What Is Correspondent Banking and How Does It Work?

So what is correspondent banking?

A correspondent bank is a financial institution that offers services to another financial institution, usually in a different nation. It operates as a middleman or agent for another bank, arranging wire transfers, performing business transactions, receiving deposits, and gathering documentation.

Domestic banks will most likely use correspondent banks to service transactions that originate or are completed in other countries. In addition, domestic banks use correspondent banks to access international financial markets and serve international clients without having to operate branches abroad.

What Is a Correspondent Bank?

A correspondent bank is a bank in one nation permitted to provide services to a bank or financial institution in another country. Currency exchange, processing business transactions and trade documentation, and money transfers are the most frequent services provided by a correspondent bank.

How Does a Correspondent Bank Operate?

Correspondent banking is based on a deal between a foreign and a domestic bank to open a correspondent account, also known as a Vostro or Nostro account, at one bank to benefit the other. Correspondent banking generally includes the concept of reciprocal accounts that link two banks. These accounts are set up so that a domestic bank can make payments or money transfers on behalf of a foreign bank.

These correspondent accounts allow banks to manage international financial transactions for their customers that involve foreign currency exchange, such as those that often occur between an exporting business in one country and an importer in another.

What does the process look like?

A bank customer in one country must pay for goods from another country’s suppliers. The customer’s domestic bank determines the necessary foreign currency exchange transaction to permit suitable payment in the seller’s currency.

It deducts the necessary amount from the customer’s account. Then, it notifies its correspondent bank in the supplier’s nation to pay the matching amount to the supplier from the domestic bank’s correspondent account with the foreign bank in the supplier’s currency.

Third-party banks are referred to as correspondent banks. They bridge the gap between various financial institutions. As a result, they provide Treasury services between sending and receiving banks, particularly those located in different countries—for example,

  • exchange of currencies
  • make sure everything is in order
  • settlement
  • transfer of funds by wire
  • transfer of money

When clients travel abroad, correspondent banks may act as agents to handle local transactions for them. For example, correspondent banks can receive deposits, process documents, and act as money transfer agents locally.

What are Nostro and Vostro Accounts?

Nostro and Vostro accounts are the accounts held between correspondent banks and the banks for which they offer services. The holding bank refers to an account held for another bank as a Nostro account. The counterparty bank refers to the same account as a Vostro account, which means “your account on our records.” Generally, both banks in a correspondent relationship maintain accounts for each other to track debits and credits between them.

Correspondent banks are an essential aspect of the financial industry since they allow domestic banks to continue to operate when they can’t create branches in another country. For example, a small local bank with clients in many countries can form a partnership with a correspondent bank to suit its clients’ foreign needs. They have access to the international financial market as a result of this. As a result, the correspondent bank will charge a fee for this service, usually passed on to the customer by the local bank.

Nostro vs. Vostro Account

The terms “Nostro” and “Vostro” refer to the same bank account. The phrases are used when one bank has money on deposit with another bank, usually in the context of international trade or other financial operations.

Both banks in the partnership must keep track of the amount of money held by one on behalf of the other. The phrases Nostro and Vostro are used to distinguish between each bank’s two sets of accounting records.

The Latin words Nostro and Vostro are variations on the words “ours” and “yours,” respectively. The origins of modern retail banking may be traced back to the 13th and 14th centuries in Italy, where depositors and retail banks kept track of their account balances. The depositing customer held the Nostro ledger, while the bank kept the Vostro ledger.

Account Nostro

A Nostro account is a term used by Bank A to refer to Bank B’s “our” account. Nostro is a colloquial expression for “our money on deposit at your bank.”

The Nostro account records a bank’s money on deposit with another bank. These accounts are frequently used to streamline commerce and foreign exchange settlements. In contrast to regular demand deposit bank accounts, Nostro accounts are usually held by financial institutions and are denominated in foreign currencies.

Account Vostro

Bank B refers to the money on deposit at Bank A as “vostro.” The word “vostro” means “your money” and refers to “your money on deposit at our bank.” A Vostro account is similar to any other bank account. The account is a record of money due to or kept by a third party, most commonly another bank, although it can also be a firm or an individual.

A bank in the United Kingdom or the United States holds a Vostro account on behalf of a foreign bank. The money deposition happens in the currency of the country where the Vostro account is present.

Example of Nostro vs. Vostro

Consider the following scenario. GTBank, a Nigerian bank, receives a large amount of money in the form of remittances from its customers in the United States. Because GTBank does not have a physical presence in the United States, it enters into a contract with Citibank to have a U.S. dollar account opened for it remotely. One will place money received from American clients and businesses sending money to GTBank account holders in Nigeria in GTBank’s Citibank account.

Citibank will send the funds to GTBank’s US dollar account in Nigeria via SWIFT. The Society for Worldwide Interbank Financial Telecommunications, or SWIFT, is a member-owned cooperative. It provides its members with safe and secure financial transactions. Following the completion of the transfer, GTBank receives the dollar-denominated monies, translates them to the local currency (the naira), and puts them into the receivers’ local accounts.

GTBank’s Citibank U.S. dollar account is a Nostro account in GTBank’s eyes. In addition, Citibank maintains a Vostro account for GTBank in US currency.

Cash assets are Nostro accounts with negative balances. On the other hand, Vostro accounts with a credit balance are termed liabilities. Computerized accounting makes it simple to reconcile Nostro and Vostro accounts by simply entering “+” or “-” indications in the respective accounting systems of the banks.

How do International Wire Transfers work for Correspondent banks?

International wire transfers frequently happen between banks with no prior financial relationship. A bank in San Francisco, for example, that receives instructions to wire funds to a bank in Japan cannot do so without first establishing a working relationship with the receiving bank.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) network handles the majority of international wire transfers. The originating bank does not have a functioning connection with the destination bank. So, it can search the SWIFT network for a correspondent bank that does. Then, the originating bank sends the transferred funds to its Nostro account maintained at the correspondent bank after selecting one with agreements with both sides of the transfer.

Intermediary Bank vs. Correspondent Bank

Although there are some parallels between the correspondent and intermediate banks, such as the fact that they both function as third parties for other banks, there is a significant distinction between them. An intermediary bank completes transactions involving a single currency, whereas correspondent banks generally handle transactions involving numerous currencies. They’re essential for domestic banks that aren’t big enough to manage these transactions.

An Overview of Correspondent vs. Intermediary Banks

Beneficiary banks utilize correspondent and intermediate banks as third-party banks to enable international fund transfers and transaction settlements. The beneficiary bank is the receiving bank where a person or company has an account.

A person or corporation would have an account with an issuing bank in both circumstances. The procedure of transmitting funds from the issuing bank to the beneficiary bank is then completed by that bank using a correspondent or intermediary bank.

There are inconsistencies in the explanation of correspondent vs. intermediary banks. For example, correspondent banks can be separate from intermediary banks, or they can be a form of the intermediary bank that is indistinguishable from intermediary banks. It all depends on where the account holder is located in the world.

Banks as Correspondents

A correspondent bank acts as a middleman between the issuing and receiving banks, providing services on behalf of the latter. Domestic banks frequently use correspondent banks as their agent abroad to complete transactions that begin or end in another country. On behalf of the domestic bank, the correspondent bank can carry out a variety of transactions. These services include completing wire transfers, taking deposits, acting as transfer agents, and arranging papers for another bank.

Banks that act as intermediaries

The role of intermediary banks is comparable to that of correspondent banks. An intermediary bank is a link between an issuing and receiving bank, which may be located in separate countries. There is a frequent requirement for an intermediary bank when international wire transfers take place between two banks. This is especially when both banks are in different countries with no prior financial relationship.

Important distinctions

There is sometimes a distinction between the unique functions that intermediary and correspondent banks play in the United States and other nations.

One distinction is that correspondent banks are frequently in charge of multi-currency transactions. For example, a correspondent bank would be liable for all transactions from the US dollar to the Danish Krone. This is if the person initiating the transfer is based in the United States. Moreover, it’s applicable while he is sending money to someone in Denmark.

Correspondent banks are often located in the nations where the two currencies are local. However, a bank may be based in a separate country occasionally.

Intermediary banks transfer cash to complete international transactions, but only for one currency. A domestic bank is usually too small to handle international payments in this situation. Therefore, it turns into an intermediary bank.

Particular Points to Consider

All banks accept wire transfers, an electronic method of delivering money to another person or entity. However, international wire transfers are more expensive and complicated to complete.

Intermediary banks deal in foreign transactions in particular parts of the world, such as Australia or EU member countries. There is no distinction whatsoever between the correspondent and intermediate banks.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) network handles the majority of international wire transfers. Suppose the issuing and receiving banks do not have a working relationship. In that case, the originating bank can use the SWIFT network. It will help them to find a correspondent or intermediary bank that has agreements with both financial institutions.

Contact Capitalixe for correspondent banking solutions

At Capitalixe, we specialise in helping small, offshore, and emerging market banks obtain payment and banking solutions.

Our job is to match your company with the most appropriate and beneficial financial solution from our extensive network of over 100+ reputable payment and banking providers we work with worldwide.

By understanding your business goals, payment requirements, and market positioning, we take the time-consuming pain away of going to market and provide you with the solutions that are best suited to your needs.

The best part of all is our services are free of charge.

Feel free to reach out to us for a complimentary consultation. We will be more than happy to help you.

 

By Lissele Pratt

COO & Co-founder of Capitalixe

How do virtual IBANs enhance the growth of B2B cross-border digital businesses?

How do virtual IBANs enhance the growth of B2B cross-border digital business?

Digital merchants and online marketplaces are here to stay and are rapidly expanding. However, having a solid payment infrastructure is critical to their success.

Businesses must provide secure payment choices to their customers while balancing compliance and regulatory constraints. Adding virtual IBAN to your financial toolset streamlines and simplifies the process in this case. A virtual international banking account number (virtual IBAN) is a bank-issued reference number that enables payments to be routed to a (non-virtual) IBAN/bank account.

Virtual IBANs are addressing many of the inefficiencies between traditional banks and internet payments by modernizing transaction processes. In addition, they are assisting merchants in untangling the difficulties of conventional worldwide banking connections and overhauling their payment systems.

What exactly is a cross-border payment?

Cross-border payments occur when the payee and transaction recipient are located in different countries. Individuals, businesses, and financial institutions wanting to move payments across borders can use this service. International merchants must be able to accept payments in all of the countries they are targeting.

We developed a guide about cross-border payments so you can learn more about the global payments ecosystem and how to grow your business by choosing the proper payment partner for your international payments.

How to send money internationally?

To conduct an international bank transfer, you’ll need the recipient’s information, including their International Bank Account Number (IBAN) and Bank Identifier Code (BIC). However, a consumer making a payment to an merchants’ site in another nation will have to do very little to complete the transaction because the merchant and their payment service provider will handle most of the work.

Merchants can make SWIFT payments to their consumers or other businesses. In addition, Visa Direct and Mastercard Send will likely become more extensively used in the future, enabling secure and quick payments to be sent directly to a card.

How does virtual IBAN work for B2B trading across borders?

Accepting and sending foreign B2B payments might result in massive transactional fees for businesses. Virtual IBANs provide companies with the same features as a standard settlement account but without the costs of opening and maintaining a physical account.

Many traditional suppliers will try to sell new customers comprehensive packages that include services they don’t need, such as credit cards, worldwide payment services, and insurance. As a result, the entire process may become a significant burden for businesses, requiring them to devote a substantial amount of time and attention to a straightforward procedure.

A virtual bank account with IBAN provides payment services without the expense and complexity of a traditional commercial bank account. The usage of virtual IBAN accounts further reduces potential administrative costs. The entire system strives to simplify the reconciliation process, allowing enterprises to conduct business with ease worldwide.

FX and payments companies, as well as their consumers, can benefit from virtual IBAN accounts. FX and payments companies can utilize these accounts to manage a master IBAN account from which they can establish and allocate segregated virtual IBAN accounts to each of their customers, making settlement and reconciliation easier.

A virtual IBAN or virtual bank account with IBANis a multi-currency, multi-jurisdictional banking solution for payments businesses that eliminates the need for several banking partnerships.

Below listed are some of the primary reasons that you should know about:

Changing B2B Requirements

Firms are conducting business abroad and in the digital industry are constantly seeking methods to improve their cross-border B2B payment procedures to be competitive and stay ahead of their competitors in their target market niche.

The issue in this complex undertaking is finding efficient and available solutions and adequately executing them to perform flawlessly for all parties involved, including core business, partners, suppliers, and customers.

Determining which technologies are most suited to the payment demands of specific organizations and their international partners is critical to helping them survive and grow once the present worldwide epidemic stops.

Closing the Gap in Technology

Virtual IBANs, like harmonizing international financial regulatory systems, technically bridge barriers between enterprises and markets. Virtual IBANs in B2B cross-border commerce close this gap and reduce the capital overlay needs familiar with traditional banking solutions.

This is mainly due to business and payments’ increasingly global and borderless nature. However, there are also administrative efficiencies to consider (which are growing by the day) and the enhanced capital allocation that such systems enable. This is essentially the basis behind Visa’s new B2B connect service.

Regardless of the size or location of your company, there are several growth prospects outside of your current market. Visa’s job as a payments network is to handle payments between banks on behalf of their buyers and sellers.

Global Financial Regulatory Harmonization

When dealing with various financial regulatory systems worldwide, the most significant hidden benefit of virtual IBANs in B2B cross-border payments comes into play.

Because virtual IBANserves as a single clearing account for international transactions, there is no need for a company to maintain a banking relationship with a local bank to conduct business with local companies.

Furthermore, domestic industries in that country are authorized to transmit payments to virtualIBAN accounts. Therefore, that country’s rules and regulatory regimes have no bearing on the company’s capacity to do business.

In other words, corporations do not have to be concerned about local events and can instead concentrate on the big picture to grow their business.

What are the different types of International or cross-border transactions?

Cross-border payments include credit card transactions, APMs, and bank transfers. So naturally, customers prefer to pay most conveniently for them. However, they also want customized options and assurance that their payment information is secure and managed well. As a result, merchants must cover all bases and provide several payment options for international customers.

eWallet

An eWallet, sometimes known as a digital wallet, is a software-based electronic APM that enables clients to pay for online and in-store transactions. eWallets, which are commonly available as apps for smart devices, allow users to safely keep their preferred payment cards so that they may pay for goods and services. Alipay, Apple Pay, Google Pay, Neteller, and Paypal, are just a few examples of popular eWallets.

Consumers can use some eWallets to transact in several currencies and conduct overseas orders. Although you cannot term wallet-to-wallet typeas proper cross-border transactions, they make the entire process easier overall. The process is not classified as a cross-border payment until the funds are withdrawn from the eWallet and transferred to the merchant’s bank account.

Transfers between banks

Another long-standing method of making a cross-border payment is through international bank transfers. Most larger banks will keep a range of currencies on hand, but they will only be able to accommodate a few at a time.

As a result, when a UK customer wants to send money to a place where they don’t have the currency in stock, they’ll have to rely on their international banking associates to complete the payment. Smaller banks frequently lack foreign currency reserves. Therefore they rely on large banks to handle cross-border transactions.

This is simply a glimpse of cross-border payment processing; many more parties could be involved, causing the transaction to be delayed. SWIFT GPI is an attempt to speed up cross-border payment operations, which we will examine further below.

Payments by credit card

Credit cards are a popular choice for many people when making cross-border payments. Consumers submit their credit card information and wait for the transaction to be validated. However, there’s more going on behind the scenes. Because they must convert between two distinct currencies, cross-border payments necessitate greater effort from the credit card networks and acquiring banks involved. In addition, increased fees are transferred down the payment chain due to the increased workload.

Contact Capitalixe for custom banking solutions

At Capitalixe, we specialise in helping medium to high-risk clients obtain payments and banking solutions.

Our job is to match your company with the most appropriate and beneficial financial solution from our extensive network of over 100+ reputable payments and banking providers we work with.

By understanding your business goals, payments requirements, and market positioning, we take the time-consuming pain away of going to market and provide you with the solutions that are best suited to your needs.

Feel free to reach out to us for a complimentary consultation. We will be more than happy to help you.

 

 

 

How to find the best banking provider for your crypto exchange business

How to find the best bank provider for your crypto exchange company

So, you’re a crypto company wanting to expand your business, but you need to secure the right banking partner. How do you go about finding the best bank account for crypto? And how can you tell which is the best for your needs?

The world of crypto is still facing a lot of challenges, not least because it has a tendency to be volatile and unregulated. Despite this, there is a huge interest from various companies in cryptocurrencies and blockchain technology – especially considering the possible benefits that they could bring to businesses all over the world.

In recent years, there are now some banks that have been trying to establish themselves as leaders in crypto-related services and some of them have already entered the crypto sphere – but not all of them are suitable for every crypto business. 

This means that crypto companies need to make sure they choose the right banking partner for their particular needs. However, this isn’t as easy as it sounds. But don’t fret. We’ve put together a comprehensive guide that will help you choose the right partner and explain what you need to look out for.

Challenges Facing Crypto Companies

Before we get started, let’s take a quick look at some of the challenges facing companies who choose the wrong bank account for crypto merchants:

Chargebacks and fraud 

Chargebacks and fraud are a huge concern for any company accepting and operating with cryptocurrency. The right banks will be able to mitigate this risk and protect you from fraudulent activity and chargebacks.

Compliance and regulation  

Banks that specialise in cryptocurrency tend to work closely with regulators, ensuring they’re aware of the business you’re doing and helping to maintain compliance. Banks that do not specialise in cryptocurrency will often struggle with regulation, leaving you exposed.

AML and KYC 

There are some banks and financial institutions out there that don’t comply with Anti Money Laundering (AML) and Know Your Customer (KYC). If you choose one of these banks, it will put your business at risk of unlawful activities. Banks and financial institutions that specialise in cryptocurrency are fully compliant with AML and KYC.

Choosing the Right Banking Provider for your Crypto Company

When it comes to choosing a banking partner, there are a few different things that you need to consider. The right choice depends on your profile and what your business is looking for in a bank.

You’ll also want to determine which features are the most important for your particular business model. This will help you find an institution with the appropriate infrastructure and expertise while also ensuring that you get a positive banking experience.

Here are five steps you need to take when choosing a banking partner for your crypto company:

Step 1: Do your research and make a list of potential banks and financial institutions 

The first step is to compile a list of potential banking partners – and this is very important. Make sure you include all the relevant institutions that might be able to help your crypto company grow.

You’ll also want to do some research around each prospective bank, such as reading reviews from other businesses using them and checking their latest news online (you can find more information in addition to what’s provided on their website).

You’ll want to pay special attention to:

  • Regulation: You’ll need to ensure that your bank is compliant with relevant regulations so they are able to handle crypto transactions. 
  • Security of funds: You’re going to be trusting these bank providers with your money, so they must have high levels of security in place. Make sure the funds are held in segregated accounts away from their own company funds, protecting your funds in the event of insolvency or bankruptcy.

Once you’ve compiled your list of potential partners, it’s time to move on to step two in our guide.

Step 2: Figure out which bank is the best fit for your company

After you’ve drawn up your list of potential businesses, you’ll need to evaluate how each one can help your digital currency business move forward. You should look at the available features that they offer and compare them against your requirements. For instance, virtual IBANs for crypto in multiple currencies are essential when it comes to doing business internationally, so if your top priority is simplifying the virtual currency transaction process then this feature should be high on your list.

Step 3: Consider how easy it is to open a virtual account with the bank

In order to do business with a digital currency company, banks will need to set up a virtual account. This makes it possible for your business to transfer virtual currencies and deal with fiat currencies as well – something that might be important for your digital currency exchange.

Make sure to assess how easy it is for digital currency companies to open virtual accounts with your prospective bank and if they’re willing to do this in a timely manner. 

Step 4: Check if your cryptocurrency company is being treated with good customer service

Even though banks are generally very responsive when it comes to meeting the requirements of their customers, some institutions have more experience dealing with virtual currency-related issues than others. These banks generally offer dedicated services for businesses that work with cryptocurrencies – so it’s important that you find an institution that is willing to help your digital currency business thrive.

Step 5: Determine how easily you can transfer funds and open IBANs (or other payment channels)

Once you’ve established which bank offers the services you need, it’s important to find out if there are any fees or restrictions involved with transferring currencies – such as setting up an IBAN for crypto. You should also check if there are certain rules that affect how you can pay your suppliers and customers.

There might be certain banking procedures and actions associated with your business type – so you’ll need to work out whether they’re appropriate or not. For example, if you deal with a lot of small-scale transactions, then it’s likely that different rules will apply compared to taking large sums across borders.

Final Thoughts

It’s important that you do your research and seek advice from other cryptocurrency companies and people in the industry when choosing a banking provider for your business. 

As crypto is still a new industry and widely unregulated, there’s going to be a large portion of financial institutions that won’t work with any sort of crypto companies, but don’t get disheartened. This is where we can help! 

At Capitalixe, we specialise in helping crypto companies obtain high-risk merchant accounts, bank accounts in multi-currency which includes both SWIFT & SEPA, and banking solutions for crypto. 

Our consultants are more than happy to discuss your banking options and give you all the information you need before making any decision.

Contact us today!

Digital Payment Trends Dominating 2022

Digital Payment Trends Dominating 2022

The Covid 19 pandemic has resulted in a rapid increase in both the volume and value of digital payment options. In fact, according to Statistica, the total transaction value in the digital payments segments is projected to reach $7,860,739m in 2022 and $10,715,390m by 2025.

Mobile wallets, cryptocurrency and voice-activated payments – it’s all changing so quickly that it’s hard to keep track. But at Capitalixe, we’ve got your back. 

Below are some of the biggest trends in digital payments today and what the future holds for them. So grab a pen and paper (and a lovely hot cuppa) because here are the trends you’ll be discussing at your next dinner party…

Mobile Wallets 

Now one of the most used digital payment methods by consumers, mobile payments use will continue to rise with 26.93% of CAGR projected between 2020-2025.

These services offer customers convenient, instant payments with no need for cash or PIN numbers. And they’re changing more than just the shopping experience, they’re even revolutionising how we make utility bill payments and send money abroad.

Today, we can use our mobiles to pay for groceries and petrol or even delve into the world of digital currencies by transferring Bitcoin and other cryptocurrencies between wallets. And we can do it all with just a tap of our phones.

However, there’s still room for improvement in this sector as many retailers are still reliant on cards as an alternative to cash. This is mainly due to the fact that not everyone has a mobile wallet and some customers still don’t trust them.

BNPL Schemes

Buy Now Pay Later schemes are quickly becoming the preferred payment method, especially with millennials and Gen Zs. StudentBeans found that 42% of UK shoppers aged 16 to 24 used a BNPL service for big-budget fashion items and expensive tech purchases. 

These schemes allow users to spread the cost of expensive purchases over time. Let’s say you want to buy a product for £200. You can split this purchase into three or four monthly instalments with zero interest.

Klarna is one of the leaders in this field, with an impressive 90 million users utilizing their services. They are quickly replacing traditional credit cards, especially for internet shoppers. Last year, the company announced it had raised $639 million in funding rounds, bringing the company valuation to $45.6 billion.

Voice-Assisted Payments

If you own an Alexa, Google Home, or Siri device, you probably use it to get the weather report or book a cab. But did you know that these devices can also make your shopping easier?

Statista found that 35% of users use smart speakers for buying products like home care, groceries, and clothing.

So how does voice-assisted shopping work? You simply tell your digital assistant to order you a new pair of shoes, and they do it for you – there’s no need to type in any payment details as they are already logged into your account!

Cryptocurrency Payments

The future of digital payments is undeniably crypto. And with mainstream providers like PayPal, Stripe, and Square now accepting Bitcoin as a form of payment, it’s easier than ever to use these new currencies.

40% of large corporations in the Americas, Middle East, and Africa are considering using digital currencies for purchases over the next year. Plus cryptocurrency is helping a number of our clients who have high-risk merchant accounts. 

This includes the online gambling industry which has been completely revolutionised by cryptocurrency. Our Co-founder Lissele Pratt discussed how in Fintech Times. 

Named one of the biggest trends in the payments industry by PYMNTS, crypto is becoming an increasingly attractive payment option. If you’ve still got doubts about them, here’s why more and more companies are looking into crypto payments.

Artificial Intelligence & Machine Learning

AI is already changing the way we live, and now, it’s also revolutionising digital payments.

Machine learning algorithms are helping to identify fraud and prevent them, as well as providing real-time security measures against hacking.

AI can also help companies personalise the customer experience. Algorithms can identify a user’s shopping habits, preferred payment types, and any special requests – all in real-time!

As people become increasingly reliant on AI to provide a better user experience, these technologies will continue to gain in popularity.

AI Banking

As well as improving the user experience, AI is also starting to take on some of the back-end tasks that are traditionally handled by humans.

For example, AI can now provide automated financial advice based on individuals’ spending habits. Meanwhile, chatbots are also helping customers manage their accounts and complete simple transactions – without ever having to speak with a human being!

In the future, we may even see AI-enabled financial advisors replacing some of the roles of human advisers. For example, rather than recommending a specific assortment of products to invest in, an AI system would be able to provide financial advice based on individual circumstances.

Final Thoughts

So there you have it. Our top digital payments trends for 2022.

As technology continues to advance, we can expect to see more innovative payment technologies – particularly in the fields of artificial intelligence and cryptocurrencies. These could all become integral parts of our daily financial routines over the next year, from voice-assisted purchases to chatbots.

Capitalixe

At Capitalixe, we leverage the latest in financial technology solutions to help high-risk companies like those in the gaming and cryptocurrency sectors. We can help attain high-risk merchant accounts, multi currency IBANs or even bank accounts for financial institutions and the latest payment solutions. 

Contact us today to find out how we can help your business grow!

What Is A Payment Gateway And How Can It Help High-Risk Merchants?

Because of the rise in fraudulent and scam activities, more and more individuals are becoming extra cautious about disclosing their financial information to other parties. All of the major corporations and enterprises are attempting to devise methods of making safe payments without having to worry about their data being compromised. One of the most popular and secure methods has been presented by technology professionals and has been widely used.

The Payment Gateway is the name given to this system. The purpose of this article is to provide you with all the necessary information regarding this technique, including whether or not payments made during certain periods will be beneficial to your company in any kind. So, let’s get started.

What is a payment gateway?

Payment gateway for high-risk merchants is technology that enables businesses to accept payments made by credit and debit cards from their consumers. Through the facilitation of safe digital transactions, they assist not just online companies but also businesses with physical locations. Investment in a payment gateway not only protects your company from liabilities, but it also allows you to welcome new clients by accepting payments via a variety of ways. For companies looking to scale their business, a high-risk merchant account would be the best to save the merchant from greater risk of fraud.

How does a payment gateway work?

The payment gateway procedure is straightforward—especially if you invest in the appropriate technology or service provider. The following are the stages involved in the whole process:

 

Step1- An order is submitted by the client. There are many options for this, including online or at a physical shop, in which case you would be placing the order for them.

 

Step2- The data is encrypted via the use of a web browser. The information provided by the consumer (if they are buying online) is sent securely from their browser to the merchant’s web server using SSL (Secure Socket Layer) encryption.

 

Step3- It is the merchant’s responsibility to transmit transaction data to the payment gateway. This is also accomplished via the use of SSL encryption.

 

Step4- The transaction is sent via the gateway to the payment processor. The payment processor connected with the merchant’s acquiring bank is notified of the transaction details and receives them.

 

Step5- Once the transaction has been completed, the payment processor transmits it to the card association for processing. VISA and Mastercard are only a few examples of card organisations.

 

Step6- The transaction is verified by the bank that issued the credit card. If the request is accepted, the bank will acknowledge receipt of the request and provide a response number for the transaction. If your application is denied, the bank will give a reason, such as inadequate money, to explain why.

 

Step7- The issuing bank provides a response code to the payment processor, which the payment processor uses to complete the transaction.

 

Step8- The payment processor transmits the code to the payment gateway, which then sends it to the customer.

 

Step9- In order to complete the transaction, the payment gateway provides a code to both the business and cardholder.

Despite the many stages involved, the whole payment gateway procedure is completed in a matter of seconds rather than minutes. It is a safe and convenient method to take payments from consumers, regardless of whether they engage with your company online or in person.

What level of security does the payment gateway procedure provide?

One of the most significant advantages of utilising a payment gateway is the high level of security it provides. According to Pixelmattic, major card associations have established a set of regulations and security requirements, known as the Payment Card Industry – Data Security Standard (PCI-DSS or PCI), that must be adhered to by anybody or any organisation that has access to sensitive credit card information. All payment gateways, in turn, must satisfy these criteria in order for the service business to connect with payment processors. If they are not authorised, the service company will not speak with them. You will be shielded from any liabilities or fraudulent transactions as long as you are utilising a secure payment gateway for your business operations.

Importance of Payment Gateway

The importance of a payment gateway to any business and e-commerce website can be explained by a variety of factors. According to a research conducted by Shape Security, 90 percent of all login attempts to online stores and companies occurred as a result of unauthorised hacking efforts throughout 2018. Payment gateways are crucial for preventing hacking efforts such as this one, and they are particularly important for small and medium-sized companies.

 

The following are some of the most significant benefits that both large and small companies and eCommerce sites may get from the use of a payment gateway:

 

1.      All the alternative online payments are accepted

A payment gateway is a tool that allows merchants and business owners to accept and process payments made using credit cards and debit cards, among other methods. It also opens the door for companies to accept alternative forms of online payment that may become accessible in the future. The increased number of payment alternatives makes it simpler for company owners to meet the diverse requirements and expectations of their customers.

 

2.      The risk of Credit Card fraud is reduced

Payment gateways are primarily intended to reduce the occurrence and potential of online payment fraud, which is why they are so widely utilised. Payment fraud is a problem that online companies and merchants often face when processing transactions that require the usage of credit cards to collect payments from consumers. Using a payment gateway, companies may benefit from specific security measures that guarantee that both the operators and the purchasers have a safe and secure means of processing information, money, and the entire transaction.

 

3.      Smooth site surfing

Some payment gateways provide a feature that allows companies to create unique checkout pages for their customers. Customers will no longer be required to be transferred to another website when placing purchases or making payments as a result of this.

 

4.      Customer data is in safe hands

Security and encryption of consumer information are enhanced by payment gateways. Because of the increased level of client security, it is highly recommended as an additional layer of protection against online fraud for online companies. Businesses that use payment gateways often get positive feedback from the vast majority of their consumers.

 

5.      Easy installation and maintenance

The fact that a payment gateway may be completely automated means that it does not need frequent maintenance or a hefty installation price. The majority of payment gateways simply need companies to establish an account before the software can be activated. Frequently, further software upgrades are planned, and companies are notified when it is time to upgrade their current payment gateway.

Where to find the best Payment Gateway?

There are a variety of payment gateway service providers accessible, and it is the duty of online company owners to identify and choose the payment gateway that best meets the requirements of both their business and their consumers. Furthermore, they must consider the safety of their website as well.

Payment gateways that are reliable and efficient should be equipped with SSL certificates issued by authorised organisations in charge of validating the gateway’s credentials to operate. Payment gateways must also be PCI-compliant and adhere to policies and procedures that ensure the security and privacy of customer information throughout all transactions.

The success of an online company may be guaranteed while at the same time ensuring that client pleasure is completely satisfied by carefully selecting a trustworthy and appropriate payment gateway. In addition, business owners may develop a checklist that outlines the requirements of their company and consumers, as well as their firm’s previous errors in online transactions, if this is beneficial.

Summary

We hope that this article has provided you with a good understanding of how Payment Gateway for high-risk merchants would work. If you would like some further insight on the best payment solutions available for your business, please don’t hesitate to get in contact for a free and non-obligatory consultation.