Chinese online wholesale platform Alibaba was one of the first to offer trade finance services when it teamed up with US peer-to-peer lender Lending Club earlier this year. Since then, the site has expanded this service to the UK, Australia, and, as of June, India. GTR catches up with the Alibaba team on the company’s trade finance strategy.
GTR: You were recently named best alternative financier in Asia Pacific in our GTR Asia Leaders in Trade survey (voted for by our corporate readers in an online poll) – not bad for an e-commerce company. Was it always your intention to provide financing to your buyers?
Alibaba: We are always adapting our business to better serve our customers and to make it easy for them to do business anywhere in the world. Over the years, one consistent message we hear from international small and medium businesses is that they need better access to financing. A huge, universal hurdle for them is the ability to finance inventory purchases. To be clear – Alibaba.com is not loaning the money, we are giving SMEs easier access to trade financing through partnerships such as those we have previously announced with iwoca, ezbob (UK), Lending Club (USA), and Capify (Australia) and a new product called Alibaba.com e-Credit Line.
GTR: We talked to you when you teamed up with alternative financiers in the UK and you had already started that collaboration in the US. Recently you struck a deal with ICICI Bank in India to provide finance to your buyers there. Why a bank this time?
Alibaba: We look for the best partner to work with us to better serve our customers’ needs. It’s as simple as that. In June this year, Alibaba.com launched a one-stop online shop in India to provide the country’s small and medium-sized businesses with access to import-export services including logistics support and financing – the Trade Facilitation Centre (TFC). With e-commerce increasingly seen as a fast track to boosting India’s international trade connections, Alibaba.com’s TFC has been established to encourage greater participation in the global economy by Indian SMEs by offering efficient, direct access to key trading services. The India TFC, a first for Alibaba.com, is designed so that Indian SMEs can use the marketplace not only to connect with overseas companies, but also to negotiate trade deals, arrange shipping and obtain other trade services through a single platform.
In order to offer Indian SMEs key trading services, Alibaba.com teamed up with local partners ICICI Bank, Indian logistics provider Mypacco.com, and inspection and certification company SGS. Through the TFC, Indian SMEs can get hotline access to Alibaba.com’s partners to obtain a range of import-export services such as: trade financing, foreign-exchange remittances, international shipping, customs clearance, warehousing, credit checks of potential trading partners, factory and product inspections. Partner companies are offering special rates and discounts on some services to TFC users.
GTR: How does it work? Does the bank use your credit rating to fund these SMEs? Do you have any responsibility in case of default?
Alibaba: We are connecting our SME customers with third parties that can help them with their business and financing needs. As such, we are not lending the money so Alibaba does not take any liability. On the services menu there is a footnote explaining this to customers. As an example, when a buyer in India wants to finance inventory and purchase from a China-based supplier on Alibaba.com, they can apply for a line of credit, receive approval, and then can use the line of credit to finance purchases – all through Alibaba.com’s platform. ICICI will use its own credit score/ratings model for funding decisions. The funds are disbursed directly to the supplier in China, facilitated by ICICI Bank.
GTR: We hear a lot about alternative financiers disintermediating the banks, yet here you are working with a bank – could this be the future of SME funding?
Alibaba: Five years ago, who would have anticipated that alternative financiers such as iwoca or ezbob in the UK would be disrupting the norm and giving SMEs a whole new way to access finance? Banks are also adapting and evolving along with the changing market and it’s our job to work with the best possible partners to the benefit of our customer.
GTR: What’s your strategy going forward in terms of helping your buyers get financing? What will be the next countries covered by your trade finance offering?
Alibaba: Our trade finance offering is still in its early phases and we will look to develop further partnerships across Europe and in emerging markets as well. The partnerships must be the right fit for the local market and understand the local SMEs that are in need of the financing.
GTR: There have been many new entrants to the alternative finance sector: most recently Paypal started offering working capital loans, but there are also a lot of crowdfunding platforms, peer-to-peer lenders, etc. What’s your outlook for the sector? Is there space for everyone? Will it consolidate at some point? And if so, when do you expect that to happen?
Alibaba: The more businesses that are out there trying to solve the very real problem of access to finance for SMEs, the better the entire ecosystem becomes and the stronger SMEs can be when competing on a global playing field.