WhatsApp in-chat payments feature is bad news for digital wallets, payment companies in India

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By Jayadevan PK

 

Instant messenger WhatsApp is readying an intuitive in-chat payments feature, ahead of a likely December launch in India, that promises to make customer onboarding a cinch. It could be the biggest threat that players in the Indian digital payments ecosystem have faced to date.

This will be the first time that WhatsApp is introducing the payments feature anywhere in the world.

The feature is in its final stages and WhatsApp employees are testing it out, according to a person with knowledge of the plan. “They are likely to do some sort of an extended beta program for the feature in November and by December you can expect a full rollout,” the person said, asking to stay anonymous.

The Facebook-owned company has partnered with three banks – State Bank of India, ICICI Bank and HDFC Bank, three of India’s biggest banks, to launch the feature, FactorDaily has also learned.

The uniqueness of the WhatsApp payments feature is that a user can make payments without leaving the chat interface just like sharing a contact or location on the instant messenger. According to the person quoted earlier, who has worked closely with WhatsApp, a window with a Rupee symbol will pop up alongside buttons that allow users to share a location or a contact when a user clicks on the attach symbol in the chat window.

On clicking the Rupee button, the user can either send or request money. The user can input the amount to be paid and personal identification number before hitting send. On the other end, the receiver will get a notification, similar to the one when you receive a contact. There is an option to accept or reject the request.

In April, The Ken had reported that WhatsApp was working on the feature and is likely to roll that out in the next 6 months. A Twitter user, Raj S, on Saturday tweeted: “Just saw a couple of WhatsApp #UPI screens; payments players should start shitting bricks right now. No, seriously.”

Based on our conversation with sources, we have constructed how the WhatsApp payments interface is likely to work. This has not been confirmed by WhatsApp. The company had not responded to a request for comment at the time of publishing.

(Artist’s impression of one of the UIs WhatsApp is experimenting with. A final call will be made in the next few weeks.)

Near zero cost of customer acquisition

WhatsApp’s entry into the space threatens digital wallet companies, as the instant messenger counts over 200 million users in India, the largest user base it has in the world. The WhatsApp experience is slick and convenient to make payments, as per users who have seen the feature.

This is the first time WhatsApp is launching a feature like this anywhere in the world. What makes it easy for the company is that India has built a payments stack called unified payments interface, which makes it easy for others to integrate with the banks.

“The market is absolutely ripe for a WeChat like play,” points out Jasminder Gulati, the co-founder of Nowfloats. His company helps small and medium businesses build a presence online. Small and medium business across India use WhatsApp extensively to do business. Consulting firm Zinnov estimates that nearly 2 million women sell products using WhatsApp and Facebook, totalling sales of $8-9 billion. This is projected to grow to $48-60 billion by 2022, Zinnov said.

To understand why this is so powerful, one should look at WeChat, the Chinese messaging app company owned by Tencent. The app has over 938 million monthly active users and is the dominant messaging app in China. Its in-app payment feature, WeChat Pay, has quickly become popular in China.

In the first quarter of 2017, WeChat Pay had nearly 40% market share in China while Alipay had about 54% share, according to research firm Analysys. In 2014, Alipay had 80% market share. China’s mobile payments sector is estimated to be about $5.5 trillion in size.

“Most viral chat offerings with payments have taken off. This is because it’s a very natural action following chat,” says Pratyush Prasanna, the managing director at Poynt India, a company which sells point of sale terminals. Users also don’t have to install another app to make payments, he points out.

Pay + Business: A double whammy?

In India, wallets such as Paytm and PhonePe also facilitate business to business transactions such as bill payments and so on. FactorDaily had reported that WhatsApp for Business is being rolled out with merchants such as BookMyShow, Ola, Oyo and airlines companies. But, as of now, we don’t know if WhatsApp will integrate its payment feature with WhatsApp for Business.

While we don’t know how much appetite WhatsApp has to play in the payments space, it may end up being a threat to Paytm, if it decides to follow a WeChat model. More so with recent Reserve Bank of India (RBI) guidelines on prepaid payment instruments that make UPI apps, mobile wallets and bank accounts interoperable.

A mobile wallet company sought to downplay the impact the WhatsApp payments feature would have, saying the Indian payments ecosystem was moving to a completely free market with UPI and the new RBI fiat. “The new rules will make wallets interoperable and money can be transferred from one mobile wallet to the other and to another bank account as well,” a senior executive at a mobile wallet said, asking his and his company’s name not be taken.

WhatsApp’s payments effort in India is being led by Neeraj Arora, its global business head. He’s also on the board of One97 Communications Limited, the company that owns Paytm.

A timeline of major moves in India's fintech space.

A timeline of major moves in India’s fintech space. Source: CB Insights

Payments over UPI have been growing at a fast clip. As per data from the National Payments Corporation of India, 30.8 million transactions worth Rs 5290 crore were carried out over the UPI platform in September 2017, that’s nearly 100 times the number of transactions in November 2016.

With the payments interface, India has become a sort of ground zero for digital payments innovation. Companies like Google, Amazon, and Uber are getting in on the action alongside players like PhonePe, Paytm and MobiKwik.