How do cross-border payments work for businesses in India?

Apr 05, 2024

In a transaction, when the sender and receiver of funds are from two different countries, then it’s termed cross-border payments.

While it happens in both personal and business backdrops, B2B cross-border payments hold much significance considering the higher sum handled.

In a very short period of time, cross-border payments in India have seen a paradigm shift with the advent of non-banking finance companies and cutting-edge financial services.

It has invited curiosity and made us question how cross-border payments work in India and who regulates them.

Cross-border payments landscape in India

The number of individuals and businesses trading internationally and making cross-border payments has remarkably increased in the country. Here is how cross-border payments work in India, currently.

The cross-border settlement happens through a bank with offices in both countries (India and the other countries involved), where the money is transferred based on the current exchange rate and sent to the recipient bank.

The user must incur a 10 to 15% commission for this seamless fund transfer. 

Though RBI has come up with regulations that can be bottlenecks to seamless B2B cross-border payments, they have given some exceptions too.

One of them is allowing money transfer operators like Western Union to partake and deposit money into bank accounts through the MTTS scheme. 

In order to make this profitable for the sender and receiver while keeping the internal payments data safe, RBI is utilizing the UPI payment ecosystem by collaborating with different countries.

To name one, NPCI, the digital payment enabler in India, has partnered with PayNow to facilitate fast and low-cost cross-border payments from India to Singapore and vice versa.

Likewise, RBI is constantly working on bringing in non-banking operators into the game and thereby helping Indians get access to cutting-edge digital payment infrastructure. 

Another point to be noted about the RBI cross-border payment regulation is their one size for all approach. The paperwork and compliance are pretty much the same for any kind of cross-border payment, be it a small transaction or a huge business remittance.

Related read: Guide on international money transfer for small businesses

How do cross-border payments work in India?

There are multiple ways to make cross-border payments in India. And there are correspondent banks that act as intermediaries between the involved financial institutions.

Here is the cross-border payment process flow of a typical cross-border transaction between India and another country.

Let’s assume a scenario where a buyer from India makes an international purchase and has to send the payment across to the seller’s bank account.

The sender initially deposits the money in their paying bank and includes the sender and payment instructions.

The paying bank then transfers the money to the correspondent bank in India along with the payee and payer information.

From there, the remittance is sent to a central bank for clearance. If it passes the regulatory examination, it gets transferred to the recipient country’s correspondent bank.

The correspondent bank then deposits the money into the beneficiary bank account of the seller. 

The cross-border payment workflow consists of an interdependent network of banks within and outside the country.

Since multiple members are involved in the payment workflow, it takes up to five to six business days to complete the payment.

Related read: Multi-currency wallets to improve your business finances

Different kinds of cross-border settlements

To fully understand how cross-border payments work, you should also take cross-border payment methodologies into account.


Financial institutions and banks use SWIFT to allow the inflow and outflow of funds across borders.

Not only banks but also clearance houses, money transfer agents, security dealers, and other agencies that process extensive sums of money. It takes one to five business days for B2B cross-border payments to be processed through SWIFT infrastructure.

In order to use the SWIFT network, financial institutions obtain NOSTRO accounts by collaborating with respective foreign correspondent banks.

2. RDA

To make way for ultra-fast international transactions for Indian users living abroad, banks partner with exchange houses. Customers can contact these exchange houses and deposit money that will be sent quickly to the recipient in India.

The exchange house will transfer the funds to the recipient’s bank account with the RDA facility. Only inward remittances are allowed through this.


MTSS is mainly used in inward remittance from foreign countries for personal purposes. The commission for each transaction is really low, ranging from 0.3 to 5%.

It takes three to five business days for the payment process completion. This payment ecosystem is a tie-up between Indian agents and foreign money transfer agencies for them to easily deposit funds into Indian beneficiaries’ accounts.

Each beneficiary can make only 30 transactions per year, and the transaction amount limit for each attempt is USD 2500.

4. Postal channels

Universal Postal Union has designed a platform called the International Financial System (IFS) to allow incoming and outgoing international remittances through postal channels with partnered countries.

Here is how cross border payments work when postal channels are involved. The fund transfer happens through the exchange of EDI (Electronic Data Interchange) from the Indian postal server to the IFS national server.

From this point, it’s then transferred to the recipient’s postal server. If someone wants to use the service in India, they can contact the nearby post office.

Similarly, if you want to send money from any serviceable country to India through the postal channel, you can touch base with the respective IFS.

Guidelines to regulate cross-border transactions in India

The central government and RBI together have formulated the following guidelines to regulate international payments that happen between India and beneficiaries from other countries.

1. Foreign Exchange Management Act

Passed in 1999, FERA was passed to regulate foreign transactions from and to India. According to this act, only authorized persons are allowed to indulge in foreign transactions.

And these transactions must be approved by FEMA in the first place. Authorized persons include commercial banks, rural banks, and other financial institutions.

It is also capable of;

Restricting a suspicious international transaction from India on behalf of public interest.

Restricting transactions from a capital account even if an authorized person has processed the transaction.

Authorizing any citizen residing in India to conduct the foreign exchange.

FEMA is also applicable to companies located outside India but managed by Indian citizens.

2. Income Tax Act

Income Tax Act 1962 throws light on how tax must be levied on different groups of individuals. It indeed affects cross border payment process flows in some ways.

In a cross-border transaction, both homeland tax and foreign tax come into consideration. Hence, businesses plan their B2B cross border payments in a tax-efficient manner. 

One such instance where the income tax act affects the cross-border transaction is how capital gains tax is levied for capital assets transfer.

In the case of M&A between one Indian company and a foreign company, if the amalgamation leads to the formation of an Indian company, then both companies can enjoy tax exemption in transactions.

It can further get complicated depending on the type of merger.

3. Prevention of Money Laundering Agreement

Passed in 2002 by the Parliament of India, this act is established to prevent money laundering activities in India. This act is applicable to companies, NGOs, the regular public, partnership firms, and any beneficiary in India. 

Money laundering denotes the involvement of money transactions from one party to another in order to promote criminal, drug trafficking, or terrorism activities.

These criminals act like normal consumers and transfer their money from one part of the world to another which might resemble any normal cross-border transaction.

A majority of money laundering activities are carried out through foreign transactions, which justifies the existence of this act.

The features of the Money Laundering Act include:

Capital punishment for people involved in ML acts

Power to attach a property to be proceeds of crime by someone in the director’s grade.

Adjugating authority to decide if any attached or seized property is involved in ML

Burden of proof

This retribution will be applicable to any party who is directly or indirectly involved in the concealment, possession, acquisition, or use of the laundered money.

4. Rupee Drawing Arrangement

There are two channels that help in inward remittances in India. They are Rupee Drawing Arrangement and Money Transfer Service Scheme (MTTS).

This allows banks to have tie-ups with non-resident money exchange houses to maintain their VOSTRO account. These exchange houses are authorized by the respective authorities in their countries to collect cross-border remittances.

Under the RDA scheme, B2B cross border payments and trade-related transactions are capped at Rs.15 lakhs. But this limit is not applicable to individuals involved in cross-border transactions.

Only when RBI approves, the banks can partner with exchange houses from other countries. Also, note that RDA has no control over outward remittances going from India to other nations.

UPI for offering real-time cross-border remittances

RBI took the matter in its hands to promote quick, secure, and superfast instant cross-border remittances and founded NPCI (National Payments Corporation of India).

NPCI owns full control of UPI in India and tells payment service providers how cross border payments work here.

They also have a role in cross border payment process flow, settling payments and disputes. UPI is one of its attempts to create global payment systems stronger than any other cross-border payment system put together.

The main plus point of UPI is that it’s independent and doesn’t rely on banks.

It uses the infrastructure of IMPS in the backend. But UPI doesn’t require a long data set other than the phone number, unlike IMPS. It’s also possible to request money with just a phone number.

RBI is launching UPI in 10 foreign countries through partnerships with international financial boards. To start with, IndusInd bank has partnered with Deemoney of Thailand to enable NRI remittances between these two countries.

Requirements for making cross-border payments

For any typical B2B cross border payments, the following data, setup, and infrastructure are required. You will need the vendor’s personal and banking information.

They are IBAN (International Bank Account Number) and Bank Identifier Code (BIC) to fulfill B2B cross border payments. But if a customer from India is purchasing something from an international eCommerce site, they don’t need such details.

The eCommerce merchant might already have partnered with a payment solution provider of the particular country and thereby take care of cross border payment process flow.

SWIFT payments are also possible to initiate where you will need your vendor’s beneficiary account details, their bank’s postal address, and their SWIFT code.

Importance of address verification system for cross-border payments

Businesses receiving cross-border payments are constantly worried about whether the payment is legitimate and is from the person who actually owns the bank account.

This is where fraudulent and unauthorized transactions begin kicking in. That’s where Address Verification System (AVS) comes into play.

Usually, banks verify the account number, card information, and CVV while processing the B2B cross border payments. Along with that, an AVS will verify the billing address and name of the cardholder who makes the payment.

AVS has the potential to reject and cancel the cross border payment process flow when it identifies a fraudulent transaction. Address verification system is very important in the case of cross-border payments because of the following reasons:

No second-factor authentication is present other than OTP while online shopping from international websites.

Possibility of anti-money laundering risks

In case of chargeback disputes filed by customers when they don’t receive an order, it affects businesses as they lose the revenue from a transaction.

In India, Razorpay becomes the first financial intermediary to introduce AVS to help businesses while processing B2B cross border payments.

Importance of FIRC for receiving international payments

If you are a merchant in India who receives payments from foreign customers, you must own a FIRC (Foreign Inward Remittance Certificate). Both sellers and service exporters are required to obtain this certificate to state as proof for every foreign transaction they receive in India.

1. What does a FIRC document contain?

Name of the beneficiary

How the payment is made (cash, account transfer, etc)

Bank name and address that processed the transaction

Purpose of the transaction

Exchange rate

Name of the recipient

2. What are the types of FIRC?

Physical FIRC

When a foreign customer deposits money into their bank account to send to the Indian merchant, their bank sends an advisory or a NOC to your home bank. This document is a way to instruct your bank to clear the e-FIRC process.


When the remitter bank finishes the above step, it’s the responsibility of your home bank to further complete the process. They get the remitter information and finish the required documentation process.

There is a government portal called EDPMS (Export Data Processing and Monitoring System). Once satisfied with the payment info, the home bank uploads the remittance information into this system and produces an Inward Remittance Number aka e-FIRC number.

3. How to obtain FIRC certificate?

The merchant must pay the issuance to the processing bank in order to release the FIRC document physically or digitally

They must provide the following information including account number, amount being transferred, transaction date, and reason for the transaction.

But if you wait for 15 days or more, the e-FIRC will be available directly in your account that you can download.

Legal Entity Identifier - mandatory for cross-border transactions

For any B2B cross border payments or transactions, in general, that are above Rs. 5 crores, a Legal Entity Identifier is made mandatory by RBI.

Risk management is the main reason to own this number by parties who are involved in high-volume transactions. Also, it was introduced to make financial data reporting systems more accurate.

This mandate officially comes into practice starting in October 2022.

An identity factor like LEI is mandatory to bring regulation among legal entities, non-government, and government bodies that trade globally.

The odds of fraud and chaos are extremely common as there are many sister and child companies for one parent company. So, the question of who initiated a transaction or who receives it always circles around.

Legal Entity Identifier is a unique 20-digit number with alpha-numeric characters. Entities can obtain this from Local Operating Units that were backed and accredited by the Global LEI foundation.

So, when banks process transactions above Rs. 5 crores, they must obtain LEI from the account holder and capture that same in a central repository of Information on Large Credits.

Choose the best cross-border payment option for your business

How tiring it can be for small and medium businesses to maintain compliance and update themselves with every regulation for cross-border transactions.

From finding how cross border payments work to setting up different bank accounts, everything will be complicated for a new business owner. 

Meet Volopay, the only expense management application you will need to meet your business payment needs.

You no longer have to wait for days to process B2B cross border payments as Volopay allows rapid international payments at the lowest cost possible.

It’s not just easy to spend but also to track the payments from one unified platform. Make international payments like how you make local transfers at a nominal transfer fee. 

With Volopay’s Bill Pay, you can schedule and make remittances on time and never miss any bill payments.

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