Why Facebook can’t be WeChat
Update: Dan Grover of Facebook and previously WeChat helped with clarity. See these threads for his input.
WeChat has gotten a lot of press recently because it dominates the Chinese internet and has insane amounts of service integrations.
It’s nominally a chat app, but WeChat also combines social media, banking & finance, travel, e-commerce, dining, public utilities, and more. These integrations are very tight: there’s no deep-linking to other apps, no new browser pages, no additional sign-ons — everything from ordering lunch to booking an international flight happens with a few taps within app. This is a level of integration that Facebook dreams of, but will not be able to achieve anytime soon.
This isn’t because WeChat has better engineers — in fact, much of the app is still pretty janky. There are two systems that exist in China but not in the US that prevent Facebook or any other American company from achieving this level of integration: mandatory national IDs and instant cash settlement.
Mandatory National IDs
Every Chinese citizen is required to have a jumin shenfenzheng, or an official national identity card. The card lists standard identifying information, along with an ethnicity selected from a list approved by the Chinese Communist Party. Since 1999, ID cards have also had 18-digit numbers similar to a Social Security number — every citizen has one that is unchanged for life.
The US equivalent would be a passport and social security number, but you were required to have them with you at all times.
You cannot legally access any form of communication or finance in China without directly or indirectly providing your ID. Some examples:
- You cannot get a phone number without an ID
- Registering for WeChat requires a phone number
- You cannot use an internet cafe without your ID or phone number
- You cannot access public wifi without using your phone number or a single-sign-on account such as WeChat that has your phone number
- You cannot book lodging or travel on trains without your ID
- You cannot register servers or websites without your ID
- In contentious regions of China such as Xinjiang, you cannot all buy a knife or enter a mall without your ID
No matter where you are in China or how you are communicating, the State knows. Imagine having to present your passport and social security card every time you wanted to communicate or travel.
A side effect of this State control is that services or “mini programs” within WeChat have a robust, digital means of collecting your identity. Forget Facebook’s real-name policy — WeChat has a form of true digital identity backed by one of the most sophisticated police states in the world. Such an invasive system is unfathomable in USA, a country whose citizens are by default wary of central government.
Instant Cash Settlement
The second part of what makes WeChat integrations so seamless is instant cash settlement in the Chinese banking system — balances moved between two bank accounts are instantly updated when money is transferred. This allows sellers to instantly receive and verify payment with no processing fee, unlocking mobile payments for a long tail of SMBs and individuals.
Unfortunately, there is no US equivalent. If you’ve ever waited days for a check deposit or Venmo transfer to show up, you’ve waited on the dated Automated Clearing House (ACH). Requests to transfer balances in the US banking system are essentially digital “checks” which get sent to the ACH and cleared in daily batches.
The state of the art in the US, Venmo, feels instant but is faking it. When you receive money on Venmo, you are shown an updated “Venmo balance”, the reality is Venmo is showing you a balance ahead of ACH settlement based on the assumption that you trust the people Venmoing you have the money and ACH will clear the transaction. If someone Venmos you with an insufficient bank account, it will take the next ACH batch for Venmo to find out, at which point the transaction is nixed from your Venmo balance (pro tip: never accept Venmo from a rando buying your craigslist stuff — it’s not supported in Venmo’s user agreement because of the ACH cycle problem).
So why does ACH run in batches? It was designed in the 70s to process paperless checks. There was no expectation for instant settlement or data (the competing technology was literally paper checks), and consumers had no way of instantly checking their balances so it didn’t really matter.
Why do we still use ACH? Unlike the lack of mandatory national IDs rooted in a strong culture of liberty and government accountability, the lack of instant settlement is due to simple greed: banks are assholes and actively fight instant settlement systems. In the US, to instantly send and receive money you have to use a wire — a service banks charge for. While most countries have upgraded or built instant settlement systems, as recently as 2012 American banks voted against a proposal from the ACH governing body to upgrade to same-day (not even instant) settlement because banks thought it would cannibalize their wire fee revenue.
Bringing It All Together
In China, an online seller can 1) collect your true identity if provided your ID and 2) instantly receive payment in their bank account. As a result, there is almost nothing you cannot buy straight from WeChat: airplane tickets, lunch delivery, stocks, utility bills, medical care, etc.
For Facebook or any US company to achieve comparable levels of service integrations, they would have to lobby the federal government to issue national IDs while simultaneously convincing the banking industry to give up millions of wire revenues and allow instant settlement. Good luck.
