Amazon’s aggressive push into the Chinese market was hailed by the company as a move to extend its global reach even further.
The ecommerce giant, which has become a mainstay across North America, Europe, and large parts of Asia, remains woefully behind local platforms like Alibaba, which controls nearly half of China’s online retail market.
To combat this, Amazon (AMZN) has bent over backwards to attract Chinese merchants and shoppers, offering concessions and solutions that have given retailers—and the third parties they partner with for infrastructure—significant leverage over them. As a result, Amazon finds itself in a surprisingly precarious position.
There are increasingly loud whispers that China’s leading payment processors, which most of the country’s merchants deploy to handle their online retail transactions, may be abusing their access to steal customers’ data.
Amazon has made no announcements on the matter, but a breach by China could result in perhaps one of the largest thefts of sensitive information in recent memory. Relations between the two countries are already fraught over the ongoing trade war and reports that China has been stealing data from major US corporations. This new theft, if proven, could goad an even tougher stance from the US government towards its chief competitor.
A Rapidly Deteriorating Situation
It’s no secret that Amazon is a top destination for most retail purchases for a large percentage of the US market. Indeed, according to CEO Jeff Bezos, Amazon Prime has over 100 million subscribers. Perhaps more impressively, Amazon boasted 197 million unique visitors per month to end 2017, a number that has remained consistent. The company is a veritable juggernaut, and it has attracted the attention of Chinese merchants which operate as third-party sellers on Amazon’s platform.
Indeed, China already comprises a significant portion of the sizable third-party seller market that now accounts for over half of all Amazon sales. Chinese sellers accounted for 34% of all top sellers, with nearly 250,000 joining the platform in 2017 alone. The trend is likely welcomed by Amazon when considering efforts to penetrate the Chinese market have been met with less optimism than initially projected. Even so, this expansion has not been without serious drawbacks. Despite Amazon’s enthusiasm to woo Chinese sellers, the process has been littered with issues like review manipulation, counterfeit products, and an even more insidious problem—data theft.
Chinese third-party sellers do not use Amazon’s suite of merchant tools, but rather local alternatives, including the all-important payment processors. Amazon itself places few barriers on new merchant applicants, and the submission process is notoriously easy. Moreover, merchants can quickly connect to third-party applications by providing a few details to support their businesses. This process, however, exhibits a glaring vulnerability that Amazon has yet to address.
While generally all that is required to connect a third-party application to a merchant’s dashboard is a developer key (an alphanumeric string), rumors abound that Chinese payment processors have been instead demanding merchants’ private keys for access. The difference between the two keys is that the latter does not only supply payment processors with access to the areas they need but also to merchants’ private consumer data, which includes emails, names, and payment information such as credit card numbers.
The Danger to Consumers, and the US
This unfettered access to the data of millions of US consumers should be setting off alarm bells at Amazon, but they have been shockingly quiet about it. Indeed, the situation threatens more than 300 million users worldwide, and could portend an even bigger scandal than Facebook’s now-infamous Cambridge Analytica fiasco, which impacted over 87 million Facebook users. Companies like PingPong and LianLian Pay, two of the biggest payment processors in China, might therefore retain access to the private data of users worldwide. By extension, Chinese restrictions regarding how data gathered within its borders must be stored means that the government could also gain access.
The US has taken a decidedly harsh stance on China’s data practices in recent months, especially after the barrage of negative news which recently emerged. The two countries have been engaged in a “cyber war”, with US officials decrying China’s invasions of privacy and the control it exerts over the tech sector within its borders. The government has already loudly opposed plans by Google to reenter the Chinese market after details of its “Project Dragonfly” initiative were leaked to the press.
While Google’s efforts would have been a stain on the company’s anti-censorship record, however, Amazon’s indiscretions could prove several orders of magnitude worse. The company’s servers hold data on millions of consumers worldwide and giving the Chinese government access to this trove could represent one of the greatest threats to American cybersecurity in recent times. By remaining silent, the company could be sowing the seeds for one of the biggest recorded data breaches and thus may be consequently unable to stop it when the time comes.
Amazon didn't reply to a request for comment.
Jim Hoffer is founder and managing director at Hoffer Financial Consulting. Follow him on Twitter.
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