World first collections solution

The challenge

Alibaba B2B is the premier online platform providing professional import and export business process outsourcing services to China’s small and medium-sized cross-border trade enterprises.

In its previous model, Alibaba B2B operated by collecting funds from overseas buyers to Hong Kong by wire transfers. Through this process, the company found it very hard to identify and match incoming funds with its buyers, which resulted in great difficulties in reconciliation and high operating costs to its customer service team.

In addition, in the US, Alibaba B2B collected funds from buyers via cross-border wire payments from US buyers to Alibaba’s Hong Kong account. The entire payment process was costly and slow, hence Alibaba, as a B2B platform, found it hard to settle the funds to merchants in a timely manner.

The solution

To address these challenges, Alibaba B2B was looking for an end-to-end solution from its banking partner across Hong Kong and the US to automate, simplify and streamline its collections processes, provide liquidity and FX management to improve operational efficiencies and enhance its cash visibility. In addition, Alibaba also wanted to become the first global eCommerce corporate to achieve online collection and domestic collection for its B2B flows.

After careful consideration, Alibaba B2B chose to work with Citi in Hong Kong to implement a Virtual Account Solution. This solution is an automated payer identification service that streamlines reconciliation for electronic receipts.

The solution works with each buyer being assigned a random and unique Virtual Account Number after checking out of the marketplace. The bank then automatically feeds MT940/942 reports to Alibaba’s ERP system via host-to-host connectivity in regular ten-minute intervals. These reports contain a comprehensive list of all Virtual Account Numbers generated from the marketplace.

When the bank receives the payment, it matches the virtual account number to the client’s real account number in a fully automated process. The bank then credits the Alibaba B2B’s account with the payment. To satisfy Alibaba B2B’s large settlement needs, these reports are generated every ten minutes.

Best practice and innovation

This is the world’s first online collection solution implemented for an eCommerce company, which accommodates a B2B business by virtue of end-to-end automation and large volume processing capabilities. The Virtual Account solution in Hong Kong has enabled Alibaba B2B to accept collections in different currencies – USD, HKD, CNY, AUD, CAD, JPY, SGD, EUR and GBP.

After the smooth implementation of the Virtual Account solution in Hong Kong, Alibaba chose to work with Citi US to implement an ACH direct debit solution. This solution enables Alibaba B2B US to locally collect by initiating ACH Direct Debit instructions to their buyers after they have checked out on the marketplace. The bank then credits the collected funds to the Alibaba B2B US account. Additionally, the bank automatically feeds STR reports to Alibaba B2B’s ERP system via host-to-host connectivity to ensure timely reconciliation.

As a result, Alibaba B2B is able to support its business growth by means of an automated solution to reconcile and process payments quickly and accurately, yet simultaneously doing so without changing its customer’s payment experience.