Risk Analysis of L/C Cross-border Payment in C-Commerce Trade

Risk of Cross-border Payment via Letter of Credit in E-commerce Trade

In today's globalized business environment, cross-border e-commerce trade has become an important way for enterprises to expand their international markets. However, with the expansion of transaction scale and the increase of participants, various risks faced in the cross-border payment process are becoming increasingly prominent. Among them, letters of credit, as widely used settlement tools in traditional international trade, are also widely applied in the field of cross-border e-commerce. But at the same time, the payment risks it brings cannot be ignored.

In recent years, with the development of platforms such as Alibaba International Station and Amazon Global Selling, more and more small and medium-sized enterprises have begun to go to the world stage through these channels. Taking Alibaba as an example, its data shows that the number of newly registered overseas buyers on the platform increased by 25% year-on-year in the first half of 2025, indicating that cross-border e-commerce is developing at an unprecedented speed. However, behind this prosperity, there are many challenges. Especially when using letters of credit for transactions, due to the involvement of multiple different national or regional banking systems, legal environments, and cultural differences, once there is an operational error or information asymmetry, it may lead to problems of capital security.

Firstly, letters of credit themselves have certain complexity. For ordinary merchants, understanding and correctly using this financial tool is not easy. For example, opening a standard format letter of credit requires filling out a lot of detailed terms, including but not limited to goods description, delivery period, payment conditions, etc. If any item has ambiguous expression, it may cause subsequent disputes. Different countries and regions may have differences in the requirements for the text of letters of credit, which requires exporters to make full preparations in advance and maintain good communication with importers.

Secondly, there are uncertainties brought about by exchange rate fluctuations in the cross-border payment process. Since letters of credit are usually denominated in US dollars or other major currencies, while actual transactions may involve Renminbi or other local currencies, when the exchange rate changes, it may bring additional cost burdens or even losses to both buyers and sellers. Especially under the current complex and volatile global economic situation, frequent adjustments of monetary policies by central banks of various countries have made the foreign exchange market more turbulent.

Thirdly, technical issues should not be overlooked either. Although modern information technology has greatly improved the efficiency of cross-border payments, some potential hazards still exist. For example, frequent network attack incidents, hackers may exploit vulnerabilities to steal sensitive data; for instance, in some emerging market countries, lagging infrastructure construction leads to slow or even interrupted payment processes. These problems directly affect the safety and reliability of letter of credit business.

In response to the above-mentioned risk factors, relevant institutions are actively seeking solutions. On one hand, major e-commerce platforms are launching customized services to help small and medium-sized enterprises avoid risks. For example, eBay has launched Escrow escrow service, allowing buyers to temporarily deposit funds in a third-party account, which will only be transferred to the seller after confirmation of receipt, thereby effectively reducing disputes caused by lack of trust; on the other hand, the International Organization for Standardization ISO is constantly revising and improving relevant standards documents for letters of credit, aiming to simplify operational processes while enhancing transparency.

In summary, although letters of credit, as a mature payment method, occupy an important position in cross-border e-commerce trade, their inherent limitations cannot be ignored. In the future, how to balance convenience and security will be a major topic for industry development. We look forward to seeing more innovative technologies and concepts applied, contributing to building a healthier and more stable cross-border trade ecosystem.