LianLian, the Hangzhou-based payments fintech, created a business out of serving China-based merchants who needed to collect money from overseas e-commerce or other digital-economy counterparties.
That’s still 90 percent of the business, but over the past two years the company has begun to build out ways to transfer money in and out of China for a multitude of users.
Now LianLian is launching a service for overseas companies to send money to China and to collect from there. Looking over the horizon, the company is exploring stablecoins to facilitate more cross-border flows, says Michele Fung, general manager at Hong Kong.
Reimagining cross-border flows
Fung overseas the international aspects of LianLian’s strategy. She joined the company in 2021 with a background in global payments (MoneySwap, an acquirer for China UnionPay) and venture capital (Steamboat Ventures).
The company had found a successful niche in China’s e-money landscape, which is otherwise dominated by Tencent’s WeChat Pay and Alipay, as well as card issuer China UnionPay. In 2023, it processed Rmb2.2 trillion ($308 billion) of transactions for 3.2 million merchants, mostly ones based in China.
But it faced competition for cross-border flows related to China, from startups based outside of the mainland. Fung wouldn’t name them but fintechs such as Airwallex and XTransfer are in similar China-focused cross-border businesses. Competition has forced margins down, requiring companies to figure out how to increase their volumes.
“When I started here, LianLian was only facilitating collections for China-based merchants. The company wasn’t looking at this from the point of view of someone overseas. I said, ‘Let’s reverse the flow.’”
This meant representing customers other than China-based merchants, starting with the China-located affiliates of global multinational companies, who needed to pay local salaries or other obligations. From there it meant obtaining money-operator licenses overseas, to create two-way corridors (payments involving currency pairs).
New partnerships
The work is culminating this year with the launch of a service called LianLian Global Payout Service, or LGPS. Hubbed in Hong Kong, the company helps partners such as corporates, banks and non-bank lenders to send money to China, or disburse monies overseas, where LianLian has a corridor.
This means partnering with international payment specialists to enable LianLian to operate in various markets, such as Thunes and TerraPay. LianLian in turn helps these fintechs access China so they can also serve their own customers.
It’s a network of shared pipes for specific corridors, depending on the partnership. For example, commerce between China and the Middle East and Africa is surging. TerraPay is established in many of those markets, for example.
Fung, who also oversees LianLian’s Middle East operations, says these partnerships help LianLian establish business in these countries. At some point, LianLian will want to get its own licenses in some of these markets.
It already has a presence in the US, where licenses are granted on a state-by-state basis, and has recently secured an electronic money license in Luxembourg.
“We need to drive business first,” she told DigFin. “Once we have business and use cases, we’ll be able to learn about these markets, before we get our own licenses.”
She says LGPS is still integrating with its partners and will begin operations this year.
China ins and outs
One area where LianLian sees growth is to help partners and customers facilitate payments that go out of China. Capital controls make this difficult, but there are established processes for things like paying for student tuition at an overseas university, or booking hotels in advance of a trip abroad.
Even these established practices can be risky for Chinese customers, though. They all rely on intermediaries, who sometimes lack the partnerships to facilitate payment to a given country.
It might seem intuitive that it’s easier for money to enter China, such as to pay a Chinese exporter or manufacturer, but there are also operational blowups that happen.
Even businesses using their bank to wire money to a China-based recipient can be surprised by a money-operating middleman is unable to fulfil the transaction. Even the licensed money operators often rely on their own third-party networks to seal a transaction at the ‘last mile’, players that are unknown and unrecognized by the sender of a payment or their bank.
These shops might come under a local investigation for scams or otherwise be frozen by local authorities. The beneficiary’s account is also likely to be temporarily shut. And if there is a fraud, the sender’s money may well vanish with no recourse. Beneficiary bank accounts may be innocently caught up in this, but once frozen, they come under greater scrutiny by regulators – making them vulnerable to more frequent stoppages.
LianLian’s strategy is to create a closed loop, relying on its own licenses and entities along the entire payment journey. “When we are controlling both sides of the transaction, you’re never frozen,” Fung said.
This still means working with dozens of money operators, in mainland China, Hong Kong, and Singapore. But at least LianLian can evaluate them consistently and regularly. Gradually it is building what it considers a high-quality network, which it can present to clients around the world. “We can expand to wherever money changers want a legitimate channel to send money to China,” Fung said.
Stablecoin studies
As she helps the company build these rails, Fung is looking ahead, and her focus is on integrating stablecoins or central-bank digital currencies into LianLian’s product.
Some of this is to prepare for Web3-based payments, should they become a trend. “We’re exploring how to do it,” Fung said.
The bigger opportunity is not in crypto but in using tokens to create alternative payment channels for existing customers.
“We’re not looking to replace using Swift, but there has to be a backup,” Fung said, referring to the Belgium-based international messaging group owned by global banks.
Hong Kong is central both to LGPS and to tokenized payments. Because of the complexity of China regulations, LianLian nets cross-border payments in Hong Kong, and then deals with mainland intermediaries from there. This is more effective than building multiple direct corridors from other countries.
However, netting requires LianLian operate in many markets, and it only has so many corridors to make this worthwhile; there are plenty of niche corridors that make no economic sense to set up.
Moreover, it still relies on correspondent banking networks to move money to the Hong Kong hub. This means LianLian relies on Swift messages. As a Chinese company, though, it is sensitive to political risks. It’s always possible that, one day, access to Swift will be denied or involve a lot of new costs and friction.
With tokenization, Hong Kong is even more relevant, because the government is exploring an eHKD and collaborating with the People’s Bank of China on multi-CBDC exchanges (Project mBridge, run by the Hong Kong Monetary Authority).
Swift alternatives
Fung says tokenized payments are an alternative to Swift. Tokenized payments must still be centralized in Hong Kong before moving across the border in and out of the mainland.
But many companies and individuals in Africa and the Middle East are using stablecoins where they lack access to traditional payment rails, or to banks. LianLian wants to serve as their token off-ramp, in Hong Kong, from where it can then net and handle the mainland connection, exchanging between US dollars and renminbi.
Counterparties still need to be compliant, with documented know-your-customer and know-your-tech processes. But they wouldn’t need to have access to US dollars in bank accounts, which can be a big barrier in some markets – or for some types of customers.
Beyond questions of Swift-related resilience, Fung says tokenized payments represent growth. “We need to start planning before the reality hits us: either everyone is going to be [using stablecoins] or we cannot use Swift.”
Even if LianLian has worries about Swift and correspondent banking, it still expects to be doing cross-border business in US dollars – thanks to the Hong Kong dollar’s peg. This makes US dollar-denominated tokens fungible with an eHKD.
The biggest challenge is working with bank partners on tokenized payments, because LianLian can’t build this in a vacuum. Fung says banks in general remain very conservative, even where regulators are trying to lay down clear rules for stablecoins. “They’re scared of what they don’t understand or don’t know how to ringfence the risks,” she said.
“So this isn’t going to happen in the next year,” Fung added, “but I hope it will happen soon. Use of stablecoins in emerging markets is going to be huge, and it’s going to be a meaningful way to pay into China.”
