Katerina Petraki asks how Alibaba initially financed cross-border B2B transactions. The early model used escrow with 30% upfront and 70% on delivery, then shifted to buyer financing when expanding globally, which unlocked significant GMV growth.
Chapters
Question about financing. I know Alibaba has like Ant as kind of like a financial service model. What was that process like before? Like how were you providing liquidity for like manufacturers in China as like these pieces like of equipment are being shipped to the United States and stuff?
So liquidity can be defined differently, right? Like liquidity for a marketplace like the one we are today obviously is defined by like the probability of a of like somebody coming on your site, becoming a transaction. Back in the days, you were, when we were not enabling transactions, we, that was defined really, if you can see it a little bit, if you can be a little bit more creative about the definition of liquidity, that was for us kind of like the probability that somebody would create a contract, right? And like through our escrow service, right? So We were enabling kind of like the flow of the funds, if you want, from China to US, but nowhere else in the world, right? So it would be like for us to kind of like, you know, when a buyer would come and they would speak to a supplier, we would provide a, if you want, like a contract template at the very early days where both parties agree on a specific time, on a specific quality of the product, all the specifications. And then the money were held by kind of like this escrow service. And then there would be like a 30% payment upfront and then 70% upon delivery. So that's how this operated for the longest period of time. But very often, you know, what would happen is because these are monogamous relationships, because they're custom goods, there's like somebody trying to create these. That's a bad example because it's Apple. But, uh, and, and they would just come on our site and they would say, okay, here's a manufacturer. I found him. I'm sending you this design and I want you to create it and then send me a sample. And then let's make like, like one big order. But then, you know, once I have confirmed that this is a good seller, then I would just take it off the platform. And that was part of the problem that all B2B marketplaces have, especially we had. Because it was like very, very custom goods in the beginning that we were creating, right? So in the very early days, we just literally, it was ad hoc through a contract template that was being created and financing was very limited. Financing was really only on the seller side. When we launched in the US and went global, we enabled financing for buyers and that really unlocked GMB for us, right? So that was like one of the most important things that you will see like at Faire, which is a great B2B marketplace, for example, like the need for financing is so complex on the B2B side for the buyer that if you try to unlock that part, then you can have great results, right? It is a risky endeavor depending how you do that, right? Like Faire, I would say they do it more on that. They take the risk. I think so at least. We don't, we have partners. So at any point of time, Alibaba remains very asset light and we don't take part of, we were rather like a big part of the ownership of goods or that transaction from a financing perspective. But, you know, like maybe like one way, I don't know exactly what kind of business you have, but, you know, like one way to start is by offering like net payments through a partner out there.
