Concerns Over PDD's Refunds-First Policy

China's top market watchdogs have urged PDD (NASDAQ:PDD) to reassess its refunds-first policy. This policy allows consumers to claim refunds without returning goods, which merchants criticize as detrimental to their profits.

As a result of these concerns, PDD's shares dropped by 2.2%.

Officials from the State Administration of Market Regulation and the Ministry of Commerce met with PDD executives to discuss the implications of this refunds-only practice, a foundational aspect of PDD's business model. The practice is aimed at enhancing consumer satisfaction and has contributed to PDD's growth, helping it outpace competitors such as Alibaba (NYSE:BABA) Group Holding Ltd. and JD (NASDAQ:JD).com Inc.

During the discussion, regulators expressed that this policy unfairly burdens small merchants, emphasizing the need for PDD to reconsider its approach without outright banning it or offering specific recommendations.

PDD's platform, Pinduoduo, serves as a link between numerous small shops and Chinese consumers. However, the company does not release payments to merchants unless they meet customer expectations, which can involve myriad factors from delivery times to product quality discrepancies.

This refund policy has drawn increasing criticism, especially amidst the economic downturn in 2024. Merchants argue that the policy disproportionately favors consumers, often withholding their payments even after successful product deliveries.