India restricts WhatsApp from monopolising digital payments—and other countries could follow suit

Chatting up payments users.
Chatting up payments users.
Image: Reuters/Dado Ruvic
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India has managed to navigate the risk of a potential monopoly by restricting WhatsApp’s newly launched digital payments feature. And this may become a hurdle for the Facebook-owned company across the world.

After running a beta on a million connections for about two years, on Nov. 6, WhatsApp announced a pan-India launch of its in-chat payments feature that allows users to send money to their contacts via the messenger. WhatsApp’s payment tool is built on the state-owned unified payments interface (UPI), which lets users connect their bank account to their phone numbers.

India is WhatsApp’s biggest market with over 400 million users. However, the company will not be able to allow all of these users to use the payment feature right away. The National Payments Corporation of India (NPCI), which owns UPI, has instructed WhatsApp to launch its service in a “graded manner,” starting with a maximum of 20 million users. That’s a meagre 5% of its total user base in the country.

In addition, the NPCI has said that a third-party app can process only up to 30% of the total volume of UPI transactions (calculated basis the total volume of transactions processed in UPI during the preceding three months on a rolling basis). The new entrant, WhatsApp needs to comply with the regulation by Jan. 1, 2021, while incumbents have been given two years to meet the guideline.

These restrictions, experts believe, could inspire other countries where WhatsApp may be looking to launch its payment function.

“WhatsApp has more than 2 billion active users around the world, with most of them living in developing countries such as India, Indonesia, Mexico, and Brazil. India could become the blueprint for WhatsApp as it expands payments into other developing markets,” a report by S&P Global said. While waiting for a green light in India, WhatsApp launched payments in Brazil in June.

But despite the restrictions, it would be wise for incumbents to take WhatsApp as a serious rival.

Digital payments in India

India’s digital payments sector is estimated to be worth $1 trillion (Rs74 lakh crore) by 2023.

That’s perhaps the reason why WhatsApp has entered the business despite it being dominated by several popular and deep-pocketed players such as Softbank-backed Paytm, Google Pay (earlier Tez), and Walmart-owned PhonePe. E-commerce giant Amazon has also been bullish on Indian fintech.

Together, these four players comprised nearly all of the over 2 billion UPI transactions in October.

NPCI forecasts UPI volumes to reach a whopping 60 billion transactions by 2023, and Covid-19, which has been called “a demonetisation-like catalyst” for digital payments in India, is likely to give the sector a big push.

WhatsApp payments in India

WhatsApp’s massive user base would have been its biggest edge over rivals. Even though NCPI’s restrictions have put that dream run on hold for now, experts believe, not all is lost.

“While it is still too early, WhatsApp’s user base will give it a competitive advantage over its peers,” said Anand S, vice-president at Frost & Sullivan, and Kiran Kumar, the tech division’s research manager.

WhatsApp has been working overtime to make its digital commerce experience smoother and easier to use. For instance, it has allowed small businesses to create digital storefronts and product catalogues, and also enabled payments through QR codes. The app also has features to allow companies to automate and respond to messages.

During the coronavirus-triggered lockdowns in India earlier this year, WhatsApp emerged as an effective tool for digital commerce. Many small offline businesses swiftly moved online via the instant messaging app. “From online buying to ordering at retail or food outlets, WhatsApp will be able to offer a seamless experience for consumers from its messaging platform, which offers great convenience and ease-of-use for end-users,” said Frost & Sullivan’s Kumar.

Additionally, big banks such as HDFC, ICICI, and Kotak Mahindra have also started offering services such as checking account balances, generating statements, and applying for credit cards, through WhatsApp. Even insurance policies can be bought through the app. The launch of WhatsApp’s payment facility will enable the app to offer more such services.

“WhatsApp’s integration of a UPI payment feature into its messaging app in India will put it on track to provide a myriad of services and build its own digital ecosystem,” a report by S&P Global noted.

In addition, Facebook recently pumped in $5.7 billion into Jio Platforms, the new-tech venture of India’s richest man Mukesh Ambani. “It will be interesting to see how Facebook’s alliance with Reliance will help Whatsapp’s payment business,” said Yugal Joshi, vice-president at consultancy Everest Group. Reliance’s online grocery arm JioMart is already live on WhatsApp.

But away from all the regulations and rivals, there is a peculiarity in India that dampens the prospects of digital payments, and WhatsApp will need to deal with it, too.

India’s fintech flaws

In India, cash is king. The country has the second-largest unbanked population in the world at 190 million.

“The fintech industry is trying to create a cashless economy in a country that loves cash,” said Nityanand Sharma, co-founder and CEO of fintech platform Simpl. “People in India are religiously, culturally, and emotionally attached to using cash. Any innovation in its initial days of establishment faces the question of credibility, and fintech space is no different.”

While Internet connectivity and data penetration have gone up, a knowledge deficit is hindering adoption. “A lot of users are still unsure how easy it is to use digital payment modes for all their daily use cases like money transfers, bill payments, recharges, offline and online shopping, etc,” a PhonePe spokesperson said.

Many people don’t trust digital platforms. “The central problem of the industry is the hidden risks of cybersecurity that mainly include data breaches, third-party security threat, malware risk, application security risk, cloud-based security threat, and also digital identity risks,” Simpl’s Sharma said.

But WhatsApp is optimistic. In the long run, it believes the service can benefit India by “increasing rural participation in the digital economy and delivering financial services to those who have never had access before,” the company said in a press release.