WeChat is a monolith in China - a holy grail of network apps, and Instagram and Whatsapp are under its spell. Both are making moves to support in-app shopping and payment capabilities - so what does this mean for brand protection?
- WeChat, the dominant messaging app in China, has an in-app payment system that can facilitate counterfeits.
- Instagram and Whatsapp are playing catch-up and now offer their own payment systems.
- Buying and selling through messaging apps is likely to greatly complicate online brand protection.
China has long been home to counterfeit operations. Lately, they’ve been cracking down on the presence of counterfeits on the open market. But WeChat Pay gives counterfeits a safe haven. Transactions on WeChat Pay are exchanged between people behind digital closed doors and fall under the “private commerce” umbrella. These friend-to-friend payments are private and aren’t regulated like traditional e-commerce payments.
History of WeChat pay
WeChat started as a chat service. In addition to being the largest social network in China, WeChat provides banking services, connection to rideshare apps, gaming services, and even connects people with food delivery. Payment capability was added mainly for the purpose of friends and family sending money to each other. The money is transferred securely, but it works differently than other online payment methods.
For instance, eBay uses escrow payments to make sure the buyer gets the item that was described. Payment is released to the seller when the item is received. But this concept would be a bit silly for a chat-based payment service. Imagine if you were paying your friend for gas, but you had to confirm that you received an item or service for your friend to withdraw the money.
WeChat Pay is also used by brick-and-mortar businesses in China. This saves time for shoppers and can allow the business to be cashless. Payment is made at the point of sale, and the shopper receives the item right then. If escrow terms were used, there would be an extra step of verification that isn’t needed for a physical transaction.
It’s tricky when WeChat Pay is used for online payments. In a perfect world, people using WeChat Pay would personally know one another. But that’s not always the case. The world has seen a sharp growth of counterfeits on social media, and messaging apps are next in line. It’s very easy for counterfeit sellers to post a photo of a legitimate item, receive payment, and ship a fake one. The counterfeits can even be good enough to pass for authentic items in photos as well. And there’s no way to verify someone is an authorized dealer of a certain product. If the buyer has a problem with the transaction, it’s up to them and the seller to resolve it, WeChat Pay doesn’t get involved.
Instagram and Whatsapp join the game
The prospect of peer-to-peer payment services opens up new avenues for Whatsapp. Many markets around the world are mobile-first, having skipped from personal computers right to mobile phones. With Whatsapp Pay, people will be able to send money to one another with just the click of a button. Instagram’s checkout feature will be a little different, allowing businesses to make sales right in the app.
INSTAGRAM SHOPPING FEATURE
Instagram’s checkout feature began in March of this year. Currently, it’s only available to about 20 brands including Nike, Warby Parker, Prada, Uniqlo, and Adidas. Instagram already had some shopping capability, but the checkout feature is different. Before, a shopping link would open a business’s online store in a new window inside the Instagram app. You’d have to put your payment info in on that site and navigate the whole checkout process.
With the new checkout feature, buyers can view an item, select the size, color, and check out all within Instagram’s native interface. And it only requires buyers to enter their payment information once. Because of this, selling products on Instagram will be a lot quicker (and turn fewer buyers away). It’s definitely a better shopping experience than before, but we wonder if they’ll be able to control counterfeits on this new feature.
Businesses that can use the Instagram selling app right now pay Instagram a portion of their sales they make on the app. The exact amount is not known. It seems likely that Instagram will roll this option out to many if not all business accounts, and when that happens, it will be even harder to stop the flow of counterfeits. At the moment, many counterfeit sellers discuss price and payment in direct messages before shipping an item. With the new checkout feature, they’ll be able to make sales right from the image of the product.
Recent research has found that counterfeit luxury goods have tripled in the last three years on Instagram. The new Instagram shopping feature will lead to more fakes unless Instagram has a way of limiting the feature to authorized dealers.
Whatsapp Pay launched as a test in India last year and has plans for expansion. The program lets a user send money to anyone else on their contact list in real time, and it’s also available for businesses to use with their customers. This is great for sending money to a friend or family member, but not so great for brands trying to enforce their IP rights. Paying for an item over encrypted chat is like buying something in an alley behind a store. There’s no guarantee that the item is what the seller says it is. And isn’t a simple way to track who’s selling what items.
Whatsapp Pay’s expansion is currently stalled in India—local lawmakers want the payment data to be processed in India, not in California. But the program seems to be a hit with the test group so far. Whatsapp Pay lets local businesses make and receive payments quickly right from a bank account, without the need for separate money in a virtual wallet (in contrast to WeChat Pay). It allows merchants to operate without having to give exact change back or use a cash drawer. Many of the one million testers have integrated it into their businesses.
Facebook (owner of Whatsapp) is also hoping to use data from Whatsapp payments to strengthen ad targeting. Someone who uses Whatsapp to pay for a gaming subscription might see more Facebook ads for games, for example.
What to expect
These new payment features make shopping and exchanging money easier. But they also make it easier for counterfeit sellers to go under the radar. The technology to combat fakes on these platforms is out there, but the incentive for Instagram or Whatsapp to build it out and use it doesn’t seem to be there. For now, it’s likely that the new Instagram shopping feature and Whatsapp Pay will complicate IP protection for brands on social media.