Trump's WeChat, TikTok bans should worry PayPal, Starbucks, Walmart and other U.S. firms

The Trump administration has barred the use of TikTok and WeChat inside the U.S., including a direct ban on WeChat Pay, setting up potential retaliation against U.S. companies that could interrupt international payment flows.

The WeChat and TikTok bans, which go into effect Sunday, bar Apple’s App Store, Alphabet’s Google Play store and other parties from offering TikTok or WeChat in a manner that’s accessible in the U.S.

The ban does not cover U.S. firms that use WeChat or TikTok for transactions outside the U.S., so companies such as Starbucks or Walmart that support WeChat Pay in China would not be impacted in those regions.

At least for now.

“The greater potential impact will be if the Chinese government retaliates, preventing U.S. companies like Walmart, Starbucks, hotels and other merchants from using these nearly ubiquitous apps within China,” said Sarah Grotta, director of debit and alternative products advisory service at Mercator Advisory Group.

Bloomberg News

Numerous merchants in the U.S. support Tencent’s WeChat Pay and Ant’s Alipay, primarily to allow Chinese consumers to use their own currencies while traveling. That use case is among Tencent and Ant’s major modes of expansion in the U.S., and a ban of any length could reduce payment flows in the U.S. (Ant and Alipay are not part of the ban announced Friday morning.)

“It is curious that the announcement does not also include [Alipay], which has a much larger acceptance base in the U.S.,” Grotta said, adding the pandemic has temporarily reduced the primary WeChat Pay and Alipay use case for Chinese travelers.

A retaliatory move could impact large U.S. firms that access the payments market in China through local companies, such as PayPal. Apple has partnerships with Alipay in China that include the potential linkage of mobile wallets. And Visa, Mastercard and American Express are in the midst of trying to gain approval to set up domestic payment processing in China, a multi-year effort that has gotten caught up in the U.S.-China trade dispute during the Trump years.

It’s not the Trump administration's first such move involving China. A potential deal for Ant to acquire MoneyGram in 2018 was scuttled under pressure from Trump, though Ant and MoneyGram still partner on other products.

“This is the latest salvo in a burgeoning cold war with China. Not surprising. There’ll be more,” said Eric Grover, a principal at Intrepid Ventures.

The U.S. ban covers “any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the U.S.; and any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the U.S.,” according to the U.S. Commerce Department.

Many of the politically charged payment disputes in India, China and now the U.S. involve data control, specifically addressing where data is mined and stored. The power to enroll consumers and extract data is a key resource in e-commerce, so many of these political moves are about protecting local business interests.

Tim Sloane, vice president of payments innovation at Mercator, said the U.S. TikTok-WeChat ban is worded in a way that could eliminate the opportunity for WeChat and TikTok to contractually have a U.S. company take over the software in the U.S. and then manage and deploy the service in the U.S. on behalf of the Chinese companies.

It’s possible that one or both bans may be lifted before or after Sunday, given the context of ByteDance’s potential sale of TikTok to Oracle and possibly Walmart. Trump in Augustfloated a ban on WeChat and ordered Bytedance to divest TikTok in the U.S. The Trump administration contends the data the Chinese firms collect represents a security risk.

Trump’s earlier order set up several months of negotiations between ByteDance and U.S. firms such as Microsoft, Oracle and Walmart to buy part of TikTok and manage its data inside the U.S.

The latest deal on the table would give Oracle a stake in TikTok, reportedly about 20%, and would label Oracle as a “trusted technology partner,” in part making Oracle the provider of cloud services and U.S.-based data management. Walmart is also trying to invest in TikTok, which could provide a large base of young consumers to bolster Walmart’s e-commerce strategy.

Trump is reviewing the Oracle deal, so it's possible the ban is a negotiating ploy tied to the Oracle-TikTok contract. TikTok has a Nov. 12 deadline that would trigger a prohibition on other companies providing cloud services, meaning the TikTok ban could be part of a play to get Oracle to improve its offer to meet Trump’s approval.

The terms of the WeChat Pay ban, which currently affects a greater volume of payments than TikTok, are less clear.

Trump has threatened payment flows before, most notably linking a potential ban on remittances to Mexico in an attempt to get the Mexican government to pay for the border wall. But that ban never came. Other moves, such as tariffs, have a more indirect impact on the payments market by making supply chain transactions more expensive.