(1) Traditional cross-border trade prefers direct payment methods, such as remittance, collection, letter of credit, international factoring, etc. Commonly used remittance is generally used in occasions with smaller amounts, while the letter of credit method is more commonly used in large-value payment scenarios because it provides reliable guarantees for both buyers and sellers.
Remittance, one of the direct payment methods, is mainly completed by banks. After receiving the remitter’s application, the bank will transfer the funds from the foreign remittance bank to the beneficiary in various forms such as SWIFT (Society for Worldwide Interbank Financial Telecommunications).
In international trade activities, buyers and sellers may not trust each other. The buyer is worried that the seller will not ship the goods as required by the contract after the advance payment; the seller is also worried that the buyer will not pay after the goods are shipped or the shipping documents are submitted. Therefore, two banks are needed as guarantors for both buyers and sellers. Since the letter of credit model protects both buyers and sellers, it has become the most important and most commonly used payment method in traditional international trade.
(2) There are many third-party payment institutions. In comprehensive cross-border B2C trade, due to the large number of participants, small unit price and large quantity, the direct payment model is no longer applicable to this cross-border trade model. At present, domestic third-party institutions and cross-border payment collection companies with cross-border payment licenses, as well as foreign licensed payment institutions, have established stable and effective channels and formed a stable model. For the key exchange link, domestic licensed third-party payment institutions can exchange currency for orders based on cross-border e-commerce platform data.
(3) The payment method of self-operated B2C cross-border e-commerce platforms mainly uses domestic licensed third-party payment institutions to exchange currency for the platform. Self-operated B2C cross-border e-commerce platforms generally have overseas accounts to facilitate foreign third-party payment and other financial institutions to handle their collection business. Domestic licensed third-party payment institutions mainly handle exchange and transfer services for such platforms, transferring the platform’s funds from overseas accounts to the domestic bank accounts of e-commerce platforms. Cross-border payment collection companies can also complete this process by connecting channels of all parties. Finally, the e-commerce platform distributes the accounts to manufacturing companies through domestic third-party payment institutions.
(4) Small-scale cross-border B2B trade directly faces many small overseas merchants, which greatly reduces the cost of cross-border payment and settlement. In recent years, small-scale cross-border B2B trade has developed rapidly, and there are many small overseas merchants. Compared with traditional large merchants, small merchants have lower customer unit prices and often purchase goods directly through distributors. Under this model, both labor and trade costs can be greatly reduced.
(5) Third-party cross-border payment institutions generally hold foreign exchange and RMB payment licenses. Domestic companies that want to carry out cross-border payment and business must first be payment institutions and must hold a “payment business license” issued by the central bank. Secondly, they need the approval document of the State Administration of Foreign Exchange for the pilot of cross-border e-commerce foreign exchange payment business. If it does not involve currency exchange, the payment institution only needs to hold a RMB cross-border payment license issued by the local central bank branch, and cross-border RMB payment business does not require the approval of the State Administration of Foreign Exchange.
(6) Third-party payment institutions are more adaptable to the small-scale and high-frequency needs of emerging cross-border e-commerce. Traditional cross-border trade is mainly large-scale and low-frequency, with high requirements for payment security, but also loses timeliness. Therefore, traditional B. end (enterprise) large-scale cross-border trade is more willing to choose bank remittances and letters of credit as payment methods. However, with the development of cross-border trade, especially the rise of cross-border e-commerce platforms, there are higher requirements for the convenience and timeliness of payment. At this time, the regulatory authorities have also opened up the access of third-party payment institutions.
(7) Handling fees and payment solutions are the main sources of income for third-party cross-border payments. Channel handling fees mainly include fees based on transaction volume and fees based on the number of payments, or both. B-side payment solutions are integrated product support solutions provided by payment institutions for the different needs of each different industry. With the development of cross-border e-commerce payment and settlement, B-side payment solutions have entered the “blue ocean”. In addition, income sources also include non-conventional income such as exchange rate differences.