As 2024 unfolds, the term "going abroad" has emerged as a focal point across all sectors in ChinaIn recent years, a wave of Chinese enterprises has ventured into international markets, expanding from traditional manufacturing to diverse industries such as automobiles, e-commerce, and social media.

These companies are no longer confining their overseas expansion to single platforms, but are employing multi-faceted strategies that include cross-industry collaboration and numerous channels to enhance their global brand presenceNotably, e-commerce has become a driving force behind this international initiative, contributing significantly to China's import and export trading activitiesThe rise of cross-border commerce has been underscored by impressive statistics; as reported by the General Administration of Customs, in the first half of 2024 alone, China's cross-border e-commerce import and export volume reached a staggering 12.2 trillion yuan, representing a year-on-year growth of 10.5%. This rapid growth can be attributed to a series of supportive policies from the government, including the establishment of comprehensive pilot zones for cross-border e-commerce and improved regulatory compliance for customs clearance.

However, behind this flourishing market lies a daunting challenge: prolonged settlement cycles and numerous transaction risks that cross-border e-commerce businesses cannot overlook

The flip side of the going-abroad trend reveals issues with low payment efficiency and high costsDriven by the need for new markets and opportunities, particularly in regions like Southeast Asia and South America, an increasing number of Chinese enterprises are opting to expand overseas this year.

According to a research report by iResearch, China's cross-border e-commerce market is predicted to grow steadily, with a compound annual growth rate of 11.3% expected to reach a value of $2.4 trillion by 2028. During this reshuffling process, resources are likely to consolidate towards larger players in the fieldHuang Wenlong, the general manager of MODIFI China, believes that while the wave of cross-border e-commerce has gained momentum, there remains significant untapped potentialFor instance, areas such as South China, particularly Shenzhen and its surrounding wholesale markets and industrial bases, are transitioning from traditional retail models to participating in cross-border e-commerce platforms like Amazon

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In China's context, platforms such as AliExpress, Shein, Temu, and TikTok Shop have become synonymous with cross-border commerce.

Large e-commerce giants, including Amazon, are beginning to set up local factories, adopting localized strategies to engage with these markets directlyWhile the overseas market appears to be a "blue ocean" brimming with potential, it is fraught with challengesOne major hurdle identified by Huang is financial management; many cross-border e-commerce companies collaborate with B2B clients who are large international buyers or brands, like DisneyThese clients often demand extended payment terms, which can span 60 to 90 days or even longer, placing additional financial strain on smaller businesses.

"The demands for cash flow management are high whether companies operate in traditional trade or pure e-commerce models," Huang explains"Receiving payment sooner enables broader business expansion." Moreover, enterprises face various supplementary costs during the cross-border payment process, making it imperative for businesses to navigate these expenses effectively

Data from relevant agencies indicate that the average cost of processing cross-border payments globally stands at 3.6%, which can account for nearly one-third of total transaction volumeThis cost fluctuates based on transaction value and type.

During peak seasons like Black Friday and Christmas, cross-border e-commerce businesses often experience significant order fluctuationsAs order volumes surge, companies grapple with challenges related to production, inventory, and cash flowTo alleviate financial pressures, many businesses resort to leveraging collateral to secure loans from banks, ensuring their financial stabilityHowever, Huang highlights that while this approach may provide temporary relief, the level of financing and flexibility remains contingent on a company's historical performance and a bank's risk assessment.

In addition to financial constraints, Chinese enterprises operating internationally must contend with compliance, regulatory policies, local laws, and an assortment of other hurdles

Even seemingly trivial factors, such as real-time currency exchange rates, can considerably impact business operations in foreign marketsAdditionally, with the rise of generative AI technology, fraud risk has increased in cross-border payment scenarios, as deepfakes and other sophisticated techniques are leveraged by malicious actors.

In summary, the current landscape of cross-border e-commerce highlights two primary pain points regarding payments: low efficiency and high costsPranav Sood, General Manager for Europe, the Middle East, and Africa at Airwallex, notes, "The transfer of funds globally is often burdened by limitations, inefficiencies, time consumption, and exorbitant costs." A sentiment echoed by Rohit Narang, General Manager of Currencycloud's Asia-Pacific Visa cross-border solutions, who points out slow payment/settlement speeds, lack of transparency, and high associated costs as the principal challenges facing all cross-border payment endeavors worldwide, contributing to the slow and inefficient systems currently in place.

Addressing payment challenges through digital technology is a key focus area for enterprises engaged in cross-border e-commerce

Notably, many companies are now adopting virtual account systems combined with offshore factoring to enhance financial efficiency and flexibility in fund managementThis approach allows businesses to streamline their financial operations, ultimately facilitating quicker turnover of funds.

Take MODIFI as an example, where a major component of its operations is the integration of financial services with offshore factoring to serve its customersA recurring issue during this process is the verification of merchant credentials, particularly regarding invoice authenticity"The format and requirements for invoices differ widely across countries, and as businesses scale, they generate numerous invoices, which previously necessitated considerable human resources for verification," explains Nelson Holzner, the CEO and Co-Founder of MODIFI.

However, the advent of AI technology has significantly improved efficiency

"MODIFI employs AI to recognize and validate invoice informationMany platforms, like Amazon, use standard invoice templates, enabling AI to quickly and accurately match data, thereby minimizing errors and delays that occur with manual reviews," Holzner adds.

Holzner further emphasizes the importance of considering non-traditional financial data, such as transaction history on e-commerce platforms, during the verification phase to provide a holistic assessment of users' creditworthiness"Beyond invoice recognition via AI, MODIFI has identified opportunities to utilize AI for document retrieval to detect defaults or anomalies in transactions," Holzner notes"This implementation has led to a high degree of automation, only requiring human oversight in extremely rare casesIt has largely controlled risks while meeting compliance requirements," he continues.

As for the trending issue of deep forgery within the broader cybersecurity landscape, Holzner acknowledges the duality of AI advancements

On the one hand, bad actors have access to sophisticated tools that fuel increasingly diverse fraudulent tactics; on the other hand, businesses in cross-border e-commerce can safeguard against potential risks by integrating AI-driven analysis of various transaction facets—like shipment locations, transport status, delivery times, and invoices—while cross-referencing historical data"By connecting digital and real-world transactions through comprehensive data analysis and automated solutions to identify threats throughout the transaction process, we significantly reduce avenues for fraud," Holzner asserts.

This approach mirrors a broader industry trend where virtually all providers of cross-border payment solutions are incorporating AI technologies into their offeringsAviram Ganor, General Manager for Riskified in the EMEA and Asia-Pacific regions, points out that as AI technology deepens its application in fraud detection, cross-border e-commerce companies and payment providers are beginning to leverage machine learning and deep learning techniques to analyze user behavior and transactional discrepancies in real-time, thus identifying anomalies and potential fraud

AI-driven risk management not only enhances data processing efficiency but also mitigates misjudgments and delays associated with traditional manual checks, empowering businesses to tackle new forms of fraud that emerge from advancements like large language models.

Additionally, traditional technologies such as APIs and blockchain are also playing a significant role in driving efficiency and cost reductions in cross-border trade processesFor instance, the use of blockchain technology enables real-time clearing and settlement, thus reducing intermediary steps and feesMu Changchun, the Director of the Digital Currency Research Institute of the People's Bank of China, publicly shared insights on enhancing transaction efficiency within multilateral central bank digital currency bridgesHe noted that under such a framework, commercial banks could drastically improve transaction efficiency without compliance concerns, stating, "Experience from real transactions on the multilateral central bank digital currency bridge suggests that cross-border payment costs could be reduced by at least 50%."