WhatsApp, the messaging app owned by Facebook, has just received the go-ahead to launch its payment services in India. This will be available in a total of ten regional languages for both iOS and Android. It will utilize the Unified Payments Interface (UPI). Plus, all transactions will be free of charge and backed by well over 160 banks.
Why India?
India is ripe with global opportunities for “digital payments disruptors” to stake their claim in the market. The annual “run-rate” for mobile payments in India is just under $1 trillion. Currently, there is an excess of 100 payment providers in India. All of them are expected to grow significantly. One of India’s top payment providers, PhonePe had an estimated 100 million customers back in October 2020. It is projected to hit the 500 million mark by the end of 2022.
India is considered WhatsApp’s largest market, in terms of users. Out of a total global number of over 2 billion, there are more than 400 million users of WhatsApp. It is estimated that about one of every two phone users in India uses WhatsApp. In partnership with its parent company, Facebook, the company is the dominant messaging platform worldwide.
Without question, WhatsApp will go head to head with other payment giants such as Ant Group/ Softbank (Paytm), Google Pay, Amazon Pay, Tencent (Hike), and Walmart (PhonePe).
Difficulties Before The Launch
Facebook’s CEO Mark Zuckerberg has made it clear that India was full of business potential. Back in 2017, Facebook made its initial announcement to inaugurate a payment service in India. WhatsApp started testing its “peer-to-peer” payments service in February 2018 with 1 million users.
However, regulators were quick to hamper Facebook’s efforts, fearing its power to control the market. There was also lobbying from other competitors as well as consumer protection organizations. With the localization of “five data elements”, Facebook had finally secured the authorization to operate from the National Payments Corporation of India (NPCI).
UPI
UPI is a payments framework that was constructed by an alliance of large Indian banks. It’s the most popular payment platform in India, fueled by the financial boost as a result of the government’s demonetization of INR500 and INR1,000 notes back in November 2016.
WhatsApp has reported to be working with five leading financial institutions, including Axis Bank; ICICI Bank, HDFC Bank, Jio Payments Bank, and the State Bank of India.
With restrictions, WhatsApp does have permission to launch its UPI-based payment services to 20 million users, initially. This amounts to less than 5% of its customer base. Any additional growth will be allowed, but in a “graded manner” as expressed by the NPCI.
Another restriction is that “single operators” can only charge 30% of the volume processed through the UPI. This can potentially become quite a hindrance to Facebook’s growth and profitability. This restriction is expected to take effect in January 2021.
Another disadvantage of UPI is that all users are required to have a debit card and a bank account. However, only 80% of India’s adult population holds a bank account. An additional restriction is that the UPI interface will only be appropriate for consumers and not businesses.
How Things Will Pan Out
Clearly, WhatsApp has its work cut out for them in this highly-competitive and restrictive market. Only time will reveal how they plan to address these challenges and how they can potentially differentiate themselves in India’s digital payment space.