Any international company planning to access the huge and fast-expanding Chinese market needs to think very carefully about its cross-border payments partner. At a time when Chinese regulators are applying regulations ever more strictly, you want a payments provider that is fully compliant but also understands how this fast-changing market is likely to evolve. David Messenger, CEO of China-based cross-border payments company LianLian Global, argues that with the right partner, international companies can successfully tap China’s very obvious opportunities.
E-commerce powers ahead
The boom in e-commerce with China looks set to continue. The volume of cross-border e-commerce sales in China will be approximately 6 trillion yuan (US$ 920 million) in 2021, according to market research firm iResearch, after doubling in the previous five years. The main drivers are China’s fast-growing middle-class, the extraordinary supply chain of goods emanating from China, and the large volume of Chinese e-commerce sellers providing goods to consumers all over the world. As a result there is an amazing opportunity to support sellers with e-commerce services, tap the supply chain opportunities and sell into China.
But while e-commerce with China continues to expand, international players are naturally confused – and concerned – by news about how Chinese regulators are emphasising the need for strict compliance with complex and fast-changing regulations. In particular these relate to data privacy, data security and anti-competitive behaviour.
It is clear that the Chinese regulators are prepared to act decisively in relation to even the largest firms if the latter abuse their market position or fail to comply with regulations. According to Yi Gang, China’s central bank governor, this is part of a wider policy by the government to tighten its grip on the economy. Speaking at a conference organized by the Bank for International Settlements, he said that China would: “continue to co-operate with anti-monopoly authorities to curb monopolies and actively deal with. . .new forms of anti-competition behaviour.”
All this makes it critical for any company expanding its cross-border business into China to pick the right partner. Chinese regulations are complex and fast-changing, and regulators are determined to enforce them, but some payments companies do not even have a Chinese cross-border payments license! That makes it absolutely essential to work with a partner that is both reliable and understands this dynamic situation.
How to meet the compliance challenge
Let’s start with the issue of compliance. If you are a non-Chinese company looking to expand your business in China, you will want to eliminate risk on the compliance side. But that can be hard. KYC checks can be difficult for international investors and businesses trying to operate in China for three key reasons:
- The stringent regulations in the Chinese financial system affecting external transactions and money movement
- A limited volume of accessible information on Chinese businesses
- A dynamic, high-profile and emerging regulatory vision for data security and data privacy within China
In my experience, the best way to overcome these barriers is to partner with an established payments company with local expertise, and mitigate your own business’s exposure to risk.
What to look for in a payments partner
I always recommend new entrants to focus on five key attributes when choosing such a partner:
- A global company, with local (in this case Chinese) staff and local knowledge
- A partner that is fully compliant with complicated Chinese regulations
- A partner that “owns all the rails” and can provide end-to-end control of the process to reduce risk and costs
- A partner that is a well-established, trusted corporation with a proven reputation to maintain and protect
- A partner that has a robust local KYC process and knows how to find the right customers or suppliers
Support beyond payments
The best payments companies are fast expanding their offering beyond their core product and as a result becoming ever more useful to international customers. As a result, new entrants can find additional help in terms of multi-currency accounts, logistics, marketing tools to grow their customer base, and working capital finance.
Cross-border e-commerce with China continues to represent a huge opportunity for international companies. But to seize those opportunities successfully – and not fall foul of the Chinese government’s focus on full compliance in a dynamic situation- new entrants need to work with fintech partners who can help them to navigate through the many challenges they will face.