Cross-border third-party payment: process, advantages and challenges
Participating entities and processes
Third-party cross-border payment services involve multiple parties, including buyers and sellers of cross-border transactions, payment and settlement institutions (third-party payment institutions, reserve depository banks, domestic and foreign financial institutions), and regulatory agencies in various countries. The payment process is mainly divided into two types of businesses: “receipt and settlement of foreign exchange” and “purchase and payment of foreign exchange”.
Foreign exchange collection and settlement process
- After overseas buyers place an order, the order information is sent to domestic sellers and overseas third-party payment institutions;
- The buyer pays the purchase price to an overseas third-party payment institution through a payment company;
- Overseas third-party payment institutions pay the price of goods to domestic sellers through third-party payment institutions cooperated in China;
- After completing the cross-border logistics distribution, the transaction ends.
Foreign exchange purchase and payment process
- Domestic buyers log in to the third-party payment platform website, select products, and send payment information to the depository bank;
- After the bank processes the purchase and remittance information, the overseas seller delivers the goods;
- The domestic buyer confirms receipt of the goods, and the third-party payment institution sends the external payment information to the custodian bank;
- The custodian bank transfers the foreign exchange remittance to the overseas seller’s bank account.
Advantages and challenges of third-party payment
Advantages
Third-party payment has contributed to solving the problems of lack of credit and single payment in e-commerce transactions. For merchants, it can avoid the risk of not receiving payment; for customers, it can enhance confidence; for banks, it can expand business and reduce development and maintenance costs. In addition, it reduces the risk of credit card information leakage, reduces costs, and improves security.
Challenge
- Fund risk: Funds stranded in third-party institutions may cause security problems.
- Credit risk: Imperfect credit evaluation mechanism may lead to increased risks.
- Business Innovation: Continuous innovation is required to adapt to market changes.
- Vicious Competition: Price wars lead to declining profits.
Technical support
Security guarantees for third-party payments include network security management, data encryption, user identity authentication, application of SSL and SET protocols, as well as strengthening fund supervision and risk preparation.
Data transmission security
Data encryption technology improves information confidentiality and prevents illegal eavesdropping.
User Authentication
Digital signature and CA certification ensure the authenticity of user identity.
Payment Agreement
SSL and SET protocols are used for authentication and information integrity protection respectively.
New opportunities for cross-border payments
The RMB Cross-border Payment System (CIPS) launched by the central bank has improved the efficiency of cross-border settlement, and third-party payment companies have taken this opportunity to provide industry solutions.
Domestic market structure
The third-party payment market is roughly divided into three categories: C-side enterprises, enterprises serving the group’s internal business, and technical service providers.
Features of cross-border third-party payment
The cross-border third-party payment platform has the characteristics of ease of use, low fees, agent purchase of foreign exchange, and provision of value-added services.
Conclusion
Third-party cross-border payments play an important role in promoting international trade. The process is designed to simplify transactions and ensure security, but it still faces some challenges that need to be overcome.
Note: This article is compiled from the contents of multiple articles. For detailed sources, please see the annotation above.