JPMorgan’s Deal With Alipay Will Put the PLA in Your Pocket

Paying with plastic is easy, but for merchants, credit cards come with pesky fees. Imagine if consumers instead used mobile payment apps that charged much lower fees. Such apps are conquering the world—led by Chinese giants Alipay and WeChat Pay. Last month, JPMorgan announced it will be partnering with Alipay. All this creates a lot of data the Chinese government will want access to. Convenient payment for coffee, groceries, and other daily items could become a national security risk.

Two years ago, U.K.-based Barclaycard issued a press release that didn’t get much attention. “Barclaycard partners with Alipay to help U.K. merchants increase sales from booming Chinese tourism,” announced the credit card firm, which processes nearly half of all credit card transactions in the United Kingdom.

The reason the announcement flew under the radar is not many Europeans were using Alipay (which is owned by tech conglomerate Ant Group) or its fellow Chinese archrival, Tencent-owned WeChat Pay. Instead, Barclaycard’s announcement concerned the U.K.’s around 1 million Chinese residents and tourists. The pandemic meant Alipay got off to a rocky start in the U.K., but in filings last month, the company said its growth opportunities in the United Kingdom and other European countries were “significantly heightened.”

Alipay and WeChat Pay already have around 1 billion users each, primarily in Asian countries. Launching the service for Chinese residents and visitors in Europe is a shrewd strategy, especially considering that between 2010 and 2019, the number of Chinese tourists abroad nearly tripled to 155 million people.

Last year, Alipay and WeChat Pay both launched a partnership in Italy with duty-free shop operator Dufry. And last month, JPMorgan Chase, which is not only an investment bank but also the United States’ leading credit card payment-processing provider, announced it will partner with Alipay to process online purchases on Alibaba.com, the online shopping site. That means U.S. consumers’ purchases will go through Alipay.

If Beijing wants to gain a detailed picture of people in a particular country, it only needs to ask the Chinese companies whose services those people use.

Once merchants get started on the apps, chances are they’ll love them because Alipay and WeChat Pay charge far lower merchant fees than credit card companies: 0.55 to 0.6 percent compared to credit card companies’ 1.5 to 3.5 percent. Although PayPal is often cheaper than credit cards, it’s only available online. For the user, meanwhile, Alipay and WeChat Pay are just as easy to use as plastic cards, Apple Pay, or Google Pay. By outflanking credit card companies (though they sometimes cooperate with them), Alipay and WeChat Pay seem destined for explosive popularity and growth.

Terrific, many observers and shoppers might say: Innovation is creating an alternative to companies that have been enjoying a near-total grip on the cashless market. But that view is shortsighted. Last month, it emerged that the Chinese government plans to break up Alipay’s parent company, Ant Group, and force Ant Group to turn over user data to a company partly owned by the government. What user data might that be?

Courtesy of Apple, whose App Store now lists the data each app collects, we know Alipay collects information about, among other things, your health and fitness, location, contacts, user content, and search and browsing history. WeChat Pay collects similar data. Apps based in the West, too, collect far more data than they ought to. (Just take a look at Facebook in the App Store.) But since 2017, when China introduced a new national intelligence law, China-based companies are also obliged to assist the Chinese government.

In other words, if Beijing wants to gain a detailed picture of people in a particular country, it only needs to ask the Chinese companies whose services those people use. In recent months, Beijing has been showing who’s the boss in the tech sector, not only forcing Alibaba to split but also scolding other major firms.

Beijing’s actions shouldn’t surprise anyone because data’s phenomenal utility makes it so valuable that it has been called the “new oil” for years. To pump this 21st-century oil, a team from China’s People’s Liberation Army (PLA) hacked the U.S. credit-rating agency Equifax in 2017, taking possession of nearly 148 million Americans’ financial records.

In 2018, it emerged that British firm Cambridge Analytica had been collecting the personal data of tens of millions of Facebook users with the intent of influencing the 2016 Brexit referendum, the 2016 U.S. presidential election, and various other elections.

In August, the Chinese government introduced legislation regarding data security that goes into effect on Nov. 1. But China’s Personal Information Protection Law only prohibits companies from “illegally collecting, using, processing, transmitting, disclosing, and trading people’s personal information.” It doesn’t limit legal collection of such data—nor, of course, use of such data by the Chinese government itself. And the law will affect Western companies too.

Donald Trump banned Alipay and WeChat Pay (and a group of smaller Chinese mobile pay apps) from operating in the United States, calling the apps a national security threat. He was right.

“If you’re a company in Europe that has all its systems and customers in Europe but those services have data regarding Chinese customers, China’s laws apply to you too,” said Jonathan Kewley, co-head of Clifford Chance’s Tech Group, an international law firm. “What China is doing is saying, ‘if your systems touch Chinese citizens, we have the right to scrutinize your systems.’”

On his way out of office, then-U.S. President Donald Trump banned Alipay and WeChat Pay (and a group of smaller Chinese mobile pay apps) from operating in the United States, calling the apps a national security threat. Many people thought he was just being his usual blustery self, and this June, U.S. President Joe Biden revoked the ban, replacing it with a softer scrutiny mechanism. But Trump was right. Other Western countries still permit their use.

“Communist China is intensifying its implementation of [Chinese President] Xi Jinping’s holistic regime security strategy by further tightening control of financial services and ensuring its data monopoly,” said Lianchao Han, a Chinese democracy activist who now works as an intellectual property attorney in the United States. “Beijing knows that data is power. Unfortunately, few in the West see this existential threat.”

To be sure, the European Commission has encouraged European Union-based banks to develop a payment system of their own. The banks, though, are far behind Alipay and WeChat Pay. “China bought Volvo so they could learn to build the best cars with the best crash system,” Kewley said. “Now, Chinese cars come out on top. They know they have to have the best products, and that goes for apps as well.” And Western consumers use those products.

Personal data collection presents a modern tragedy of the commons: It helps companies and is sometimes even convenient for consumers but presents an enormous risk to democratic societies.

Western militaries increasingly discuss the need for an “information advantage.” At a defense trade exhibition in September, Gen. Patrick Sanders, commander of Britain’s Strategic Command, explained “we have to make sense of, exploit, and manipulate data. Our challenge is twofold—the data landscape is so complex and handling the sheer volume of information (and intelligence) that could be available to us.”

That’s precisely what China is doing, aided by naïve Western consumers. Earlier this year, a U.S.-based group filed a lawsuit against WeChat (WeChat Pay’s messaging twin), saying the app permits Chinese government surveillance of its users, including users outside of China.

Chinese apps are not by definition suspect, but it’s only logical the Chinese government would want to tap the apps’ wells of valuable information. Beijing’s meddling with Alibaba is a harbinger of things to come. That means Western consumers need to develop a bit of national security literacy and consider the danger lurking in their pockets.