In recent years, China's cross-border payment industry has experienced rapid growth. According to a report on the development trends and investment outlook for the global and Chinese payment-as-a-service industry from 2024 to 2029 by the China Business Industry Research Institute, the market size of China's cross-border digital payment services has increased from RMB 2.2 trillion in 2019 to RMB 5.9 trillion in 2023, with a compound annual growth rate of 27.97% from 2019 to 2023. The market size of the country's cross-border digital payment services industry is expected to reach RMB 7.5 trillion in 2024.
Recently, nine ministries and commissions, including the Ministry of Commerce (MOC), the National Development and Reform Commission (NDRC), and the People's Bank of China (PBoC), jointly issued the "Opinions on Expanding Cross-border E-commerce Export and Promoting the Development of Overseas Warehouses" (hereinafter referred to as the "Opinions"), which includes several measures to encourage cross-border payments. For example, in terms of optimizing cross-border fund settlement services, the Opinions propose simplifying foreign exchange receipt and payment procedures for small and micro cross-border e-commerce enterprises and further expanding settlement channels. They also support qualified banks and non-bank payment institutions in providing efficient, low-cost cross-border fund settlement services to cross-border e-commerce enterprises based on transaction electronic information as stipulated.
The current surge in cross-border payments is driven by the rise of cross-border e-commerce and the trend of businesses expanding overseas. Service providers for cross-border payments mainly include bank telegraphic transfers, specialized remittance companies, card processing clearing institutions, internet third-party payment platforms, and major banking giants. Traditional foreign trade typically uses bank telegraphic transfers, relying on commercial banks to open settlement accounts overseas through correspondent banks and using the SWIFT system to send cross-border messages for fund clearing. However, this method is often inefficient and costly due to the lengthy chain involved. Remittance companies and card-based cross-border payment methods are more commonly used in transactions with developed countries. Today, with the development of cross-border e-commerce, the nature of overseas orders is also changing: large orders are becoming smaller, and long-term orders are becoming shorter. Additionally, geopolitical risks are driving companies to globalize their operations, thereby creating new demands for cross-border payments.
Currently, there is an increase in the proportion of Chinese companies exporting to or expanding into emerging markets, where payment systems may still be developing. For instance, a Chinese battery manufacturer expanding into Southeast Asia has found that many offline distributors in the region do not have business accounts, which affects the ability to receive payments via direct bank transfers. Additionally, small and medium-sized multinational enterprises often encounter challenges when opening accounts, a situation that is observed in both Western countries and emerging markets. With the growing presence of small and medium-sized Chinese enterprises in cross-border e-commerce and international expansion, flexible and cost-effective third-party payment providers are becoming more commonly used for cross-border transactions.
Meanwhile, the services provided by payment companies have expanded beyond traditional financial transactions. Payment companies now cover a wide range of funding needs related to overseas marketing, logistics, brand promotion, and other aspects for Chinese enterprises expanding abroad. Additionally, services such as deposit and loan offerings tailored for businesses have started to emerge. When operating in overseas markets, Chinese companies may face extended payment cycles, often needing one to three months to receive payments after shipping goods. Some cross-border payment companies have begun offering overseas credit services. For example, Ant Group's cross-border payment platform WorldFirst has partnered with Chinese and international banks to provide credit loans in both USD and RMB to support enterprises in cross-border trade. The RMB loan limit can reach up to RMB 3 million, while the USD loan limit can go up to USD 10 million.
From the perspective of payment institutions themselves, expanding into cross-border payments and even venturing abroad is becoming an inevitable trend. With the release of the rules on the supervision and administration of non-bank payment institutions by the Chinese authorities, the entry barriers for payment services are gradually increasing. As a result, many third-party payment companies in China that previously focused on domestic business are now emphasizing their overseas expansion. Companies such as Lakala, VBill, Union Mobile Pay, and others are accelerating their efforts to acquire payment licenses and establish a presence in overseas markets including Southeast Asia, the Middle East, Africa, Europe, the United States, and Japan, and are actively promoting the export of payment hardware and services.
However, the growth of cross-border e-commerce has introduced regulatory challenges for payment institutions engaging in cross-border operations.
On the one hand, the current payment business regulations are designed for domestic payment scenarios within China itself, which may present adaptation challenges in cross-border payment situations. For example, the CGGT Think Tank points out that acquiring business regulations requires payment institutions to conduct regular inspections of enterprises. However, most enterprises involved in cross-border acquiring are local licensed institutions, making it nearly impossible for payment institutions to implement inspection measures similar to those for businesses in China. This results in difficulties in enforcing inspection requirements in cross-border acquiring scenarios. Additionally, according to Chinese business media Caixin's reports, cross-border payment institutions without Chinese payment licenses often use China's licensed institutions as channels, and these institutions find it challenging to fulfill KYC (know your customer) and anti-money laundering responsibilities.
On the other hand, payment institutions like Alipay and WeChat Pay still use a three-party model for cross-border transactions, involving the payment institution, the bank, and the enterprise, bypassing the clearing organizations such as UnionPay and NetsUnion. The internationally accepted model includes the clearing organization as a four-party model. Caixin points out that under the three-party model, there are issues such as lack of transparency in fund flows and no transaction traceability, which are detrimental to anti-money laundering supervision. In fact, domestic payments in China have already completed the "disconnection of direct connections", meaning that direct links between payment institutions and banks have been cut off, with clearing organizations introduced in between. "Cross-border payment disconnection" is expected to become the next trend in cross-border payment services. It is worth noting that, considering the higher migration costs of payment clearing systems in cross-border scenarios and the potential involvement of foreign third parties, the timing and smooth implementation of "cross-border payment disconnection" remain to be seen.
Chinese authorities are currently developing regulations on cross-border payment services management measures to better regulate such activities. However, some payment institutions expanding internationally are not engaged in cross-border payments per se but are instead concentrating on establishing a local presence and serving local Chinese businesses. As Chinese companies expand globally, payment institutions operating abroad will increasingly collaborate with these enterprises, bringing to light new risks and presenting fresh challenges for regulation.
Final analysis conclusion:
The rise of cross-border e-commerce has driven third-party payment institutions to increasingly engage in cross-border payment services. However, the requirements for such payments are complex, leading to issues with information transparency and difficulties in implementing relevant reviews. Meanwhile, as Chinese enterprises expand abroad, third-party payment institutions are also developing overseas payment services. In the future, the development of this model will present new challenges for regulation.
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Xu Zijie is a researcher at ANBOUND, an independent think tank.
