Notes

China: Cross-border B2B payments blocked

Mainland China continues to grow and expand its reach to different industries around the globe. There is an increasing demand on China to fix the B2B cross border payment issue that has plagued the current system. Small and medium-sized enterprises that are unable to use China's banking system because of China's regulations can face serious problems with crossing-border B2B payments. The B2B payment bottleneck also impacts businesses that do business with SMEs in China and around the world.



Monopoly in Chinese Banking B2B Transaction Monopoly


There are three methods to make B2B transactions in China. The first and most common is the transfer to a bank, also known as telegraphic transfer. Telegraphic transfers are the best method to make cross-border payments to Chinese companies based on mainland of China. This method can be difficult to get access to for SMEs due to the fact that they may not have the capital or paperwork needed to allow bank transfers within China and also to pay to China. It is also extremely time-consuming to set up an electronic transaction.



The typical time for bank transfers is between five and seven business days after the time of transaction. Additionally, once the money has been received in China the recipient company might have to send personnel and paperwork to the bank of the recipient in order to have the funds electronically wired into their corporate accounts.



Even though SMEs and new firms may be able complete all requirements of sending and receiving funds through the telegraphic transfer, it's still a problem that Chinese banks have a strict policy of limiting access to bank transfers by small financial institutions and other non-banking companies. There are currently 4500 banks in China that are able to make and receive bank transfers.



Although that figure is vast, it's not enough to meet the demands of the market. The failure of the current system to satisfy the needs of the burgeoning market in China is the cause of the bottleneck that has been created by the innumerable transactions flying back and forth across China's mainland Chinese border.



Electronic Payments


The Chinese consumers have been increasingly adopting electronic payments. In 2018, 92 percent and 47% consumers living in rural areas in China utilized smartphones to pay for their purchases every day. WeChat Pay is the main service provider. Alipay is also a very popular choice. The simplicity of these transactions is unparalleled. Just scan the QR code that is on the seller's website and pay via the buyer's mobile phone.



Merchants that aren't located in China can utilize these platforms for selling goods to Chinese tourists. Electronic payments can increase the chances of Chinese customers purchasing products. Their purchases could amount to up to 25% of brand sales in one year. The problem is that retailers need to join the Chinese payment system and get their sales processed by the system. This can be a huge problem for firms who do not have many contacts or businesses in China.



Cash upon Delivery


The most frequently used payment method among Chinese customers is cash on delivery. Because it is accessible to people without an online account and those who don't have technical skills, the system can surpass electronic payments and bank transfer. COD is also advantageous as customers can test the quality of the products prior to purchasing them. The service is offered by a non-banking company and the seller returns the remainder of the payment. In the end, everyone benefits through this system. Dangdang and Amazon are the biggest third-party , non-banking payment service providers.



However, this system has its own drawbacks. The third party in the transaction must be compensated in order to handle the payments. Third parties involved in the transaction could increase the time taken for the seller to receive customer' payments , as well as reduce the income from these payments due to third party transaction or service charges. It is better for both the customer and the seller to eliminate the third party out of the transaction. This can streamline the process of delivering goods or services and the transfer of payment from customers to sellers.



SMEs Drive Financial Sector Innovation


In 2015, over 60% of all foreign trade was conducted by mainland Chinese SMEs. They are the major factor behind the rapid growth in Fintech and e-commerce solutions for cross-border ecommerce problems. In the present, SMEs in mainland China are the main reason behind disruptions in China's banking system and radical changes to cross-border payment processing within and beyond China. SMEs can serve small-scale areas that the big established banks cannot. This is putting more pressure on China's banking system. They need to streamline and simplify commercial transactions to allow smaller businesses to grow and accommodate China's growing commercial sector.



As the Belt Road Initiative expands, large corporations should focus on meeting the requirements of the Chinese government in order to be able to trade with China. SME's are likely to be the ones who serve the needs of the economically less wealthy and more powerful. They need banking products that are readily available to them and their clients.


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B2C, Fintech


In the long term Aleta Planet's solution for the cross border bottleneck problem the delivery of payments are more efficient than conventional bank transfers and easier, more hassle-free transactions are stimulating growth in local businesses. Such innovations positively impact the growth of the fintech and SME sectors. Additionally, technological advancements are boosting B2C cross-border e-commerce and, in turn, leading to the development of fintech solutions to B2C transactions.



It is crucial that there are no barriers to the flow of money and other goods through China's borders. Chinese mainland economy shifts towards becoming a more consumer-oriented economic system. AP-1 Business platforms give Chinese suppliers more confidence in receiving their payments on time.



Fintech to save the day


Fintech companies have realised the need for better services. Their customers, especially SMEs, e-commerce sellers and tech firms that are just starting to emerge are calling for more efficient services and financial solutions. Fintech companies integrate technology, finance, and creativity to provide innovative solutions to help SMEs to overcome the limitations and perform business more efficiently.



They seek to facilitate cross-border B2B transactions more readily available more manageable, easier to handle more simple, and a more preferred way to conduct business with China. Aleta Planet is one of the firms leading the way. Aleta Planet has designed a system that is built on the UnionPay network to make it easier to pay to and from China and to make payments by foreigners sustainable.



AP-1 Business


AP-1 Business, a digital account for businesses outside of China, is available. The benefit of AP-1 Business is the fact that it makes transactions in T+1. Transfers to banks are generally performed in T+5 and greater but AP-1 Business can be accessible in T+1. This rapid access and certainty of transactions is due to the fact that AP-1 Business rides on the UnionPay network. Thus, the payment is made from an offshore UnionPay account (AP-1 Business) to an onshore UnionPay account of the supplier in China.



AP-1 business comes with additional benefits. All the advantages of AP-1 business make it appealing for foreign companies doing business with Chinese companies.



Key Features


All-in-One Service


AP-1 Business is an all-in-one service that makes it easy for customers to make and receive remittances. The service can be used by those who are not natives of Singapore. There are no restrictions for shareholders or foreign owners on the opening of business accounts through AP-1 Business. AP-1Business permits companies to open business accounts without the need for a director.

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Since it's a part of the UnionPay platform, AP-1 Business has the ability to offer superior customer support and all-in-one service to its clients. The UnionPay platform is in operation throughout China and is utilized by all Chinese financial and banking institutions. AP-1 Business has eliminated the middleman in the process through this platform.



Unlike banks which must transfer money through banks intermediary banks such as other banks, funds that is transferred through AP-1 Business may be directly credited to the account of the person who received it. AP-1 Business lets users withdraw cash from ATMs across the world. It is supported by Huawei Pay and Visa. The second quarter of 2021, this ATM cash withdrawal service will be made available.



Attractive Rates for Forex


Another extremely attractive feature of A-1 Business is its foreign exchange (FX) rates. AP-1 Business offers the most direct rates for FX (SGD to RMB) for China through the UnionPay network. These rates are reasonable when you consider the fact that a lot of online payment providers charge lower FX rates and require customers to pay a fee when they transfer money across national borders. AP-1 Business makes sure that customers receive the best FX rates for cross-border transactions.



There aren't any minimum balances needed or deposit requirements.


Unlike many business accounts, AP-1 Business does NOT require customers to keep a minimum balance, or make minimum deposit into their accounts. The absence of a minimum deposit and balance requirement has enabled certain SMEs to keep their business operations going during the COVID-19 outbreak, and then recover slowly. AP-1 Business aims at providing modern financial solutions that are not available from the banking industry.




AP-1 Business customers can make cross-border payments to China using the AP-1 Business Virtual Card. The card operates in the same way as an prepaid debit card, in which transactions and purchases are taken directly from your account's balance.



The use of the AP-1 Business Card allows customers to bypass the cumbersome and time-consuming procedure of clearing payment by submitting paperwork, clearing the payment, or other procedures required by banks to make international payments through bank transfer. It is ultimately an opportunity for both SMEs involved in e-commerce and cross-border B2B transactions.



The Roadmap of Aleta Planet for the Future


Aleta Planet, like other fintech companies has experienced significant growth and continues expand as the Chinese economy grows and more e-commerce transactions increase. Even though the COVID-19 outbreak had a significant impact on China's economy it is the only country that experienced growth in its economy.



Conclusion


In essence three words, the three methods used to manage commercial transactions in mainland China do not offer flexibility and aren't easily accessible by foreigners or people who are not part of China. The AP-1 Business system from Aleta Planet solves this problem by giving offshore businesses easy access to Chinese products, services, and payments. This ease of access can help develop Chinese SME's and create a consumer economy that is based on mainland China. It also helps facilitate transactions in finance between B2Bs (and B2Cs) via more modern payment systems. AP-1 is the leading company in this field providing buyers and sellers with the tools to avoid the commercial bottleneck in China and also to help them exercise and expand their business.



Website: https://www.aletaplanet.com/blog/disrupting-cross-border-b2b-payments-in-china/