a wide reach and allows transactions in over 100 currencies. However, their fees can be slightly higher compared to Razorpay.
• Payoneer: Payoneer empowers businesses and freelancers to navigate international payments. They offer global reach (200+ countries, various currencies), flexible receiving options (local transfers, virtual account, Mastercard), competitive fees, and seamless integrations with popular platforms. Security and compliance are a priority.

Check our guide on the top payment gateways in India for international payments.

Types of Cross-Border or International Settlements

1. SWIFT (Society for Worldwide Interbank Financial Telecommunications)

SWIFT facilitates cross-border fund inflows and outflows for banks and financial institutions.

In addition to banks, other organizations that handle large amounts of money include clearing houses, money transfer agents, securities dealers, and others. The processing of B2B cross-border payments via SWIFT infrastructure takes one to five working days.

Financial institutions deal with the appropriate overseas correspondent banks to get NOSTRO accounts before they may access the SWIFT network.

2. RDA (Rupee Drawing Arrangement)

Banks collaborate with exchange houses to provide incredibly quick international transfers for Indian clientele residing overseas. Clients may get in touch with these exchange firms and deposit money to have it swiftly transferred to the Indian receiver.

Using the RDA feature, the exchange house will deposit the money into the recipient’s bank account. Through this, only remittances from inside are permitted.

3. MTSS (Money Transfer Service Scheme)

The primary application of MTSS is for personal inbound remittances from overseas. Each transaction has a very little fee, ranging from 0.3 to 5%.

The payment procedure takes three to five business days to complete. In order to make it easier for international money transfer companies to deposit money into the accounts of Indian recipients, Indian agents have partnered to create this payment ecosystem.

A maximum of $2500 can be transacted for each attempt, and each recipient is limited to 30 transactions annually.

4. The International Financial System (IFS)

The International Financial System or IFS is a platform created by Universal Postal Union, enables international remittances to be sent and received via postal channels with partner nations.

This is the procedure for cross-border payments including postal channels. The electronic data interchange, or EDI, between the Indian postal server and the IFS national server facilitates the fund transmission. It is then sent to the postal server of the addressee from this point on.

One can get in touch with the local post office if they wish to use the service in India.

General Step-by-Step Procedure of International Payments

The exciting world of international payments involves a multi-step journey for your money. Here’s a breakdown of the five key stages:

1. Initiation: The adventure begins when you, the payer, kick things off by providing all the necessary details – recipient’s name, bank info, and of course, the amount you’re sending.
2. Authorization: Your trusty bank steps in to verify your account details, make sure you have enough funds, and ensure everything complies with regulations. Basically, they give the green light for the transfer.
3. Network Processing: This is where things get interesting! Once authorized, your payment enters the world of payment networks. These networks act like superhighways, zipping your money towards the recipient’s bank while double-checking their account details for accuracy.
4. Clearing and Settlement: Here’s where the magic happens! The payment network acts as a mediator between your bank and the recipient’s bank. They ensure both institutions agree on the transaction details and finalize the transfer.
5. Funds Availability: The grand finale! The recipient’s bank receives the funds and credits them to the recipient’s account. Now, your friend or business partner on the other side of the border can finally access the money.

5 Major Challenges Businesses Face During Cross-Border Transactions

Notwithstanding the advantages of cross-border payments, sending and receiving money internationally can present a number of difficulties for both people and enterprises.

• Cost: Cross-border payments are typically accompanied by high fees and foreign currency expenditures, which may be a significant barrier for both people and businesses.
• Time-consuming: Since cross-border payments can require many intermediaries and take a long time to settle, they can be challenging and time-consuming to perform.
• Compliance: There are legal standards for cross-border payments that must be followed, including stringent know-your-customer (KYC) procedures.
• Security: Since there is a danger of fraud and cybersecurity with cross-border payments, businesses need to have robust security measures in place.
• Currency fluctuations: Exchange rate volatility puts businesses and individuals conducting cross-border transactions at risk and can lead to unanticipated costs and losses.

What Guidelines Regulate International Payments in India?

The following norms, which govern foreign payments between India and recipients in other nations, have been developed by the RBI and the federal government jointly.

1. The Foreign Exchange Management Act

FEMA was passed in 1999 with the purpose of regulating international transactions to and from India. This statute states that only individuals with authorization may deal internationally.
Additionally, FEMA must first authorize these trades.

Commercial banks, rural banks, and other financial institutions are examples of authorized individuals.

Additionally, it has the ability to:

• Block an allegedly shady foreign transaction from India in the interest of the general public.
• Limiting the amount that can be taken out of a capital account, even if it was processed by an authorized individual.
• Giving permission to any Indian citizen who resides there to handle the foreign exchange.

2. The Income Tax Act

The Income Tax Act of 1962 clarifies the requirements for imposing taxes on various categories of people. It does in fact have some effect on the flows of cross-border payment processes. Both domestic and foreign taxes are taken into account in a cross-border transaction.

As a result, companies arrange their cross-border B2B payments in a way that minimizes taxes. The way capital gains tax is applied to the transfer of capital assets is one example of how the income tax act influences a cross-border transaction.

If an amalgamation results in the creation of an Indian firm via a merger or acquisition, both businesses will benefit from tax exemptions on transactions. It can become much more complex based on the kind of merging.

3. Agreement to Prevent Money Laundering

Prevention of money laundering act was passed by the Indian Parliament in 2002, was created to stop money laundering operations in India. Companies, non-governmental organizations, the general public, partnership businesses, and any Indian recipient are all covered by this statute.

The Money Laundering Act has the following features:

• Capital sentence for those who commit money laundering
• The authority to attach property that someone in the director’s grade believes to be the proceeds of crime.
• The adjudicating authority’s decision on the involvement of any seized or attached property in ML
• Proof burden Any person who has a direct or indirect role in the concealment, acquisition, ownership, or use of the money that has been laundered shall be subject to this retaliation.

4. The Rupee Drawing Arrangement (RDA)

In India, there are two avenues that facilitate inward remittances. They are the Money Transfer Service Scheme (MTTS) and the Rupee Drawing Arrangement.

In order to keep their VOSTRO account, banks are able to form partnerships with non-resident money exchange businesses. The aforementioned exchange houses possess authorization from their respective national authorities to receive and process cross-border remittances.

B2B cross-border payments and trade-related transactions are limited to Rs. 15 lakhs under the RDA plan. However, this cap does not apply to those who are transnationally transacting. The RBI must provide its approval before banks may collaborate with foreign exchange firms.

Furthermore take notice that RDA has no authority over remittances sent outside by Indian citizens.

What You Need For Successful International Payments

Any typical B2B cross-border payment requires the following infrastructure, setup, and data. The vendor’s financial and personal details are required.

To complete B2B international payments, they are the Bank Identifier Code (BIC) and the International Bank Account Number (IBAN). However, such data are not required if an Indian buyer is making a purchase from an overseas eCommerce site.

The eCommerce vendor may already be handling the flow of cross-border payments because of a partnership with a payment solution provider in that nation.

It is also feasible to begin SWIFT payments; however, you will require the beneficiary account information, the postal address of your vendor’s bank, and their SWIFT code.

The Role of Foreign Inward Remittance Certificate (FIRC)

A Foreign Inward Remittance Certificate (FIRC) acts as official proof that you received a foreign currency payment in India. It’s like a receipt issued by your bank detailing the sender, amount, and purpose of the transfer.

This document is crucial for exporters and anyone receiving foreign income, as it helps claim government benefits and comply with regulations set by the Reserve Bank of India.

In short, FIRC is;

• Proof of receiving foreign currency in India
• Issued by authorized dealer banks
• Crucial for exporters claiming government benefits
• Ensures compliance with RBI regulations
• Available as physical or electronic certificates (e-FIRC)

The Importance of FIRC for International Payments in India

The FIRC plays a vital role for several reasons.

For exporters in India, it becomes essential documentation when claiming various government benefits and support programs designed to incentivize exports. Additionally, the Reserve Bank of India (RBI), the country’s central bank, monitors all foreign currency transactions. The FIRC serves as a key piece of information for the RBI, ensuring transparency and compliance with foreign exchange regulations.

Obtaining an FIRC is typically a straightforward process handled by your authorized dealer (AD) bank in India.

However, with the rise of electronic transactions, physical FIRCs are becoming less common. Many banks now offer electronic FIRCs (e-FIRCs), which are issued electronically through a government system.

Frequently Asked Questions on FIRC for International Payments in India

1. What is included in a FIRC document?

• The beneficiary’s name
• The method of payment (cash, bank transfer, etc.)
• The name and address of the bank handling the transaction
• The transaction’s goal
• Currency exchange rate
• The recipient’s name

2. What kinds of FIRC are there?

• FIRC in physical form

An advise or a NOC is sent to your home bank by the international customer’s bank when they deposit money into their account to be sent to the Indian merchant. You can direct your bank to complete the e-FIRC process by using this paper.

• e-FIRC

Your home bank is in charge of carrying out the remaining steps in the procedure once the remitter bank has completed the previous one. They obtain the remitter’s details and complete the necessary paperwork.

• EDPMS

The government has a portal known as Export Data Processing and Monitoring System, or EDPMS. The home bank generates an Inward Remittance Number, also known as an e-FIRC number, after uploading the remittance data into this system after being satisfied with the payment details.

3. How can I get a certificate from FIRC?

The FIRC document cannot be released online or physically until the merchant pays the issuing bank. The account number, the amount being transferred, the transaction date, and the reason for the transaction must all be disclosed.

However, the e-FIRC will be instantly available for download in your account if you wait for a minimum of 15 days.

What Is Legal Entity Identifier & Why Is It Mandatory For International Payments?

The RBI has mandated the use of a Legal Entity Identifier for all B2B cross-border payments and transactions over Rs. 5 crores.

Parties engaged in large volume transactions primarily possess this number for risk management purposes. It was also adopted to improve the accuracy of financial data reporting systems.

The official implementation of this requirement is scheduled for October 2022.

For legal entities, non-governmental organizations, and government bodies engaged in international commerce to be regulated, an identifying element such as LEI is required.

Given that a single parent firm has several sister and child companies, the likelihood of fraud and instability is very high. As a result, the subject of who started a transaction and who gets paid for it constantly comes up.

The Legal Entity Identifier is an alphanumeric, 20-digit number that is distinct. This is available to entities through Local Operating Units that the Global LEI foundation has supported and authorized. Thus, banks are required to get the account holder’s LEI and record it in a national database of Information on Large Credits whenever they handle transactions totaling more than Rs. 5 crores.

India Leads Cross-Border Payments With UPI

In order to facilitate rapid, safe, and ultrafast cross-border payments, RBI took action and established the National Payments Corporation of India (NPCI).

In India, NPCI controls all aspects of UPI and instructs payment service providers on how to handle cross-border transactions.

They also play a part in the flow of the cross-border payment process, resolving disputes and making payments. One of its efforts to build worldwide payment networks that are more robust than all other cross-border payment networks combined is UPI.

Being autonomous and not dependent on banks is UPI’s primary benefit.

The Future of International Payments in India

We can anticipate a future characterized by increased efficiency, accessibility, and potentially, reduced costs.

Here’s a closer look at some key trends shaping this evolution:

1. Ascendancy of Digital Channels: The burgeoning digital payments ecosystem will continue its upward trajectory. Widespread adoption of mobile wallets, integration of Unified Payments Interface (UPI) for international transactions, and a rise in real-time cross-border settlements are expected.
2. Blockchain’s Potential: Blockchain technology presents a compelling opportunity to streamline international payments. For example, you can use digital wallets build over dApp development platform such as Maestro. Its inherent security and transparency hold the potential to lower transaction fees and significantly reduce processing times.
3. Central Bank Digital Currencies (CBDCs): India’s exploration of its own CBDC, the Digital Rupee, could revolutionize cross-border transactions. This could introduce instant settlements and potentially lessen reliance on traditional intermediaries, leading to a more efficient ecosystem.
4. Expanding Inclusivity: A key focus area for the future will be ensuring broader financial inclusion. We can expect simplified regulations and user-friendly platforms that make international payments more accessible for smaller businesses and individuals, fostering greater participation in the global marketplace.
5. Unwavering Security: As the international payments landscape evolves, robust security measures will remain paramount. Advanced fraud detection systems and stricter regulations will be implemented to ensure the safety and integrity of cross-border transactions, fostering trust and confidence within the system.

Conclusion

Understanding the intricacies of international payments empowers businesses like yours to tap into a global marketplace. With the right tools and knowledge, you can navigate cross-border transactions efficiently and cost-effectively.

This guide has equipped you with the essential information to confidently explore cross-border or international payments in India.

From comprehending the various methods and regulations to recognizing the significance of documents like FIRC and LEI, you’re now well-prepared to navigate this landscape.

If you feel overwhelmed with all this information, submit this form to get started with cross-border payments.

To manage all the various compliances related to cross-border payments, it is always recommended to use a robust accounting solution like ProfitBooks, catered for small businesses.

We suggest this, as ProfitBooks software isn’t only feature-packed and easy to use, but also 100% FREE as well! This is what makes it suitable for growing businesses, looking to get the best of both worlds.

Get a free consultation from our sales team to understand better how ProfitBooks can tackle cross-border remittances with ease. Or, simply get your 100% FREE account now, and start exploring!