TMTPOST--“Chinese competitors have tried to poach staff in our European office recently. In some countries, several Chinese payment companies are based in the same building,” said an executive at a cross-border payment company operating in Europe, which encapsulates the fierce competition among Chinese payment firms in the overseas market.

In 2023, the import and export value of China’s cross-border e-commerce sector reached 2.38 trillion yuan (US$ 0.33 trillion), marking a 15.6% year-on-year increase and a 120% surge from 2018. In the first quarter of this year, the import and export value of China’s cross-border e-commerce sector hit 577.6 billion yuan, representing a year-on-year growth rate of 9.6%.

Meanwhile, cross-border payment transactions have seen rapid growth. In 2023, non-bank payment institutions handled approximately 8.2 billion cross-border internet payment transactions, a 15.5% year-on-year increase, with a transaction volume exceeding 1.3 trillion yuan, according to data from Broadcom Consulting. Meanwhile, the payment and receipt scale of cross-border export e-commerce via payment service providers jumped 11% year-on-year to over 1 trillion yuan for the first time. 

Chinese payment companies began venturing abroad in early 2004 when UnionPay launched its RMB card POS consumption and ATM cash withdrawal services in Hong Kong.

Following this, the global expansion of consumer-facing payment services surged, with WeChat, Alipay, and UnionPay covering numerous overseas consumption scenarios.

“In many emerging markets, small and medium-sized enterprises (SMEs) are often neglected by banks. As Chinese companies expand abroad, it creates broad market opportunities for payment services. Additionally, domestic payment services market has reached a saturation point, making overseas expansion an essential strategy for payment companies,” an industry insider told AsianFin.

In reality, traditional foreign trade often relies on bank wire transfers, primarily through commercial banks opening clearing accounts overseas via correspondent banks, using the SWIFT system for cross-border fund clearing. However, the lengthy process, inefficiency, and high costs make it increasingly difficult to meet the growing demand for cross-border trade payments, particularly in cross-border e-commerce.

“Today, no matter in Europe, the U.S., or emerging markets, it is extremely challenging for SMEs to open bank accounts, and a six-month waiting period is quite common in Europe,” Shi Wenyi, the CEO of WorldFirst, told AsianFin.

A finance executive at a domestic e-commerce listed company echoed this view, saying “In the past, our common practice was to open a local bank account when entering a new market, but it turned out that it was nearly impossible to open accounts with local banks.”

Chinese banks, on the other hand, have limited coverage in overseas markets. “Similar to the progress of foreign banks operating in China, domestic banks, except for the four major state-owned banks, have minimal overseas local business and have struggled to retain local customers,” an industry expert noted.

Even if companies successfully open accounts, there are other challenges waiting for them. These include the requirement of obtaining the approval of multiple banks or payment institutions, with compliance checks at each step prolonging the transaction cycle. Time zone differences and non-working days further exacerbate these issues.

High costs pose another hurdle. The multiple layers of clearing and settlement fees in cross-border payments, and the cost uncertainty due to exchange rate fluctuations are hard nuts to crack. Additionally, regulatory differences across regions have further increased the compliance costs.

An industry insider remarked that SMEs are confronted with two major problems when cooperating with local banks. First, the requirements for opening accounts at banks are quite demanding (such as requiring registered legal entities and one year of regular transaction flow). Second, the operating costs are high (with many regions still using manual processes, extending transaction times, and some financial institutions charging rates as high as 3%-5%), and there are also concerns about the security of accounts.

For instance, in early 2022, India imposed a massive fine on Xiaomi, freezing $4.8 billion of its funds in the country.

Before 2015, China’s cross-border payment market was mainly dominated by foreign cross-border payment service companies, with merchants paying rates ranging from 3% to 5%, although lower than bank fees. Subsequently, companies like PingPong and LianLian Pay emerged, providing cross-border payment services to Chinese cross-border e-commerce sellers.

The cross-border payment process primarily involves three stages: acquiring, collecting, and settlement. Payment companies establish local fund pools, collaborate with banks, global cross-border clearing and settlement systems, card clearing organizations, and domestic third-party payment companies to facilitate global fund flows. The settlement stage is completed through partnerships between licensed domestic institutions and banks.

These companies, by partnering with local banks, help export-oriented SMEs open accounts with local banks to achieve local currency settlement or provide direct currency exchange services, even online settlements, thus reducing intermediary fees.

Many third-party payment companies, previously focused on domestic business, are shifting their focus on overseas market.

Companies like Lakala, SwiftPass, All-in-pay, GoPay, and Huifu are stepping up their efforts to obtain payment licenses in Southeast Asia, the Middle East, Africa, Europe, Japan, and other overseas markets.

For instance, in 2023, Lakala launched new small-currency foreign trade collection products in Southeast Asia and Africa, supporting markets such as Vietnam, Indonesia, Thailand, Malaysia, Singapore, and Nigeria.

An executive from a Chinese third-party payment company told AsianFin that third-party payment companies’ overseas business mainly involves local operations, similar to obtaining domestic payment licenses and providing offline merchant services. Cross-border payment companies mainly focus on providing payment channels for cross-border transactions, primarily serving cross-border merchants.

“Currently, the overlap between these two types of businesses is not high. However, with the development of the Cross-Border Interbank Payment System (CPIS), third-party payment companies will inevitably expand into cross-border payment services,” said the executive.

These payment firms are scrambling to cut fee rates to secure more market share. For example, LianLian Global lowered the first withdrawal fee rate for some e-commerce platforms to as low as 0.12% in July. Industry insiders have noted that “some platforms, under the support of subsidy policies, can even offer zero fees.”

Low fee rates make profitability difficult. According to the 2023 financial report of LianLian Digital, the company’s revenue for 2023 was 1.028 billion yuan, a 38% year-on-year increase, but it still registered a net loss of 654 million yuan.

Besides cross-border e-commerce, cross-border B2B, as another emerging foreign trade model, is shaking up the payment market.

Industry insiders told AsianFin that small business owners in regions like Africa, Asia, and Latin America used to personally visit markets like Yiwu in China for procurement, conducting transactions directly in RMB and relying on logistics services to ship goods back to their home countries. However, during the pandemic, they were forced to switch to online platforms for transactions.

“If the digitization level of the Amazon model is defined as 100%, the digitization level of cross-border B2B is only 30%-60%,” said an industry insider.

An industry insider in the cross-border payment sector told AsianFin, “To engage in cross-border B2B payment, compliance is the first thing to handle. Many countries have requirements for the balance of foreign exchange accounts. Companies cannot directly use their existing payment licenses to engage in cross-border payment activities, necessitating the acquisition of overseas financial licenses.”

“The coming years will be a crucial period for payment companies to differentiate themselves and capture market share,” said an industry expert.