The globalized world has fostered increased trade and investment across borders. However, facilitating efficient and secure cross-border payments remains a complex challenge. This research explores the legal and practical considerations for navigating cross-border payments, highlighting the challenges, applicable laws in India and globally, procedures, and available methods.

Challenges of Cross-Border Payments

Cross-border payments face several hurdles compared to domestic transactions:

  • Cost: Transaction fees can be significantly higher than domestic transfers due to intermediary banks, currency conversion charges, and correspondent bank fees.
  • Speed: Transactions can take several days to settle due to clearance procedures and time zone differences.
  • Transparency: Lack of transparency in fees and exchange rates can make it difficult for businesses and individuals to compare costs and predict final settlement amounts.
  • Regulation: Each country has its own regulations for cross-border payments, requiring compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) norms.
  • Technology: Legacy infrastructure in some banks and financial institutions can hinder efficient processing of cross-border payments.

Legal Framework for Cross-Border Payments

Global Regulations:

  • Financial Action Task Force (FATF): Sets international standards for AML and Combating the Financing of Terrorism (CFT) measures.
  • International Organization for Standardization (ISO): Develops standards for financial messaging and communication (e.g., ISO 20022) used in cross-border payments.

India-Specific Regulations:

  • Foreign Exchange Management Act (FEMA), 1999: Regulates all foreign exchange transactions in India. It outlines specific requirements for different types of cross-border payments, including limits and reporting obligations.
  • Liberalised Remittance Scheme (LRS): Allows resident individuals to freely remit funds abroad for certain purposes, with specified limits.
  • Reserve Bank of India (RBI) Guidelines: The RBI issues various circulars and notifications that provide detailed instructions on various aspects of cross-border payments.

Transactions Prohibited Under FEMA in India

The Foreign Exchange Management Act (FEMA), 1999, regulates all foreign exchange transactions in India. It specifically prohibits certain cross-border transactions to safeguard the country's financial stability and prevent money laundering activities. Here are some key prohibitions outlined in FEMA:

  • Section 4(1) of FEMA: Residents in India are generally prohibited from opening or maintaining bank accounts abroad without prior permission from the RBI. This regulation aims to prevent unauthorized transfer of funds outside India.
  • Section 5 of FEMA: Residents of India can't use foreign exchange for:
  • Money from games of chance: This includes winnings from lotteries, gambling, racing, or hobbies that don't involve selling goods or services.
  • Illegal activities: This covers anything involving banned publications, gambling, or lottery tickets.
  • Specific company dividends: This applies to companies with restrictions on how much foreign exchange they can pay out as dividends.
  • Excessive export commissions: You can't use foreign exchange to pay commissions exceeding 10% (on invoice value) for most exports using a specific method (Rupee State Credit Route), except for tea and tobacco.
  • Investment-linked export commissions: Foreign exchange can't be used for commission payments on exports that are used to invest in foreign companies linked to Indian ones.
  • Interest on certain accounts: You can't transfer interest earned on funds held in specific accounts for non-residents.
  • Section 6 of FEMA: FEMA restricts the purchase of foreign currency by residents in India for specific purposes without RBI approval. This regulation aims to prevent hoarding of foreign currency and ensure its availability for legitimate needs.


  • Section 9 of FEMA: Section 9 of FEMA is basically a "get out of jail free" card for some foreign exchange rules. It allows Indian residents to hold or use foreign currency without RBI approval in specific situations.

Here's the gist:

No need to bring foreign earnings back: You can keep some foreign cash (limited amount) and hold funds in specific accounts without converting them to rupees.

Inheriting foreign currency: Foreign exchange inherited from abroad can be kept under RBI guidelines.

Earnings abroad: Residents can keep some foreign income (up to a limit) earned through legitimate means like work or business.

Procedures for Cross-Border Transactions

The specific procedures for cross-border transactions vary depending on the chosen method and amount involved. Here's a general outline:

  1. Initiate the Transfer: Provide your bank or chosen payment service provider with details like recipient information, amount, purpose of transfer, and preferred currency.
  2. Compliance Checks: The bank will verify your KYC and AML documents, ensuring the transaction adheres to regulations.
  3. Currency Conversion: The sender's currency may be converted to the recipient's currency, with associated exchange rates applied.
  4. Intermediary Banks: The funds may be routed through multiple correspondent banks, impacting processing time and incurring additional fees.
  5. Settlement: Once all checks and approvals are complete, the funds are credited to the recipient's account.

The time frame for settlement can vary significantly depending on the chosen method and intermediary banks involved.

Methods for Cross-Border Payments

Traditional Methods:

  • Correspondent Banking: Banks use established relationships with correspondent banks in the recipient's country to facilitate the transfer. This is a widely used method, but it can be slower and more expensive.


Imagine you're a bakery in India sending cookies to a customer in Canada. You need to receive payment in Canadian dollars (CAD).

  • Process: Your bank in India (Bank A) doesn't have a branch in Canada. It utilizes its existing relationship with a Canadian bank (Bank B) to facilitate the payment.
  • Example: Bank A transfers the CAD amount (minus fees) to Bank B. Bank B then deposits the CAD into your customer's account in Canada.
  • Wire Transfers: Electronic transfers of funds between banks, offering faster settlement times compared to correspondent banking but still incurring high fees.


You're a freelancer in India working for a client in the US. You need to receive payment for your services in US dollars (USD).

  • Process: You or your client can initiate a wire transfer through your respective banks. This electronically transfers the funds directly between the banks.
  • Example: You provide your bank with your client's bank details and the USD amount. Your bank sends the money to your client's bank, which then deposits it into your account.
  • Traditional Money Orders:

The traditional method of a money order is the physical equivalent of sending cash through the mail, but with added security.

Your grandmother in India wants to send you some birthday money while you're studying abroad in the UK.

  • Process: She can purchase an international money order from her local bank in India, specifying the amount in British Pounds (GBP). She sends you the money order by mail.

Example: You take the money order to a bank or authorized agent in the UK and present it for encashment in GBP.

Modern Methods:

  • FinTech Solutions: Online payment platforms and mobile wallets provide faster and potentially cheaper options for cross-border payments, leveraging technology and streamlined processes.

Process: There are online payment platforms like PayPal or Wise that specialize in cross-border transactions. You can integrate these platforms into your online store.

Example: When a customer from France buys jewellery, they can pay through their preferred method (e.g., credit card) on your website. The FinTech platform handles currency conversion, transfers funds to your account (minus fees), and deposits the local currency equivalent (e.g., Euros) into your account.

  • Blockchain Technology: Emerging solutions based on blockchain technology offer the potential for secure, transparent, and faster cross-border payments with reduced fees. However, widespread adoption is still evolving.

Considerations When Choosing a Method:

  • Cost: Compare fees associated with each method, including transaction fees, currency conversion charges, and intermediary bank fees.
  • Speed: Consider the urgency of the transfer and choose a method that offers the desired settlement timeframe.
  • Security: Select a reputable provider with robust security measures to ensure the safety of your funds.
  • Convenience: Opt for a method that offers a user-friendly platform and allows for easy initiation and tracking of your transfer.

Regulations Governing Different Methods:

Regulations governing cross-border payments can vary depending on the chosen method and the countries involved. For instance, some FinTech solutions might face additional regulatory scrutiny compared to traditional banking methods. Staying updated on relevant regulations is crucial for both senders and recipients.


Navigating cross-border payments requires an understanding of the legal landscape, available methods, and associated challenges. By considering cost, speed, security, and convenience, individuals and businesses can make informed decisions. Continuous innovation in FinTech and blockchain technology offers promising solutions for streamlining cross-border payments in the future. However, adhering to regulatory requirements and staying informed about evolving legalIndian currency;

Article by Shashwat Tripathi

Legal Intern at Corpzo