TheChek News Flow

A new online commerce and payments infrastructure is finally starting to evolve

When Tim Berners-Lee and his colleagues were crafting the world wide web three decades ago, they left a key component incomplete.

Alongside the familiar 404 error, encountered when a web page is “not found”, there exists a similar code 402 denoting “payment required”.

According to web browser maker Mozilla, the 402 code was intended to tell a visitor that they needed to pay to view a certain web page. However, the scheme was never built out. To this day, there is still no standardised way to send or receive payments online.

“It’s kind of funny, or tragic, that so many decades into the web’s history, and given the central importance of being able to generate that sort of sustaining income from the internet, that it has gone so undone and under-built,” noted entrepreneur Patrick Collison at a Wired event a few years ago.

Collison’s digital payments company, Stripe, has been chipping away at this problem for the past decade. Slowly but surely, Stripe has begun to make the complex, ossified payments system appear simple for millions of its customers.

As a result, Stripe is now worth $95bn, making it the most valuable private company in Silicon Valley. It is apposite that Stripe now occupies that lofty perch, which a decade ago was home to Facebook. Stripe’s ascendance comes at a time when the foundation of the internet economy is shifting from advertising to commerce.

Stripe and peers including Square, Adyen and PayPal have, along with the likes of Shopify, built a new online commerce and payments infrastructure that is solving the original 402 error.

The legacy of the web’s missing payments layer has been the dominance of advertising as a business model for online services such as Google and Facebook. But the pull towards payments and commerce is simple: it is a far, far bigger market than advertising.

Global advertising spending fell around 4 per cent to $569bn last year, according to media agency Magna. Digital platforms have fared better than traditional media, of course, climbing 8 per cent while offline ad sales tanked 21 per cent.

At nearly $5tn, the ecommerce market is already several times larger than the entire advertising business. While the margins may be thinner, eMarketer estimates that worldwide ecommerce sales rose by 28 per cent last year and now make up 18 per cent of the total retail market.

Even before the pandemic supersized ecommerce spending, Facebook chief Mark Zuckerberg was starting to steer the social network away from its reliance on advertising. Ads still made up 99 per cent of Facebook’s revenues last year, but in January 2020, Zuckerberg said that the three areas which he was “most focused on for the next chapter of our company” were private messaging, virtual reality, and commerce and payments.

Since then Facebook has added shopping tabs to Instagram and its other apps, and begun testing a WhatsApp payments system in Brazil and India. Even its digital currency, Diem (formerly called Libra) is gearing up for a renewed push later this year.

It is not just Facebook that is looking for life beyond advertising. Twitter is testing “super follows”, a way for users to charge for bonus content, and TikTok is pushing into ecommerce through partnerships with the likes of Shopify.

This “creator economy” concept of allowing people with an online following to make money from sales or tips was pioneered in China. Elsewhere, it has been popularised by Twitch and Patreon, mimicked by YouTube and Facebook, and expanded into new fields by Substack’s newsletters and dozens more start-ups.

Stripe’s technology sits behind many of these platforms (Shopify, Instagram, Cameo and Substack are among its customers). So too does the Collisons’ philosophy. The company’s “mission statement” to “increase the GDP of the internet”, Patrick Collison has argued, does not mean fighting with rivals for the next big customer. “Zero sum games are bad,” he insists. Instead, Collison hopes that by making payments easier and faster, it can stimulate new economic activity.

It will take many more years for payments and commerce to displace ads as the default form of monetisation for internet companies like Facebook and Twitter. But the infrastructure is slowly falling into place. In web standards documentation, that 30-year-old 402 code is still listed as “reserved for future use”.

Carrefour CEO Alexandre Bompard called plans to buy Brazil's third-largest retailer a “transformation" move.

PARIS — French retail giant Carrefour is pushing deeper into Brazil, with plans to buy Grupo Big, the country’s third largest retailer.

“Our group is on the offensive,” said Carrefour chairman and chief executive officer Alexandre Bompard. The executive called it a “transformation” move for the retailer in the vast market.

Bompard has steered a broad overhaul of Carrefour’s operations over the past several years, forging partnerships with technology companies to bolster its e-commerce, as well as increasing organic food offers.

The deal to buy Grupo Big from Advent International and Walmart values the retailer at 1.1 billion euros.

“This acquisition offers significant synergy potential from year one,” Carrefour said in a statement, estimating it could add 260 million euros to group earnings before interest, tax, depreciation and amortization annually, three years after the transaction closes.

Known for inventing big-box retail in the 1960s, Carrefour has been adapting to shifts in consumption by focusing on smaller, convenient formats in recent years.

In January, the retailer was approached by Canada’s Alimentation Couche-Tard for a possible tie-up, but merger talks ended in a pledge to explore operational partnerships after the French government signaled opposition to the acquisition attempt. Food security and jobs were at stake, said French Finance Minister Bruno Le Maire.

The potential tie-up prompted speculation about whether Carrefour’s main shareholders might want to offload their stakes.

Luxury titan Bernard Arnault invested in the retailer in 2007, when shares were valued around 50 euros each. The Moulins family, which owns Galeries Lafayette, invested in 2014, when shares were valued more than 25 euros a share. Arnault’s son Alexandre Arnault joined the board in 2019, while Galeries’ Philippe Houzé, who is vice president of the board, joined it in 2015.

PVH Corp., Fast Retailing, Nike, Gap and Inditex had also previously distanced themselves from Xinjiang cotton and could be targeted next.

SHANGHAI — H&M has suddenly been blocked from all major Chinese e-commerce platforms including Tmall, Taobao, JD.com and Pinduoduo over its stance to remove Xinjiang cotton out of its supply chain.

Searching for the brand on any of the platforms shows no results. It’s not known if this is a temporary or permanent ban of the Swedish retailer. The brand’s physical stores do not appear to have been impacted thus far.

H&M had originally revealed its decision last year to disavow Xinjiang cotton, but this controversy seems to have been prompted by a Weibo post from the Communist Youth League, part of China’s ruling party, on Wednesday, which said: “Spreading rumors to boycott Xinjiang cotton, while also wanting to make money in China? Wishful thinking!” The post included H&M’s response to the decision taken by the Better Cotton Initiative in March to no longer license its cotton from Xinjiang, in both English and Chinese.

H&M China’s brand ambassadors Huang Xuan and Song Qian revealed online that they were no longer working with the brand, stating they were “firmly opposed to any attempt to discredit the country” — although a source told WWD that Huang’s ambassadorship in fact had ended some time ago.

H&M’s decision to stop using cotton from China’s Xinjiang region was rooted over concerns over allegations of mass forced labor camps in the region. At the start of the year, the U.S. government stated that Beijing’s repression of Uighur and other Muslims in the region constituted “genocide.” Other fashion labels that have publicly distanced themselves from Xinjiang cotton include Tommy Hilfiger and Calvin Klein parent PVH Corp.; Fast Retailing, parent of Uniqlo; Nike; Gap, and Zara owner Inditex. Official e-commerce storefronts for brands under these companies seem to be operating and appear in search results per usual.

While these companies addressed the issue some time ago, the sudden targeting seems to be in retaliation to the ratcheting up of tensions over the issue in recent days. The U.S., Canada, the U.K. and the European Union, coordinated this week for the first time to condemn the country’s alleged human rights violations toward Xinjiang’s Uighur minority and launched sanctions on some Chinese government-affiliated individuals. The Chinese government responded in kind, issuing its own counter-sanctions against Western officials.

Xinjiang has few apparel factories but it is key in cotton production, accounting for 20 percent of global supply. While much of that is used for goods sold in China, cotton is mixed and distributed globally, putting brands in a difficult position. They are asked to prove that the cotton in the goods they bring into the U.S. was not grown in Xinjiang, while also trying not to anger China.

In response, H&M put out a statement on Weibo that said: “H&M Group has always managed our global supply chain in an open and transparent manner, ensuring that our suppliers worldwide comply with our sustainability commitments such as the “OECD Guidelines for Responsible Business Conduct” and do not represent any political position.

“The H&M Group does not source cotton directly from any supplier. We are committed to long-term investment and development in China, currently working with over 350 manufacturers in China to provide sustainable apparel products to Chinese and global consumers.”

China has a long track record of punishing companies and public figures for opposing political views, particularly over the issues of Tibet, Taiwan, Hong Kong and Xinjiang.

While fashion brands have previously run into trouble in the country over geopolitics, this incident represents a harsher level of punishment than seen before. Versace, Coach and Givenchy have been targeted by Chinese authorities in previous years for failing to explicitly refer to Hong Kong and Macau as part of China.

In 2019, a Versace T-shirt that listed store locations across the world became the subject of ire. It printed Beijing and Shanghai, followed by the country name, China, but formatted Macau and Hong Kong differently, which angry netizens interpreted as suggesting the regions are separate entities. Macau and Hong Kong are former colonies that are now governed as Chinese special administrative regions.

Alibaba, Tencent and Baidu shares drop on fears of US delistings and control over data

Chinese technology stocks dropped sharply on growing concerns of possible delistings from US exchanges and reported plans by Beijing to take control of companies’ user data.

The Hong Kong-listed shares of Alibaba, the Chinese ecommerce group, were down 4.2 per cent by midday on Thursday, while those of internet business Tencent dropped 2.3 per cent. Shares in Baidu, the search engine group that debuted in the city this week, tumbled almost 9 per cent.

Hong Kong’s Hang Seng Tech index, which tracks shares in big Chinese tech groups, fell as much as 5 per cent.

The losses came after the US Securities and Exchange Commission said on Wednesday that it was taking initial steps to force foreign companies listed in New York to provide access to financial audits or risk being forcibly delisted after three years of non-compliance. Beijing has long denied US regulators access to Chinese companies’ books.

Analysts said sentiment was also hit on Thursday by a Bloomberg News report that China’s government had proposed creating a joint venture to oversee all user data harvested by the country’s tech companies.

If implemented, the plan would mark a substantial escalation of a regulatory crackdown on China’s tech sector, which state media and top officials have criticised for amassing too much power and influence.

“Without a shadow of a doubt you’re going to see a correction” of Chinese tech shares, said Andy Maynard, a Hong Kong-based trader at China Renaissance, an investment bank. “I literally don’t have a buy order [for Alibaba].”

Maynard added that the latest round of bad news for Chinese tech groups had piled additional pressure on share prices already hit by a global shift in investor attention from high-growth companies to cheaper, unloved stocks that are expected to benefit as the global economy recovers from Covid-19.

Louis Tse, managing director at brokerage Wealthy Securities in Hong Kong, said the SEC’s move would put pressure on China to respond to demands for access to audit reports at a time of growing acrimony between Washington and Beijing.

“China doesn’t want [companies] to disclose anything for national security reasons,” he said. “That is a very big question that has to be answered by the Chinese side.”

The threat of delisting has not stopped Chinese tech groups from selling shares on Wall Street, with these companies raising about $1.3bn from New York listings this year. Their shares rose 22 per cent on average on their first trading day, according to data from Dealogic.

“A lot of parties have a huge interest in these Chinese IPOs,” Tse added, pointing to the fee revenues enjoyed by the Wall Street investment banks. “How can they give that up?”

The broader Hang Seng index was little changed on Thursday.

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Fed chair dismisses fears that rise in long-term borrowing costs could hamper economic recovery

Jay Powell, the Federal Reserve chair, has dismissed fears that the recent rise in long-term borrowing costs could be unhealthy for the US recovery, saying markets had adjusted in an “orderly” manner to a brighter economic outlook.

During testimony to the Senate banking committee on Wednesday, Powell sought to stamp out concerns, raised mainly by Republican lawmakers, that the economy could overheat as a result of Joe Biden’s $1.9tn fiscal stimulus package.

Long-term US government debt yields have lept since the start of the year, with the benchmark 10-year note trading at 1.63 per cent, far above the 0.9 per cent level seen in January. However, after hitting a 14-month high of 1.75 per cent last week, the market has stabilised in recent days.

While Fed officials have said they are monitoring the shifting market, they have hit back against warnings that the rise in yields has been so stark that it warranted alarm or intervention by the central bank.

“There’s been an underlying sense of an improved economic outlook, and that has to be part of why rates would move back up from the extraordinary low levels that we’re at — back up towards levels that we’re more likely to see, and that has been an orderly process,” Powell said in response to a question from Richard Shelby, a Republican senator from Alabama.

“I would be concerned if it were not an orderly process or if conditions would have tightened to the point where they might threaten our recovery,” he added.

A recent string of decent Treasury auctions has also helped to steady the market. On Wednesday, the Treasury department was able to offload $61bn of five-year notes at a yield of 0.85 per cent. While only slightly higher than the initial 0.847 per cent yield set prior to the auction, it marked a significant improvement from a poorly-bid sale of 7-year notes last month that set off a bout of frenetic trading.

The Treasury is looking to offload another $62bn of 7-year notes on Thursday — an auction investors will be watching closely. 

Republicans on the Senate committee seemed sceptical about the Fed’s willingness to keep monetary policy extremely loose — with its main interest rate close to zero and $120bn in monthly debt purchases — until ambitious economic recovery benchmarks were met.

“I do worry that the Fed may be behind the curve when inflation, inevitably picks up,” said Pat Toomey, the Republican senator from Pennsylvania.

Powell responded to those concerns by saying the Fed did not expect a burst in economic activity this year to “produce substantially higher prices or that the effects will be persistent”. Rather, the central bank thought higher inflation would be “transitory or temporary”.

Powell was joined at the virtual hearing by Janet Yellen, his predecessor as Fed chair who now serves as Treasury secretary.

During the hearing, Yellen said the recently approved fiscal stimulus package could potentially return the US economy to full employment by next year.

But she faced repeated criticism from Republican lawmakers for giving the IMF the green light to issue $650bn in new special drawing rights in order to boost the balance sheets of low-income countries with a hefty dose of reserve currency to help them through the pandemic.

In one heated exchange, Yellen was repeatedly interrupted by John Kennedy, the Republican senator from Louisiana, as she sought to fend off his accusations that a new SDR issuance would cost US taxpayers $180bn and funnel money to US strategic adversaries like China and Venezuela.

“I don't know where you got a number like that from,” Yellen said, arguing that the budgetary cost to the US would be “a wash”.

She also defended the need for the SDR allocation as a policy matter.

“I would say that the current crisis has increased the need for global reserves, and that’s the IMF’s assessment. The global economy suffered a very severe, severe collapse in 2020,” Yellen said. “This allocation will help countries meet this need for reserves.”