A substantial increase in collection volume created a host of reconciliation issues for Alibaba’s treasury department. A multi-currency virtual account offered by Citi provided a solution to this challenge.
Director of B2B Payment & Financing
The Alibaba Group, a global leader in online and mobile commerce, provides the fundamental technology infrastructure and marketing reach to help merchants, brands and other businesses that provide products, services and digital content, engage with their users and customers through the power of the internet.
Since its launch in 1999, Alibaba.com – the international B2B eCommerce marketplace – has grown exponentially.
Increased collection volume created a challenge for the Alibaba treasury team, whose legacy collections process was manual and ill-equipped to deal with such an inflow. As Griffin Peng, Director of B2B Payment & Financing at Alibaba explains: “Traditionally we asked our overseas buyers to send us payment via wire transfer to our account in Hong Kong. We would then manually reconcile these before distributing the funds to the sellers in mainland China.” The problem with this process, he adds, “is that we found it increasingly difficult to match the incoming funds with the buyer’s orders, leading to delays in distributing the funds to the sellers”.
Not only did this inefficiency harm Alibaba’s image in the eyes of its sellers, it also increased costs due to the need for more manpower. “We realised that if we were to continue supporting business growth, then we would need an automated solution to allow us to reconcile and process these payments quickly and accurately,” says Peng. “We also wanted to do this without changing our customers’ payment experience.”
After exploring and evaluating the different products available, Alibaba decided to utilise Citi’s multi-currency Virtual Account Solution. Peng notes that this solution’s ability to automatically match payments with payers, streamlining and automating the reconciliation processes, perfectly matched the requirements of Alibaba.
“The solution enables us to assign each buyer a unique virtual account number that is linked to our master account in Hong Kong,” he explains. “The system can then automatically match the payment with the data that we have on the transaction, allowing us to automate this process.” To drive even more efficiency, Alibaba has established host-to-host connectivity with Citi, facilitating automated payment initiation to Alibaba’s sellers once the incoming payment is reconciled.
Citi worked closely with Alibaba to customise the solution to meet the company’s unique settlement and reporting requirements – the system generates reports every ten minutes. The bank also helped with the technical integration, linking the virtual accounts with Alibaba’s ERP system. Overall, the whole project was delivered in an impressive three-month period.
During the implementation, Citi also made Alibaba aware of another opportunity to drive greater efficiency and cost savings in its collections process. “Citi suggested that we use ACH direct debits in the US and bulk transfer these over to our Hong Kong account,” explains Peng. “This has reduced our international transaction volume and costs considerably.”
Since going live with Citi’s multi-currency virtual account, the Alibaba treasury team has benefited from improved reconciliation rates, leading to time and cost savings. “In addition, we now have greater control over our cash flow – and payment errors have been minimised,” says Peng. “This has all been achieved without changing our customer’s processes.”
Peng notes that the power of Citi’s multi-currency Virtual Account Solution has been recognised by other parts of the group. “There is a lot of interest in potentially rolling out a similar solution to Alibaba’s other business lines in the future,” concludes Peng.