An increasingly obvious trend in China's third-party payment industry is that institutions are extending into the retail supply chain beyond their main payment business to empower small and micro merchants as well as upstream and downstream enterprises in the supply chain.
According to the recent Research Report on China Supply Chain Digitalization Upgrading (hereinafter referred to as the Report) released by iResearch Consulting, the revenue of supply chain digitalization service industry in 2021 is about 2.8 trillion yuan, and payment service providers are one of the main participants in promoting supply chain digitalization.

What are the advantages of payment institutions' full involvement in the digital upgrading process of the supply chain? What changes will be brought to many offline merchants and upstream and downstream enterprises in the supply chain?

Digital payment: Open up supply chain capital flow

The report points out that the main scenario of supply chain digitalization is the digitalization of information flow, capital flow and logistics activities on the supply chain.
It can be said that the digital enlightenment of many enterprises is completed by payment institutions - the aggregate payment QR code is the first digital business tool for many merchants.

Qr code payment is only the starting point for upgrading. More importantly, payment institutions that take the lead in realizing highly digitalized payment can upgrade the supply chain capital flow through technology enabling supply chain payment.

The traditional supply chain payment process is complicated and the capital cycle is long.
The report points out that in the traditional supply chain, the order, commodity flow and payment and settlement process are separated, and the supply chain has a long transaction cycle, slow capital recovery, high labor and time costs, which is not conducive to capital turnover.
Moreover, the transaction subject is complicated, the transaction time is long, there is a big capital security risk.

In response, many payment institutions have launched customized solutions to provide merchants with a series of services, such as transaction reconciliation, current statistics, and upstream and downstream coordination of the supply chain, to help the upstream and downstream of the supply chain realize efficient operation of funds.
Take Lakala's "Money and Account" solution as an example. The solution provides the supply chain platform with aggregate payment and fund distribution services to meet the needs of account distribution compliance, fund efficiency, unified payment and other aspects.
According to the 2021 annual report of Lakala, the payment +SaaS industry solutions, including "Money Account Tong", have been successfully connected to 272 industry customers and nearly 30,000 merchants, which can be seen that the market has a high degree of recognition for these products.

Digital operations: From the merchant to the supply chain

With the upgrading of competition in the retail market, the extensive operation and management mode and the traditional supply chain mode of offline small stores can hardly support their healthy development.
However, limited by cost pressure and talent level, it is difficult for most small stores to achieve digital transformation alone, let alone promote the transformation and upgrading of the supply chain behind.
Payment institutions, which are naturally close to small and micro merchants, have launched payment +SaaS solutions, becoming the first choice for many merchants.

However, some industry insiders pointed out that most pure digital tools can only "scratch the itch", and payment institutions must go deep into the supply chain to solve the fundamental pain point of small and micro merchants to reduce costs and increase efficiency.
At present, some leading enterprises have taken this step.
Lakala disclosed in its 2021 annual report that since its listing, the company has focused on the SaaS field layout, established a store SaaS research and development center in Chengdu, and independently developed the cloud super store digital business platform.

According to the introduction, the platform includes five major systems, including the cloud shopkeeper that provides one-stop shopping, the cloud master that helps digital operation, and the intelligent order, intelligent storage and intelligent distribution. IT connects with brand owners, distributors, warehouse distribution platforms, stores and banks, and provides merchants with payment, IT, supply, logistics, finance, brand, marketing and other services.

"The deep penetration of payment institutions into the supply chain does not capture the market share of any party in the supply chain, but largely closes the information gap, allowing goods and capital to operate more efficiently."
The industry insider said.
For offline stores, not only can they enjoy reduced procurement costs, but also efficient and flexible procurement methods can help them reduce inventory pressure and reduce the risk of stock shortage or lagging sales.
With the change from stockpiling in the past to replenishing at any time, stores can also free up more business space, enrich business categories, and better meet consumer needs.

According to the data of Lacala's 2021 annual report, the digital operation platform of Yunultra stores has been put into trial operation in seven cities, with more than 500 dealers and 12,000 retail stores, with a re-purchase rate of over 55%. Despite the impact of the epidemic, it still achieved 315 million GMV(gross merchandise volume).
It shows that digital services provided by payment institutions have been widely recognized.

Finance digitization: Turning supply chain data into valuable assets

For a long time, financing and loans have been a major concern for small and micro business groups. In particular, due to the impact of the epidemic, many businesses are under great pressure, which seriously affects the sustainable survival of small and micro businesses.
Based on the deep participation in the digital upgrade of the supply chain, payment institutions may help to change the traditional lending mode of small and micro merchants through technological means, and further enhance the lending confidence and risk control ability of financial institutions.

Our offline retail supply chain system is developed. Many manufacturers, wholesalers and terminal sales stores are scattered in cities and even villages and towns all over the country.
However, at the same time, the operation scale of most small and micro enterprises is limited and the degree of data is low. It is difficult for traditional supply chain finance to achieve comprehensive coverage, and it is also difficult to establish risk control models.

With the further involvement of payment institutions in the digital upgrading process of the supply chain, the barrier between the capital flow and the information flow may help to improve this situation.
According to Lakala, the credit link between banking institutions and Msmes can be built by turning the data of purchase-sales-inventory and payment in the business operation process of merchants into assessable assets.

In this way, banks and other financial institutions can get real and effective data. Based on these credit assets, they can quickly identify real merchants and match the loan amount, accelerate the progress of lending, and improve the risk control ability.
Small and micro businesses can use this to improve their financing capacity, so that they can better production and operation.
Statistics show that in 2021, Lakara has served more than 35,000 micro, small and medium businesses through fintech, providing more possibilities to help small and micro enterprises solve financing difficulties.

We need to see that the digitization process of our supply chain has just started, and it is still a long way from realizing high digitization.
According to the Digital Transformation Analysis Report of Small and Medium-sized Enterprises (2020) by the China Institute of Electronic Technology Standardization, 89% of China's small and medium-sized enterprises are still in the exploratory stage of digital transformation.
Payment institutions, as one of the main participants, should continue to leverage their unique advantages in the process of facilitating the digital upgrade of the supply chain, and form a joint force with many participants to bring about fundamental changes in the supply chain.