Alibaba Pay Later – Coming Around to Our Way of Thinking

You may have seen the recent announcement from Alibaba that they are partnering with Kabbage to offer a “Pay Later” service, providing financing to US small and medium size business (SMB) importers for purchases from Chinese suppliers. I’ve been asked a number of times about how we view this development. My take is that this new initiative actually validates our vision of bringing both payment security and buyer financing to SMBs to expand their global trade opportunities. In fact, I view it as great news.

Alibaba has offered payment security through a form of escrow since their earliest days to build a level of trust on their platform, initially with Alipay Escrow and since 2015 through Alibaba Trade Assurance. With these programs, US SMBs making purchases from Chinese suppliers on are afforded valuable protection that the supplier will meet their end of the bargain. You can hear TangoTrade advisor, Jingming Li, the former Alipay US president, speak of the importance of the escrow model to the growth of Alibaba in his interview with Steve Forbes of Forbes magazine (see the 4:20 minute mark).

Clearly, trust is a critical element for international trade, but so is access to financing. A study by the US International Trade Commission found that US SMB importers reported that obtaining financing was their biggest impediment to growing their global business. That’s why TangoTrade offers SMB financing in the form of credit lines and term loans up to $500k as an integrated service. And evidently, Alibaba has come to the same conclusion.

However, it’s worth noting that the Alibaba “Pay Later” service is actually fairly limited. Specifically, it’s only available for suppliers who are approved for Alibaba’s Trade Assurance program, which is restricted to approved suppliers located on the Chinese mainland who pay for “Gold Membership”, a service that costs $5k / year. Also, Pay Later financing is limited to transactions under $125k. And it may go without saying, but the transaction must take place on the Alibaba platform with payment processed through Alibaba.

While Alibaba drives billions in B2B cross-border trade, their transaction volume still only represents a drop in the bucket of the $17 trillion in global merchandise trade (of which small and medium size businesses account for between 20-40%, according to the World Trade Organization). For the vast majority of trade that takes place outside of Alibaba’s walled garden, importers and exporters must find other options. That’s where TangoTrade comes in.

It’s encouraging to see such a major player like Alibaba come around to our way of thinking. Having Alibaba helping to promote this combination of payment protection and buyer financing actually makes our job a little easier by educating the market. For transactions on Alibaba, there’s Trade Assurance and Pay Later. For transactions everywhere else, there’s TangoTrade!

~Scott Reynolds, CEO, TangoTrade