Ecommerce is the next wave of globalization. Chinese vendors of all sizes are participating in the ecommerce ecosystem driving the global digital economy. In 2017 China's e-commerce exports jumped 41.3 percent to 33.65 billion yuan. Chinese customs processed 660 million manifests for e-commerce trade last year, 8.4 times as many as for traditional imports and exports.1
This surge necessitates that ecommerce merchants and intermediaries, such as digital marketplaces, online travel companies, and booking services, pay their Chinese suppliers efficiently. Removing friction from payments is not only important for the ecommerce merchants, but also for the Chinese suppliers to fit seamlessly into highly competitive, thin-margined global e-commerce networks.
Paying cost-efficiently in local currency is especially important given ecommerce sales growth in the China corridor. However, cross-border payment to this supplier population has remained challenging.
Paying into China efficiently in local currency
Ecommerce companies now can initiate transactions in the currency of sale, convert to Chinese Yuan/Renminbi (CNY) and route converted payments to payees throughout China via the local clearing system (CNAPS). This creates advantages that mutually benefit ecommerce merchants and their China-based suppliers.
Lower payment cost
Reduce payment fees by swapping out the costs associated with cross-border wires for cross-border ACH payments. This includes eliminating lifting fees, ensuring vendors receive payment in full.
When the e-marketplace does not control currency from USD to CNY, it requires the supplier's bank to convert USD to CNY. Small to mid-sized vendors have less negotiating power than large ecommerce merchants do with their banking partners. Shifting the FX conversion to e-commerce merchants allows them to use their scale to establish an all-in cost including the currency conversion rate.
When suppliers have the opportunity to price their products/services in CNY they are not subject to the FX risk that exists if they are required to price their products/services in USD, allowing better protection of their margins.
With USD wire payments it is onerous for Chinese suppliers to produce documentation for regulatory approval and gain release of funds. Multiple factors make it difficult for suppliers to identify and reconcile sales proceeds to receivables. First, goods and services are priced in the purchaser’s currency while remuneration is in USD. Second, amounts received may vary due to FX rate fluctuations and lifting fees. Third, suppliers commonly receive a lump sum covering multiple customers and with limited remittance details.
A cross-border, cross-currency solution streamlines the process of submitting documentation for regulatory approval. China has been pushing the yuan’s global use, as it looks to lower international trade transaction costs, which are mostly settled in USD.2 A global payment provider with China-specific regulatory expertise and experience, and direct relationships with regulators, is key to a strong partnership in implementing and managing the solution.
The reconciliation and documentation challenges associated with USD wires generates supplier inquiries. By paying in local currency via cross-currency ACH, documents become streamlined, reducing vendor inquiries related to payments and documentation.
Streamlined CNY payables
The solution enables you to integrate local currency payments to China into your accounts payable flow without maintaining an onshore CNY account.
Faster funds availability
Regulatory reporting must be conducted and approved within five days of the supplier's account being credited, extending the timeline from when a USD wire arrives in a supplier’s account until reconciliation, documentation presentation, regulatory approval, and the conversion and release of funds. With cross-border, cross-currency ACH, payment availability accelerates to as little as two days.
Working capital efficiency can be critical for small- to mid-sized Chinese businesses and may reflect in pricing passed to merchants. By switching from USD wires to cross-border cross-currency CNY, Chinese suppliers gain improved availability of funds, which can improve their cash flow forecasting. Faster receipt of funds improves their working capital positions. Ecommerce merchants have a clearer path to negotiating improved payment terms as a working capital tool.
Stronger merchant-seller relationships and improved customer experience
In a highly competitive e-commerce landscape a cross-border, cross-currency solution utilizing local clearing systems strengthens merchant-supplier relationships. It contributes to delivering the most competitively priced goods and services to a shared customer base. Ultimately, frictionless vendor payments support broader efforts to create a high quality, cost-efficient merchant ecosystem for customers.
A globalizing ecommerce ecosystem is connecting companies of all sizes and from across diverse markets into a global customer base. Ecommerce platforms can take advantage of cross-border, cross-currency payments to minimize bank accounts overseas while expanding their global supplier network across a diverse range of markets including China.
1“China's cross-border e-commerce trade up 80% in 2017”, Xinhua, updated 2/9/18.
2China Daily.com.cn - RMB internationalization makes remarkable progress: report. October 20, 2017