Social media giant Facebook has made the first tentative steps towards the digital payment environment with its WhatsApp messaging platform in Brazil.
After months of talks and trials, WhatsApp has finally pulled the trigger on payments in its app. Today the Facebook-owned messaging service announced that users in Brazil would be the first to be able to send and receive money by way of its messaging app, using Facebook Pay, the payments service WhatsApp owner Facebook launched last year.
After months of talks and trials, WhatsApp has finally pulled the trigger on payments in its app. Today the Facebook-owned messaging service announced that users in Brazil would be the first to be able to send and receive money by way of its messaging app, using Facebook Pay, the payments service WhatsApp owner Facebook launched last year.
When Facebook acquired WhatsApp in 2014 for a monstrous $19 billion eyebrows were certainly raised. Not only was this a contraction in the growing OTT segment, which some critics still question today, but others wondered how Mark Zuckerberg and his cronies were ever going to achieve return on investment (ROI) for a platform which hadn’t made any money.
While some of the efforts to commercialise the messaging service have been quashed, privacy concerns blocked merging WhatsApp datasets with the core Facebook platform, there have been some successes. Businesses pay to respond to customer messages after a 24-hour period and there are advertising products in play, but the promise of WhatsApp over the last few years has been in digital payments.
“Today we’re starting to launch payments for people using WhatsApp in Brazil,” Facebook CEO Mark Zuckerberg said. “We’re making sending and receiving money as easy as sharing photos. We’re also enabling small businesses to make sales right within WhatsApp.”
The details of this digital payments model will become clearer as the days turn into weeks and months, but this is a very useful route for the team to take. Firstly, digital payments are becoming increasingly popular in all markets around the world, and secondly, this is a business model which has incredible potential in the regions which lack ubiquitous, traditional banking infrastructure.
According to Mckinsey, 77% of people used one or more types of mobile payments in 2019, with 91% of millennials, 80% of Generation X and 64% of Baby Boomers making use of the technology. This is not a fad and a clear indication of where society is heading as the influence of convenience takes hold.
Looking at the leading technologies in the marketplace, the most popular method of digital payments in-app is PayPal (58%), in-store is ApplePay (40%), online is PayPal (41%) and PayPal also takes the crown for peer-to-peer payments (72%).
The consumer is embracing the digital payments shift, though the technologies in play are largely popular because they are there. In these embryonic days, there is an opportunity to innovate and steal market share.
The second element of this equation worth considering is the potential for digital payments the developing markets, where traditional banking infrastructure is not ubiquitous. M-Pesa in Africa has demonstrated that in this void a digital alternative reliant on telecoms infrastructure can thrive and empower business.
And aside from these supporting trends, perhaps one of the most encouraging elements of this story is the install base. WhatsApp has more than 2 billion users already. Most new ideas struggle because they don’t have a userbase to engage, they have to convince the consumer to download or purchase an application. WhatsApp already has an engaged userbase, it is a case of pushing new functionality out; it is a completely different dynamic.
Ultimately this is an idea which leans on then the success of WeChat. What started off as a Chinese messaging service has evolved to become a social media platform, digital payments app and entertainment ecosystem. If Facebook could replicate even a fraction of the WeChat success in WhatsApp, the team could be onto a winner.
What is worth noting is this could be deemed a trial run for the technology, an opportunity to iron out the creases before launching into a more lucrative space. Let’s not forget, Facebook has recently purchased a 9.9% stake in Jio Platforms, the disruptive force democratising connectivity in India, and has already promised to deliver a digital payments platform for Indian SMEs.
WhatsApp says in its blog post that the payments service — which currently is free for consumers to use (that is, no commission fee taken) but businesses pay a 3.99% processing fee to receive payments — will work by way of a six-digit PIN or fingerprint to complete transactions.
You use it by linking up your WhatsApp account to your Visa or Mastercard credit or debit card, with initial local partners including Banco do Brasil, Nubank and Sicredi. Cielo, a payments processor, is also working with WhatsApp to complete transactions. “We have built an open model to welcome more partners in the future,” it noted.
The news comes as bit of a surprise. WhatsApp had been testing its payments service among users in India for months (that trial uses another system, not Facebook Pay but UPI), so many assumed that the world’s second largest internet market would be the debut region for the service.
But Facebook remains stuck in a regulatory maze in India that has prevented it from expanding the payments service beyond a small, limited launch, in what is otherwise the app’s biggest market in terms of users. India has 400 million monthly active users, while second-largest market Brazil has 120 million MAUs.
(And indeed, it would have an interesting position there because of that size: While there are a number of other digital payments services, including Google Pay and Paytm, there are no clear, large and popular competitors offering payments within a messaging app in the country.)
And that, in turn, gives WhatsApp and Facebook another shot at building a revenue stream based on its vast scale, one which does not turn the app over to monetising its users through ads and the data that is amassed around them — the primary business model today behind Facebook and Instagram, another major app in the Facebook stable.
“Payments on WhatsApp are beginning to roll out to people across Brazil beginning today and we look forward to bringing it to everyone as we go forward,” the company said.
Users in Brazil will be able to use the payments service on WhatsApp to make purchases from local businesses without leaving their chat, the Facebook-owned service said.
“The over 10 million small and micro businesses are the heartbeat of Brazil’s communities. It’s become second nature to send a zap to a business to get questions answered. Now in addition to viewing a store’s catalog, customers will be able to send payments for products as well,” the company wrote in a blog post.
Although WhatsApp has in theory been working on payments for years; from what we understand, there were a lot of delays in part due to how and where Facebook wanted WhatsApp to implement it. Now that it’s launching with Facebook Pay, it seems that we know how that struggle landed.
As for subsequent regions for launching the service, it’s not clear whether Facebook will be open to working with other kinds of payment methods, or even other payment rails beyond Facebook Pay, or what kinds of use cases it will pursue for the service — although the trial in India, using UPI, implies that it won’t just be a one-size-fits-all approach.
These remain critical questions, considering that payment cards and even bank accounts are not necessarily the norm in every market, especially emerging markets; and that other kinds of transactions such as remittances — where people transfer money to friends, family and businesses that are often far away — are some of the more popular uses of phones beyond simple calls and texts. (And as we’ve been saying for years, the link between messaging and remittances is a big one: messaging apps are where people carry out their relationships and communication, so they are a natural place to stay to send money.) The examples of payments in Brazil indicate that remittances are very much on Facebook’s radar, so we’ll see how and where it actually gets used.
A WhatsApp spokesperson declined to say more when asked for more specific details about future plans beyond Facebook CEO Mark Zuckerberg’s “More to come soon!”, from his own announcement. But given the link with Facebook Pay, one obvious guess might be that we’ll see payments rolled out in WhatsApp in markets where the former service is now live, which include the U.S. and U.K.
“We’re continuing to roll out Facebook Pay on Facebook to more countries outside the U.S. for existing payment experiences, which vary by country and may include experiences such as in-game purchases and fundraisers where already available,” a Facebook spokesperson said. “As we’ve said previously, our goal is to bring Facebook Pay to more people and places over time.”
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