WhatsApp’s push into mobile payments

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Messaging app owned by Facebook builds business model on money transfers

34-year-old Dipti Vartak

For 34-year-old Dipti Vartak, a home baker in Mumbai, WhatsApp is both the quickest way to take orders from her customers and now also the easiest way to take their payments. Since May last year, she has been one of a million Indians testing out a new payments function in the messaging app, which is owned by Facebook.

She was already running a lot of her business through the app, exchanging bills, receipts and payment confirmations with customers and suppliers. She saved her bank details, and found she could simply message anybody with the amount to be transferred.

WhatsApp Pay, which is facilitated by the Indian government’s secure UPI payments system, transfers funds directly between users’ bank accounts, in real time.

“It has really reduced the friction. I just tell people to WhatsApp me, which is easier for them than carrying exact change, too,” she said, adding that about 15 of her customers were paying her through WhatsApp regularly and that she had taken about Rs25,000 ($356) through the platform in six months.

For WhatsApp, and Facebook, the payments trial in India is the first step towards tapping a hugely valuable new channel of data: how people are spending their money.

Since WhatsApp began testing its payments feature in February last year, it has processed about a million transactions a month, according to people close to the National Payments Corporation of India (NPCI), the umbrella organisation for all payments and settlements companies. WhatsApp declined to comment on the figure.

The company has run into headwinds as it tries to extend the service nationwide, with regulators demanding that its payments data be processed in India, rather than on Facebook’s servers in California. Despite several meetings between Chris Daniels, WhatsApp’s chief executive, and India’s central bank governor since early 2018, the two are in a stalemate that has lasted all year.

India is WhatsApp’s biggest market by far, with 210m monthly users, and the company has hired Abhijit Bose from Ezetap, a Bangalore-based payments platform, as its new country chief. It is also advertising for a head of policy to ease relations with the incoming governor of the Indian central bank.

During the deadlock, Google has launched its own payments service, and Facebook’s leadership has floated the idea of launching WhatsApp payments in Latin America, particularly in Brazil, the app’s second-largest market.

“I think it’s safe to say it’s pretty important for us to launch payments in India,” said one person close to WhatsApp.

The economic opportunity for mobile payments in India is huge: there are more than 1bn mobile phone users in the country, and the digital payments market, led by mobile, will grow to $1tn by 2023, according to a report by Credit Suisse.

When Prime Minister Narendra Modi removed 86 per cent of India’s cash from circulation in November 2016, Indian mobile wallet company Paytm was one of the big winners. The company added 20m users in just five weeks after the shock announcement.

But just a month later, Mr Modi was urging citizens to use UPI — a groundbreaking payments system that presented a threat to Paytm. Created by the NPCI, a joint venture among Indian banks, the technology dramatically lowered the barriers to entry for payments app developers. It also removed the need for consumers to keep money in a separate virtual wallet, as with Paytm’s main service or with Alipay and WeChat Pay in China. Google was the first big foreign company to jump on the UPI platform, launching its payments app Tez in September 2017. It claims to have amassed 16m users, helping to spur rapid growth in UPI transactions, which reached $2.8bn in February — compared with $534m using Paytm’s virtual wallet and other prepaid instruments. But analysts say WhatsApp will be a bigger threat to Paytm and others entering the payments business.

“Based on my knowledge of the payments system in India over the last 10 years, WhatsApp Pay will be viral,” said Ram Rastogi, an architect of the UPI system in India, and former employee of the NPCI. “Indians want something they are used to, in a language they can read and write in. WhatsApp’s willingness to provide services in 13 major languages in India can play a vital role in taking digitisation of payments even to villages.”

Last month, UPI facilitated 520m transactions, a figure growing by 10 per cent each month. “Within six months of full launch, WhatsApp can easily reach 100m to 150m monthly transactions, which is a similar rate to what Google has seen here,” Mr Rastogi said. The average value of a transaction via UPI is Rs1,000, which could add up to Rs150bn ($2bn) flowing through WhatsApp every month. The company has insisted that it does not have plans to take a cut of transactions from banks, but every bank that connects to WhatsApp via UPI is obliged to pay a flat fee of Rs0.5 to Rs1.5 per transaction for peer-to-peer transactions, according to UPI rules.

“Two-hundred million people with WhatsApp connections means that even one transaction a day will give them Rs100m daily,” Mr Rastogi said. “The other thing is once you do this volume of transactions, you can start analysing transactions. That’s the big opportunity.” FT Archive FT Magazine ‘We don’t take cash’: is this the future of money This trove of payments data could help Facebook and WhatsApp raise the fees they charged to advertisers, analysts said. “If they see who you’re paying, it helps them to target your ads, so it makes you much more valuable to their advertisers,” said David Birch, director of payments consultancy Hyperion, and a digital money analyst. “If WhatsApp can see that you’re paying a gym once a month, that data could be used by Facebook to target you across its other platforms.

Also, if I see you’re spending a lot, I can start targeting you with direct messages from financial services, which makes you more valuable, too.” Companies with large amounts of user transaction data could also start providing lateral services. “They could make basic services like transferring money internationally free overnight, as a way to grow loyalty and access ever more data,” said Mark Tluszcz, chief executive of Mangrove Capital Partners, a venture capital company based in Luxembourg. Over the past year, Facebook has aggressively started to monetise its chat apps, such as Messenger, through ads. It also sells access to its interface to big brands on both Facebook Messenger and WhatsApp, which it acquired for $21.8bn in 2014. In India, WhatsApp is already charging large businesses such as airlines and ecommerce sites a fixed rate of between 0.5 and 9 US cents per message, a premium to SMS, to contact customers through WhatsApp. Although WhatsApp Pay is pitched as a peer-to-peer payments system, more than 80 per cent of small businesses in India and Brazil say they already use WhatsApp to conduct business. Facilitating retail payments via the app is an obvious next step, a source close to WhatsApp acknowledged. “Today, almost 1m people are testing WhatsApp payments in India. The feedback has been very positive, and people enjoy the convenience of sending money as simply and securely as sending messages,” said Anne Yeh from WhatsApp. “We’re working closely with the Indian government, NPCI and multiple banks, including our payment service providers, to . . . support India’s digital economy.”

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