Gambling sites may use Pinduoduo to process Alipay, WeChat Pay transactions

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(Image credit: Bigstock/pvl)

Pinduoduo is in the spotlight after a controversy erupted Monday involving the company and an equally controversial WeChat media account, which accused the social e-commerce upstart of facilitating illicit gambling transactions.

Chaping, literally Bad Reviews, posted an article Sunday night saying Pinduoduo’s lack of enforcement has allowed gambling payment channels, in the form of regular e-commerce stores, to develop on its platform by offering means to transmit gambling transactions.

The Shanghai-based company denounced the “downright groundless” accusations in an emailed announcement sent to TechNode, saying it will file a defamation lawsuit against Chaping seeking RMB 10 million (around $1.5 million) in damages.

Chaping said that multiple stores on Pinduoduo are actually payment fronts for gamblers who choose WeChat Pay for payment. After scanning a QR code from casino apps, they are redirected to a Pinduoduo store to complete the transaction via WeChat Pay.

Using online dummy stores to disguise gambling transactions are not a new phenomenon in the $40 billion global online gambling industry, which is illegal in many countries. Similar transaction practices from European e-commerce sites have posed challenges to policing e-commerce worldwide.

The strategy was adopted by gambling operators to incorporate local payment services. Alipay and WeChat Pay are the two largest online payment providers in China, and are strictly regulated by the state in order to avoid illicit payment transactions.

Pinduoduo told Technode that all the stores Chaping mentioned had been closed prior to the article’s publication, and that it has been working very closely with Alipay and WeChat Pay to block alleged illicit activities.

In addition to its size, Pinduoduo’s relatively lax requirements for setting up a store on the platform attracted gambling sites to its platform, Chaping points out. “Only an ID number is required for store registration and the same ID can be used to apply for multiple stores,” Chaping said in the post.

The social e-commerce site countered the claims, saying in its statement, “We have real name registration for the stores and any suspected illegal behavior can be traced.”

TechNode reporter tested the store setup process on Monday afternoon. The platform has two kinds of stores, those opened by individuals and those opened by companies, the latter of which requires a business license and enjoys more marketing features. Individuals can register a store with Pinduoduo with just an ID, though a company spokeswoman confirmed that the company has a verification process in place.

All forms of gambling apart from lotteries are illegal in mainland China. Even for the lotteries, the regulation is strict, especially for online sales. Government authorities in 2015 suspended online sales for China’s two official lotteries—the welfare lottery and the sports lottery. But underground online sports lottery is growing , especially during large sports events such as the World Cup.

Updated with details about setting up a store on Pinduoduo and to include comments from a company spokeswoman.