China's "Four Steps" to Pay for Overseas

At a time when Chinese financial institutions are actively connecting to overseas payment and clearing networks to provide payment convenience for overseas people coming to China, China's payment overseas has achieved considerable results.

Nowadays, in many well-known national scenic spots, department stores, convenience stores, duty-free shops, hotels and airports, you can see the "logo" of UnionPay, Alipay, WeChat Pay and other consumption scenes.

In the list of shareholders of leading mobile payment institutions in many emerging market countries, large Internet companies such as Ant Financial and Tencent can also be seen. More and more emerging market countries are iteratively upgrading their payment systems, and more and more "Chinese solutions" are emerging.

According to a source from a domestic payment institution, China's payment has gone through four stages:

Initially, domestic payment institutions were widely connected to overseas consumption scenarios and acceptance networks to provide payment convenience for domestic and overseas travel and life.

Since then, more and more large Chinese Internet companies have provided technical and operational experience support for many emerging market payment institutions to build mobile payment networks through equity investment + technology empowerment.

In recent years, Chinese payment institutions are helping some emerging market countries to "upgrade" payment systems such as QR code payment to provide "China solutions".

Nowadays, with the rise of China's high-tech products such as new energy vehicles and the rise of cross-border e-commerce industry, Chinese cross-border payment service providers are providing comprehensive payment ecological services for the global layout of Chinese enterprises' business.

In his view, behind the rise of cross-border e-commerce and the overseas export of new energy vehicles, China's payment service objects are extending from the 2C end to the 2B end.

"At present, China is indeed at the forefront of many countries in terms of payment technology application and service experience. A person in charge of a domestic cross-border payment service provider previously pointed out in an interview with this reporter that at present, many Western countries still continue to use the card-based payment (bank card payment) model, the settlement efficiency is relatively slow and the rate is relatively high, but China has widely popularized code-based payment, with the blessing of technology empowerment, not only the settlement efficiency has been greatly improved, and the relevant fund transfer rate is also quite low.

Image source: Visual China

Expand overseas scenarios

In early 2004, with the approval of the People's Bank of China, UnionPay launched the POS consumption business, ATM inquiry and cash withdrawal business of the Mainland UnionPay RMB card in Hong Kong, opening the international footprint of China's bank card business.

This also marks the first time that Chinese payments have been exported.

After 20 years of unremitting exploration and development, UnionPay, Alipay, and WeChat Pay can now be seen in many well-known national scenic spots, department stores, convenience stores, duty-free shops, hotels and airports.

Taking UnionPay as an example, UnionPay International's acceptance environment has now extended to more than 66.4 million merchants in 183 countries and regions overseas, of which 99 countries and regions also support UnionPay's mobile payment services.

Alipay and WeChat Pay have also continued to expand their overseas acceptance networks, covering various consumption scenarios in many countries and regions with Chinese payment services.

Nowadays, more and more Chinese are lamenting in the process of overseas travel that as long as there are Chinese, there are "three sets" of payment - UnionPay, Alipay, and WeChat Pay.

The above-mentioned domestic payment institutions pointed out that behind this, these payment institutions have followed the trend of the surge in outbound travel of Chinese people in the past 20 years, continuously expanded the overseas acceptance network and connected many overseas consumption scenarios, and also promoted the global payment service industry to present two new development trends:

First, China's payment has gone overseas, accelerating the pace of iterative upgrading of overseas acceptance network and payment and settlement service efficiency. In the past, payment and settlement operators in many countries and regions still continued to pay in cash and card payment models, but after cooperating with Chinese payment institutions, they have accelerated the deployment of emerging payment businesses such as QR code payment, mobile payment, and online e-wallets.

Second, China Pay provides lower rate services to create greater financial inclusion. In the beginning, Chinese traveled and lived overseas, and could only settle and swipe cards through overseas card associations, not only to pay a 1.5% handling fee, but also to bear a lot of currency exchange fees, especially overseas card organizations to carry out two exchanges of local currency - US dollar - RMB, resulting in currency exchange fees are quite high. However, with UnionPay, Alipay and WeChat Pay increasingly spreading around the world, the payment rates and currency exchange costs of Chinese outbound travel have been significantly reduced.

The reasons for this are: first, Chinese payment institutions have greatly improved the efficiency of cross-border payment and settlement through technology to reduce rates, and second, Chinese payment institutions provide direct exchange of local currency, RMB, which avoids the high operating cost of secondary exchange, and also alleviates the additional exchange rate risk caused by delayed exchange through direct exchange at the spot exchange rate.

"Nowadays, many overseas payment and settlement service providers have also followed the above practices of Chinese payment institutions in order to highlight their business competitiveness. The person from the domestic payment institution bluntly said that this invisibly promotes new changes in the overseas payment service system.

It is worth noting that the first phase of payment to go overseas not only brings a "localized" and "cost-effective" convenient payment experience to Chinese outbound travel, but also helps to improve the payment convenience of overseas people in China.

In 2017, Alipay partnered with KakaoPay, a large e-wallet in South Korea, to make Alipay more convenient for Chinese tourists to use in South Korea, and to help Korean tourists in China use the KakaoPay app to make purchases and payments in most stores in China that use Alipay+, and by the end of 2023, KakaoPay will expand this interoperability to 80% of in-store payments in China.

A number of payment institutions told reporters that through this kind of business cooperation, people in many countries and regions can now easily bind their local wallets or bank cards to UnionPay, Alipay or WeChat Pay, and carry out QR code payment in China to improve their payment convenience in China.

Equity investment + technology output

In the past 10 years, China's large Internet institutions and fintech platforms have helped many payment institutions in emerging markets build new mobile payment networks and solutions through equity investment + technology output.

During 2015~2019, Ant invested in overseas emerging payment institutions such as Paytm, an Indian e-wallet service provider, Ascend Money, an e-wallet service provider in Thailand, Mynt, a financial services company under Globe Telecom, a telecommunications operator in the Philippines, Small and Micro Finance Bank (TMB) in Pakistan, bKash, a mobile financial service provider in Bangladesh, and WorldFirst, an emerging payment platform in the United Kingdom.

"At that time, the reason why many emerging payment institutions in many countries and regions were keen to accept the investment of China's large Internet platforms and fintech platforms was that China's emerging payment technology and service experience could effectively rely on the popularity of local smartphones and the rise of people's mobile payment habits to solve many payment bottlenecks for local people; The above-mentioned domestic payment institutions pointed out.

The reporter learned that with the support of equity investment + technology empowerment of Chinese institutions, the business growth rate of mobile payment institutions in many overseas countries has accelerated suddenly.

Bangladesh, for example, has a high population density and a large number of young people, but only about 20% of the country's 160 million people have bank accounts and access to traditional banking services. After making an equity investment in bKash, the largest mobile financial service provider in the region, Ant Financial helped the latter rapidly expand the coverage of mobile payment, inclusive finance, and payment services for catering, tourism, shopping, and consumption scenarios through technology output.

Selim R.F. Hussain, Managing Director and CEO of BRAC, has pointed out that bKash is a company that brings financial services to millions of Bangladeshis who do not have traditional financial services. Through the empowerment of Ant Financial, bKash has greatly improved its mobile financial service capabilities, bringing positive impact and change to millions of people.

It is worth noting that Tencent's equity investment and technology export in the payment sector in emerging markets have also been quite effective. Previously, Tencent teamed up with KKR, an internationally renowned PE firm, to invest in a minority stake in Voyager Innovations, a fintech company under PLDT in the Philippines.

It is reported that Voyager Innovations mainly provides digital and financial services to millions of Filipino consumers through e-wallets, digital payments and remittance services.

PLDT noted that with the global expertise and capital injection of investors such as Tencent, Voyager Innovations will further promote widespread access to the Internet and mobile payment services for Filipino consumers.

In recent years, Tencent has also made equity investments in Afterpay, a payment technology company in Australia, Nubank, a payment fintech company in Brazil, and Satispay, a payment startup in Italy.

A PE institution familiar with the progress of foreign investment by domestic payment institutions told reporters that for a period of time, many emerging market emerging payment fields have presented a peculiar scene - among the local head emerging payment institutions, either Tencent or Ant Financial has a stake, showing the situation of "competition" between the two major Chinese capitals. For example, Voyager Innovations' main competitor in the Philippines, Globe Fintech Innovations, has received an equity investment from Ant Financial.

In his view, the biggest benefit of this peculiar scene is effective market competition, which is driving local emerging payment institutions in emerging markets to accelerate technological innovation and business model iteration, driving local people to obtain a better inclusive financial and mobile payment experience, and making the entire market cake bigger.

However, with the escalation of the current international geopolitical risks, the second phase of China's payment overseas is also facing new challenges. Last year, Ant Financial sold part of its stake in Paytm, an emerging Indian payment institution, to hedge against potential risks.

"This will not affect the general trend of China Pay going overseas through equity investment + technology empowerment. They are now eyeing new markets – Africa and the Middle East. The PE agency revealed to reporters.

Exporting the "China Solution"

As China's payment technology enters more and more countries and regions through equity investment and technology empowerment, local central banks and financial regulators are quite popular with the "China Plan" when promoting the iterative upgrading of local payment systems.

The reporter learned that in recent years, UnionPay International has cooperated with many central banks, national transfer networks and payment unions to provide more "Chinese solutions" in the development process of the global payment industry by cooperating with many central banks, national transfer networks and payment alliances to carry out transfer network technical standards, QR code standards and chip card standards.

Among them, the bank card transfer networks in Laos and Thailand are built with UnionPay technology and standards, and UnionPay also authorizes chip card standards to the Asian Payment Alliance and the Bankers Association of Thailand.

An industry insider familiar with the development of the international payment industry told reporters that compared with some payment service providers in emerging markets to build platforms that connect various localized payment tools, the local central bank and financial regulatory authorities prefer UnionPay International's "four-party model" (card associations, card issuers, acquirers, merchants) because it can have stronger compatibility and openness in different market environments.

"More importantly, it can also better meet the regulatory requirements of many emerging market countries in terms of anti-money laundering and anti-terrorist financing, cross-border payment data and information tracking and analysis, local people's personal information protection, system stability and reliability, etc. He said.

Wang Jian, assistant director of Guosen Securities Economic Research Institute, pointed out that the current global bank card industry is upgrading and iterating from magnetic stripe cards, IC cards, to digital bank cards, and upgrading traditional bank cards to digital bank cards through key technologies such as digital credentials and payment routing gateways, so as to enhance the core capabilities of bank cards in digital payment channels, which is conducive to payment interconnection and mutual benefit and win-win results in the industry. Based on the "four-party model", the relevant financial regulatory authorities can clarify the functional boundaries of account institutions, payment information service providers, acquirers and clearing institutions, so that all parties can perform their respective duties.

"Especially in the context of the rise of mobile payments, China's proposal is attractive to central banks and financial regulators in many emerging market countries. The industry insider, who is familiar with the development of the international payment industry, pointed out that with the popularization of new technologies such as mobile Internet and payment tokenization, online payment and barcode payment have ushered in a period of rapid development.

For example, when QR code payment is increasingly becoming the mainstream and emerging payment method in emerging markets, many local digital wallet operators and acquirers have not fully realized mutual recognition and mutual scanning, which not only restricts the choice of payment tools by local people and merchants, but also increases the cost of transformation and access of acquirers.

In addition, the financial regulatory authorities of many emerging market countries have also found that there is a lot of room for improvement in the openness, equality and security of transaction paths, information processing and capital processing under the existing model, and key issues such as payment operation efficiency, overall risk prevention capabilities, and underlying data security still need to be solved.

In his view, an important reason why the financial regulators of many emerging market countries favor the Chinese solution based on the "quadripartite model" is that it can fully protect the reasonable rights and interests of all payment participants and effectively implement the iterative upgrading of the local digital bank card payment system.

Specifically, the first is that China's solution does not simply copy the traditional card-based four-party model, but combines the development trend of digital transformation and new forms of mobile payment, clarifies the role of new participants, and effectively improves the user payment service experience and the security of the whole payment chain in emerging markets through digital technology.

Second, China's plan has significantly improved the digital service capabilities of various payment participants, which will help improve the payment technology capabilities and inclusive financial service capabilities of the entire emerging market countries. For example, after the payment system in emerging market countries is connected to the "China Plan", local acquirers will focus more on enhancing the core functions of merchant development and service, creating a "payment+" ecosystem, and providing better services for merchants in terms of merchant consumption analysis, membership management, and refined operation, while local digital wallet operators will strive to strengthen their scenario service capabilities and provide users with a flexible and convenient payment experience.

It is worth noting that with the continuous advancement of the Belt and Road Initiative and the recognition of the "China Plan" by overseas markets, more and more large private payment institutions in emerging markets are also willing to accept the "China Plan" given by Chinese payment institutions. For example, Ant Financial has partnered with Pakistan's NayaPay to deploy Pakistan's instant payment system Raast and Alipay+ compatible QR codes to promote Ant Financial's global payment "China solution" to Pakistan.

In addition, Ant Financial has also partnered with local payment institutions in Sri Lanka to enable more than 400,000 local merchants to accept cross-border digital payments through "Alipay+", expanding the global market and seeking new business opportunities with the help of "China solutions".

2B pays to go to sea

With the rise of cross-border e-commerce and high-tech products such as new energy vehicles in recent years, China's cross-border payment service providers are setting off a new round of payment going overseas to serve the globalization of B-end enterprise business.

The reporter was informed that during the period of 2010~2015, it was the rise of Chinese goods going overseas, and almost all domestic cross-border payment services were carried out around the goods going overseas, mainly serving cross-border e-commerce platforms such as Amazon, aiming to improve the collection efficiency of cross-border e-commerce enterprises and reduce the cost of collection.

Nowadays, many Chinese-funded enterprises have shifted from goods to brands to overseas - they have set up overseas independent stations to create independent global brands to "sell goods", which is causing a "qualitative change" in the cross-border payment service format.

"Behind this, the capital link and product logic of cross-border payment tools based on goods going overseas have been solidified, lack of scalability, and it is difficult to adapt to the complex capital collection and payment needs of brands going overseas. A cross-border e-commerce payment service provider pointed out to reporters. The demand for capital collection and payment in overseas marketing, logistics and distribution, finance and taxation, trademark management, brand promotion and other aspects brought by the brand of Chinese enterprises going overseas is not only the demand for commodity trade settlement, but also the demand for capital receipt and payment in overseas marketing, logistics and distribution, finance and taxation, trademark management, brand promotion and other aspects, especially in recent years, how to establish an efficient closed loop of capital receipt and payment with new marketing models such as overseas live broadcast e-commerce and short video e-commerce, which is very important to the success or failure of Chinese enterprises' "brand going overseas".

This means that under the tide of Chinese enterprises' "brand going overseas", the product logic and capital link of cross-border payment services will be "reshaped".

In the overseas marketing process, cross-border payment service providers need to assist Chinese enterprises going overseas to build a comprehensive fund collection and payment network with various overseas social platforms, so as to pay marketing fees to overseas live broadcast e-commerce influencers in a timely manner.

On the logistics and distribution side, cross-border payment service providers need to assist Chinese enterprises going overseas to establish differentiated fund collection and payment structures with different overseas logistics institutions to further improve the timeliness of commodity delivery and user stickiness.

In the production process, cross-border payment service providers also need to assist Chinese overseas enterprises and upstream suppliers to establish a more flexible supply chain payment and settlement system, so that Chinese overseas enterprises can formulate more flexible production plans and efficiently complete the settlement of relevant procurement costs according to the product sales status and brand promotion efforts in different countries and regions.

The reporter learned that in order to build a cross-border payment ecology suitable for brands to go overseas, more and more domestic cross-border payment service providers are trying different implementation paths.

At present, most domestic cross-border payment service providers choose the "latter" because in different countries and regions, the payment compliance of overseas marketing, logistics, brand promotion and other links is different from the industry collection and payment rules.

It is worth noting that with the introduction of high-tech products such as new energy vehicles, China's payment has ushered in both new opportunities and new challenges.

Chen Yang, general manager of the operation department of Weiche, which focuses on the new retail of new energy vehicles, told reporters that after cooperating with Vietnam's Taixing Group, they will quickly promote China's new energy vehicles to "go overseas" to the Vietnamese market, and strive to complete the export sales of 30,000 new energy vehicles in 2026.

He told reporters that according to BMI Research's forecast, the annual growth rate of electric vehicle sales in Vietnam is expected to reach 25.8% during 2023~2032. By 2030, the penetration rate of electric vehicles in the Vietnamese market will increase to 13.6%. Therefore, NIO sees Vietnam as a core region to expand into the Southeast Asian market.

However, due to the complex cross-border collection, capital collection, currency exchange, exchange rate risk hedging and other issues involved in the "going overseas" of new energy vehicles, how to find an effective cross-border payment solution has become an urgent challenge for China's new energy vehicles to go overseas.

Chen Yang told reporters that at present, they mainly adopt the US dollar collection model, during which they complete cross-border collection, fund collection, currency exchange, exchange rate risk hedging and other payment link capital operations through joint-stock banks and other partners. At present, relatively effective solutions have been found in these areas. However, due to the fact that automobiles are large transactions and the corresponding cross-border capital transaction volume is relatively high, there are some quota restrictions within the inbound remittance of overseas funds, and they are currently actively communicating with relevant banks to find a more suitable cross-border collection solution under the premise of compliance.

Xu Zewei, chairman of 91 Technology Group, told reporters that with the rise of cross-border e-commerce and the export of bulk high-tech products such as new energy vehicles, China's payment is facing a series of new challenges.

In his view, in order to solve these challenges, domestic financial institutions still need to do four tasks: one is to strengthen market research, in-depth understanding of the cultural, legal, technical and other characteristics of the target market, and provide targeted solutions for Chinese enterprises in different industries to go overseas; Technology providers and other partners to jointly expand the market, reduce operating costs, and achieve deep localization, and fourthly, improve the satisfaction and loyalty of overseas users with China's payment services by optimizing the payment process and improving the quality of customer service.

For more information, please download the 21 Finance APP