Why the EU Has Found Temu in Breach of Digital Services Act
Temu has revolutionised global commerce and supply networks in recent years.
The platform's market presence and impact has expanded dramatically, especially within European and American markets.
The online retail behemoth has attracted more than 292 million active users worldwide whilst its Gross Merchandise Volume surged from US$14bn in 2023 to US$70.8bn in 2024.
It is one of the most disruptive technology platform within online retail, leveraging machine learning algorithms and a direct-to-consumer architecture that bypasses traditional retail intermediaries.
This AI-driven approach enables dynamic pricing systems across virtually every product category, providing competitive advantages over conventional e-commerce platforms, though its automated product listing systems have also attracted the scrutiny of regulators.
Following an investigation into the platform's digital systems, the European Commission has determined that Temu violates the Digital Services Act, highlighting a "high risk for consumers in the EU to encounter illegal products on the platform".
The investigation, launched in October 2024, examined the platform's algorithmic risk assessment capabilities, deployment of addictive design elements through behavioural psychology techniques, transparency of recommendation systems and automated data processing protocols.
Temu's automated risk assessment system was considered insufficient, relying on generic algorithmic models instead of platform-specific machine learning data.
This technological deficiency resulted in inadequate automated safeguards against listing illegal products, including baby toys with harmful chemicals or electronics failing EU safety standards.
The violation underscores significant digital platform governance issues, as EU consumers face substantial risks through the platform's automated recommendation algorithms.
This preliminary finding could subject Temu to penalties reaching 6% of worldwide annual revenue and increased regulatory oversight of its platform architecture.
We shop online because we trust that products sold in our Single Market are safe and comply with our rules.
In our preliminary view, Temu is far from assessing risks for its users at the standards required by the Digital Services Act.
Consumers’ safety online is not negotiable in the EU – our laws, including the Digital Services Act, are the foundation for a better protection online and a safer and fairer digital Single Market for all Europeans.
Competitive pressure
Temu's user base overlaps significantly with Amazon, Walmart and Target through cross-platform shopping behaviours.
More than 96% of its users also purchase from the first two platforms, whilst 84% utilise Target. This digital ecosystem overlap suggests platform reputational damage could significantly impact the business.
Nevertheless, Temu's machine learning pricing algorithms consistently undercut larger competitors, creating technological advantages difficult to replicate.
Amazon and Walmart cannot always compete on algorithmic pricing due to more sophisticated, regulated platform architectures and legacy system constraints.
Temu's mobile-first, extensively gamified shopping application leverages behavioural psychology and user engagement algorithms to accelerate adoption, particularly amongst younger digital-native demographics.
From 2023 to 2024, its platform technology surpassed Shein in sales expansion despite later market entry.
Growing digital regulatory risks
Platform regulatory challenges now constitute significant technological concerns.
The EU's Digital Services Act requires platforms to deploy technological safeguards through automated detection systems, yet Temu's platform inability to ensure algorithmic product compliance has damaged digital trust.
Temu's technology stack processes enormous quantities of packages from Chinese manufacturers through automated logistics systems.
In America, more than one million data points arrive daily, overwhelming distribution networks and digital tracking systems.
This algorithmic strategy exploits digital customs processing regulations like the US$800 "de minimis" exception or EU's €150 automated threshold.
Digital supply chain transparency lacks proper technological infrastructure. Numerous suppliers remain digitally unverified through the platform's onboarding systems, creating concerns regarding automated compliance monitoring and algorithmic oversight.
Without proper digital transparency protocols, Temu's platform architecture faces difficulties meeting automated due diligence requirements.
While investigation into the platform's digital systems continues, global attention on e-commerce platform governance remains focused on the outcome.
