During the sub-forum of going global to the US on June 2, Mr. Wu Yujun, founder and CEO of Qbit (趣比汇), gave a wonderful keynote speech "Localization Practice in the US Market". The following is a summary of the speech (with some omissions):
Hello everyone, I am Wu Yujun, the founder and CEO of Qbit. I am very happy to share with you the localization of Chinese companies going overseas, especially the localization in the US market. In the roundtable discussion in the previous session, the guests also mentioned at the end that globalization is actually a new localization. We have served more than 12,000 brand customers and have observed some macro-level changes, which I will share with you next.
First a brief introduction of my background. I stayed in the United States for about eight years, and was an early member of Dropcam, a start-up company that made smart cameras, which was later acquired by Google. I worked at Google for a period of time before continuing to start a business. I have built two companies in a row. Qbit is a digital bank that provides one-stop financial services for global enterprises.
When you do business in the United States, the first concern must be how to collect money. The mainstream payment methods in each market are different. Relatively speaking, the payment infra in the United States is relatively mature. The trend we have seen in the past few years is that in the United States, localized wallets have gradually become mainstream and are growing very fast. Especially since the outbreak, many Buy Now Pay Later wallets have emerged in the market, which has greatly increased the order rate of users. So if you want to enter the US market, it is very important to consider how to connect with localized wallets.
The second payment method that must be paid attention to in the US market is credit cards. The penetration rate of credit cards in the US is very high.
But there is a big problem at present, that is MDR (Merchant Discount Rate), which is the fee that merchants need to pay to the acquiring bank when receiving credit card acquisition. In the United States, it is generally around 2.7%. If you use an acquiring bank in other regions to receive a local US credit card, the cost plus currency exchange may reach 3.5%. Therefore, it is very important to connect with a suitable credit card acquiring channel, especially for some brands that are independent stations. Stripe and Adyen in the United States are relatively good acquiring banks.
In addition, when acquiring credit cards, brands often face another problem, which is a chargeback. According to regulations, credit card consumers can claim the money back through complaints within a certain period of time, about 60 days to 180 days after payment. This involves how the seller can better control the chargeback rate. There is a relatively common standard in each credit card channel, which is 1%.
If the consumer's chargeback exceeds 1%, the seller's credit card account may be banned, so it is necessary to improve the logistics performance capability and service system as soon as possible. If the customer is promised to be delivered within 7 days, but in fact, it will arrive in 20 days, the customer may initiate a chargeback. Or when consumers encounter some usage problems and communicate with customer service on the official website but do not get a good answer, they may also choose chargeback. In general, how to control the chargeback rate is a very important issue, and we have discussed it with many sellers.
In addition, I also want to talk about A2A payment. Maybe most people have a limited understanding of A2A before. In the United States, there are two systems of cards and accounts. The A2A payment is an account-to-account payment. There are two biggest advantages of A2A. One is that the cost is very low. If you use a credit card to acquire the bill, the fee is in the range of 2.7% to 5%, but because A2A payment is a direct transfer between banks, the single fee may only be 1 to 2 dollars. Another great advantage of A2A payment is that it can greatly reduce the chargeback, unlike credit cards, which require refunds to consumers as soon as the card group receives a complaint, so it may be more friendly for merchants.
In the past, the problem that people criticized a lot is that in the United States, bank transfers are not real-time, but now the United States has newly launched a real-time clearing network such as RTP and plans to launch the FedNow real-time clearing network in the second half of 2023. As the new infra matures, bank transfers will gradually be realized in real-time. Under this background, sellers going overseas to the United States, especially DTC brands, can focus on A2A. It has the potential to greatly reduce the overall cost of payment channels for sellers, and can also be a powerful complement to credit card wallet acquisition.
What I just talked about is the issue that everyone is most concerned about, that is, how to receive money from consumers when doing business. Next, I will share some experiences. We have served a lot of clients, and we have summarized some good practices for localization in the United States at the data level. The first is compliance. Compliance includes various aspects, such as IP compliance, advertising compliance, financial compliance, and so on.
One of the concerns of many companies and sellers going overseas to the United States is tax compliance. In fact, some audience members also talked about this in the roundtable discussion just now. Tax compliance is very important, including tax issues at the stage of listing and the next round of financing. In the US market, people are more concerned about whether I have to pay very high taxes if my independent website earns a lot of money.
But in fact, the basic calculation of taxes is based on net operating income, so if you can do a good job in cost management and planning, the taxes you need to pay in the United States are relatively controllable. For example, now more raw materials are purchased from Hong Kong or mainland China, and part of the net profit is planned in the United States, part in Hong Kong, China, and part in mainland China. Through similar methods, fiscal and tax compliance can be achieved, and part of the cost of enterprises can also be reduced.
The second point is localization. I very much agree with what Mr. Li of Niu Technologies (小牛电动) said just now, globalization is the new localization, but this localization is not local in China, but local in the target market. Whether you are in the United States or Africa, you need to understand the local market. Localization has many meanings. The most basic thing is whether it is necessary to establish a local company first and recruit people locally, which requires a complete set of infrastructure, a local bank account, and local manpower and financial system to support employee salary payment. These actions are relatively basic, but as long as they are localized, they cannot be avoided.
In addition, the more difficult localization is to test whether you really understand the local culture and even the local political ecology, so that your products and services can fully fit the market without giving people a sense of migration or disconnection.
Finally, I would like to focus on reducing costs, which is also an issue that everyone is concerned about. Everyone knows that cross-border e-commerce is not an industry with a high gross profit margin, so how to better reduce costs becomes very critical. As for the issue of acquiring, we recommend that customers in the US use US-acquiring banks to receive US cards. This is very important. Don't use companies or acquirers in Hong Kong, China to go to the US market. We have served so many customers and found that customers keep asking us this question. The most mentioned one is "I register a company in Hong Kong, China, to serve US customers, can I avoid US taxes". In fact, this approach invisibly increases a lot of costs.
Take the simplest example. As far as the acquiring channel is concerned, the cost of using an acquiring bank in Hong Kong to receive an American credit card is about 3.5% to 4%, but using a local acquiring bank in the United States to directly accept an American card costs 2.7%, which can save more than one percent. This is the first. Second, the realization of localization will inevitably recruit many local employees locally, or invite local KOLs and KOCs to launch and attract traffic. At this time, paying with a virtual card or making local small-amount batch payments is a relatively cheaper way.
Let me briefly share the seller's capital flow in the United States.
1. The consumer pays to the acquiring bank under the US entity;
2. The funds of the acquiring bank are transferred to a local bank account in the United States;
3. Part of it can pay the wages of local employees, and part of it can pay the money of local suppliers or service providers. Note that both of these parts can realize overseas direct payment. Of course, there is another optional flow direction is to settle foreign exchange to China.
Finally, I still want to say that, when we go global, we will definitely carry out different degrees of localization in various countries and regions. The degree of localization depends on the development stage of the company. Of course, it is very different for start-up companies and mature companies. In the process of localization, you can also choose many partners to get better together.
Here is a brief introduction to the main services of Qbit. As a digital bank, we can conveniently open accounts for customers, conduct unified management of bank accounts, and also have the ability of virtual cards and batch payments. We hope that when global companies carry out localization more deeply, they can be provided with cheaper and more secure infrastructure, whether it is the underlying local bank account, or the payment of salaries to local employees and KOLs. At the same time, our services are more suitable for Chinese teams going overseas.
This is the end of my sharing today, thank you all.
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