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Pyramid schemes put in the crosshair of WeChat store cleanup

After the real-name registration required by WeChat Pay earlier this year, the app has recently denied 3,000 third-party WeChat stores access to WeChat Pay. The aim is to stifle the development of pyramid schemes among “Weishang”, or “micro-businesses” where individual vendors sell products via WeChat.

There are basically two modes of “Weishang”, namely, business-to-customer (B2C) and customer-to-customer (C2C). The B2C mode is a three-level distribution system where orders are managed by operators, and information like daily and monthly revenue is available to brand owners. According to law in China, distribution must not exceed three levels.

The C2C mode is more traditional and is more likely to be infected by pyramid schemes: an individual vendor may recruit unlimited distributors, and product quality is far from guaranteed, as distributors make money only when more distributors are hired. If a distributor can’t recruit more, they become victims, prey at the bottom of the food chain.

In addition, official data from WeChat shows that, among more than 5,000 payment service providers on WeChat, only 267 are licensed by the Central Bank of China. Since WeChat itself plays the role of a clearing agency, third-party developers who act as payment channels based on WeChat are considered in China to be illegal secondary clearing agencies.

WeChat, with a user base of 600 million people, published an announcement last Tuesday promising to seriously investigate “Weishang” businesses that net profits by luring unlimited “front-line” distributors. Last February, a WeChat public notice also stated that accounts of confirmed illegal distributors will be closed permanently.

Netizen “Tabuxu” commented, “Spare no efforts to annihilate the Weishang! Their annoying ads are overwhelming my WeChat Moments page!”

(Top photo from Baidu Images)

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