According to Bloomberg, regulatory authorities in mainland China recently met with senior executives of online retailer Pinduoduo, requesting the company to improve its "returnless refund" feature. The State Administration for Market Regulation and the Ministry of Commerce conveyed to Pinduoduo's top management that the "returnless refund" policy imposes an unreasonable burden on small merchants and urged the platform to address the issue. However, the authorities did not provide specific recommendations nor explicitly prohibit the practice.
Pinduoduo's stock plummeted over 5% in pre-market trading of the US stock market on Dec. 11 and was still down by 2.3% as of 12:30 a.m. on Dec. 12.
The "returnless refund" policy refers to a scenario where refunds are issued without requiring the return of goods. Pinduoduo's online marketplace connects hundreds of thousands of small and medium-sized merchants with consumers. If a consumer deems that a merchant did not meet expectations, such as delayed delivery or mismatched products, Pinduoduo would withhold payment to the merchant. This service originated from Amazon in the United States and was introduced by Pinduoduo in mainland China several years ago. With consumer spending decreasing and e-commerce competition intensifying, "returnless refund" has gradually become a standard service on e-commerce platforms.
While this policy facilitated Pinduoduo's rapid growth, even surpassing Alibaba and JD.com at one point, discontent among merchants regarding Pinduoduo's "returnless refund" policy has been escalating. Merchants argue that the mechanism is being abused by consumers, placing an unfair burden on small businesses. In July, complaints from Pinduoduo merchants regarding this feature peaked, with hundreds protesting outside Pinduoduo's cross-border e-commerce platform Temu's office in Guangzhou, accusing the platform of unfair "returnless refund" and penalty rules. They believe Pinduoduo is squeezing merchants to support its international expansion, making it difficult for them to operate. Subsequently, Pinduoduo stated that they would actively seek solutions with merchants.
Reportedly, officials from the State Administration for Market Regulation and the Ministry of Commerce held closed-door meetings with merchants and e-commerce platforms in September of this year to discuss the "returnless refund" policy, with both Alibaba and Pinduoduo in attendance.
Consumers and merchants have noted that JD.com (09618) and Alibaba (09988) also provide "returnless refund" services, but with stricter conditions, and instances of "partial refunds" are more common. Several e-commerce platforms have adjusted their "returnless refund" policies in recent months, with Alibaba optimizing its strategy in August of this year to enhance merchant autonomy in after-sales services and reduce intervention in high-quality merchants' after-sales processes. Kuaishou (01024) officially terminated its "returnless refund" service earlier this month.
During last month's performance meeting, Pinduoduo's management mentioned that the company made significant investments in the merchant ecosystem last quarter, supporting high-quality merchants.
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