High-level overview of the cross-border payment process
A typical cross-border payment follows a multi-step lifecycle:
The payer initiates the transaction via their bank or payment provider
Payment instructions are transmitted through a secure messaging network
Foreign exchange is applied, if needed
Value is settled between financial institutions
Funds are credited to the beneficiary's account
This process can appear seamless to the end user, but each stage may involve multiple separate institutions operating across different countries and payment systems.
These layers are why international payments are slower and more expensive than domestic transfers.
Why money doesn't physically cross borders
Verto CEO Ola Oyetayo explains:
"It's a misconception about international payments that money physically moves from one country to another. National payment systems are closed-loop, meaning they operate independently within each jurisdiction. Instead, banks move value.
"When you make a cross-border payment, the sending bank instructs adjustments to balances held in different countries, making sure the overall value remains balanced across accounts.
"This model underpins international banking, and modern payment providers like Verto use it too."
Find out below how that balancing can happen in practice.
How banks and payment providers move value internationally
Direct banking relationships
Large global banks often maintain direct relationships with banks in major financial centres. These bilateral relationships allow payments to be settled quickly with fewer intermediaries, particularly in high-volume 'currency corridors' such as GBP/USD or EUR/GBP.
This approach reduces processing steps and operational risk. But due to the cost of maintaining foreign accounts, it's typically limited to the most liquid currencies and regions.
Correspondent banking models
When no direct relationship exists, banks rely on correspondent banks to bridge the gap. A correspondent bank holds accounts for both the sending and receiving institutions, allowing value to be transferred indirectly.
Bonus insight: This transfer is often done via nostro and vostro accounts, which are specialised bank-to-bank accounts used for foreign currency transactions.
Nostro refers to 'our' account held by a domestic bank in a foreign bank, and vostro refers to 'your' account held by a foreign bank on behalf of the domestic bank. It's the same account, described from different perspectives.
Correspondent banking is still a core pillar of global payments, particularly for emerging markets and less-traded currency pairs. But it also introduces extra cost, delay and compliance challenges, as we explain later in this guide.
The role of payment messaging networks
Payment messaging networks, most notably SWIFT, don't settle funds. Instead, they send secure, standardised payment instructions between institutions, allowing banks to communicate reliably across borders.
How foreign exchange (FX) is handled in cross-border payments
Many cross-border payments involve converting funds from one currency to another. This can happen at several points in the payment chain:
At the sender's bank
Via a correspondent bank
At the recipient's bank
The timing and location of this conversion can affect cost and settlement speed compared to domestic transfers. Some payment platforms aim to improve FX transparency by separating currency conversion from payment routing and pricing conversions closer to interbank rates.
Verto, for example, allows you to convert funds held in local accounts at interbank rates, reducing your exposure to hidden FX mark-ups often applied by intermediaries.
Settlement timelines and why payments take different routes
Instead of a single, predictable path, settlement speed can be influenced by multiple factors including:
Currency liquidity
Number of intermediaries
Domestic clearing cut-off times
Time-zone differences and banking holidays
Unfortunately for emerging markets, payment corridors with lower transaction volumes typically involve longer settlement chains. This results in slower, less predictable outcomes compared to high-volume routes.
Compliance checks across borders
The institutions involved in cross-border payments need to carry out security screenings on both the sender and receiver, such as anti-money-laundering (AML) and know your customer (KYC). These checks can be repeated at multiple points in the chain by different sources.
From a UK perspective, the Financial Conduct Authority and Money Laundering Regulations demand enhanced due diligence for higher-risk corridors – particularly where correspondent banks are involved. This layered compliance is a large contributor to delays and payment holds.
Verto Cofounder and CTO Anthony Oduu adds:
"Given these challenges, many businesses look to rely on regulated providers with established global coverage. At Verto, we operate under fully licensed frameworks to manage these obligations within complex international flows."
Where further friction can enter the international payment process
On top of currency conversion, long transaction chains and repeated compliance, other common business challenges within legacy payment processes include:
Multiple intermediary fees
Limited end-to-end visibility
Data errors and inconsistencies
UK regulators have highlighted these frictions as systemic challenges within traditional correspondent banking models.
To address them, some payment providers operate local accounts across key markets, without changing the core principles of value transfer. This allows funds to be collected and settled domestically rather than routed through multiple correspondent banks.
Verto, for example, provides instant local accounts in over 50 currencies – helping businesses bypass longer payment corridors where possible.
Key takeaways: how cross-border payments work
International payments move value, not physical money
Banks rely on domestic systems linked through accounts and messaging networks
Intermediaries shape cost, speed, and transparency
FX and compliance are integral to the payment flow
Modern infrastructure like Verto is reshaping these foundations
Understanding these mechanics helps your businesses navigate cross-border payments with greater confidence and control. Providers that combine local settlement, FX transparency and regulatory coverage reduce cost and complexity significantly over time.
If you're ready to try out our platform, register today.
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