WeChat released an official statement last Thursday in which the company vowed to crack down on pyramid schemes coordinated by microbusinesses, more commonly referred to as Weishang.
What are online pyramid schemes?
Online pyramid schemes have been proliferating in China over the last few months and it was only a question of time before WeChat did something about it. The scheme requires users to be recruited on WeChat by microbusinesses or individual vendors who encourage their new recruits to promote their products to their friends & family in exchange for a commission on any sales they generate. Those who make a purchase may themselves become “Weishang” and in turn recommend the goods to their own circle of friends in order to receive their own commission. It’s a never ending circle that benefits the microbusinesses at the top of the chain while placing pressure on bottom-of-the-chain distributors to recruit more distributors in order to make more money.
Furthermore, as these “Weishang” promote goods within their Moments or in group chats, many users have complained that this scheme has had a negative impact on their customer experience on WeChat.
Missing licenses and illegal distribution
WeChat rules state that distribution must not exceed three levels. Usually speaking, business-to-consumer transactions involve a three-level distribution system in which orders are dealt with by operators and information such as daily and monthly revenue is available to brand owners. Of late however, countless businesses have conducted selling via “Weishang” in the hope that these “front-line” distributors will reach a greater audience that’s more inclined to make a purchase. Indeed, who wouldn’t trust a friend more than a business? But what if that friend is secretly working for that business?
In addition to this, only 267 of the 5,000 payment service providers on WeChat are licensed by the Central Bank of China. Seeing as WeChat itself plays the role of a clearing agency, an intermediary in paying funds or delivering securities, any unlicensed third-party payment channels based on WeChat are considered to be illegal secondary clearing agencies.
In order to comply with national laws as well as to react upon the many complaints they have received from unhappy users, WeChat has therefore pledged to shut down stores involved in pyramid schemes and to put pressure on non-complying payment service providers.
The 3000 non-complying stores worked with 10 Weishang providers
10 of the 5,000 third-party Weishang (or CRM) providers present on the platform accounted for the 3,000 stores that have been shut down. The CRM providers that were serving these non-complying stores need to adjust their systems to avoid any further issues.
Although most CRM providers ensure that the stores they work with respect WeChat’s rules, rumor has it that recent events have pushed WeChat to question the need for third-party CRM providers on the platform. Being CRM providers themselves, WeChat don’t necessarily need to work with third-party Weishang providers that could potentially tarnish their reputation.
Will WeChat ban all third-party Weishang providers?
It certainly seems that WeChat needs to reevaluate its’ hands-off approach with third-party developers, especially when it comes to payment service providers, but one can only hope that the carelessness of a few players won’t penalize everyone else. It’s only a rumor for now, but if WeChat do indeed decide to take down all third-party CRM providers, which third-party services are next in line?