The National Payments Corporation of India (NPCI) has green lit WhatsApp Pay’s launch in India through a graded manner, with user registration restricted to 20 million at present, NPCI said in a press release on Thursday. WhatsApp Pay is a UPI-based payments service by the end-to-end encrypted platform in India. The service has been in a beta-testing phase for two years now, restricted to only 1 million users, as regulators were awaiting the company’s compliance with data localisation norms introduced by the Reserve Bank of India in April 2018.

In a blog post on Friday, WhatsApp said that the UPI payment service on the messaging app is supported by ICICI Bank, HDFC Bank, Axis Bank, the State Bank of India and Jio Payments Bank. “In the long run, we believe the combination of WhatsApp and UPI’s unique architecture can help local organizations address some of the key challenges of our time, including increasing rural participation in the digital economy and delivering financial services to those who have never had access before,” the company said.

WhatsApp’s dominance in India

India is WhatsApp’s largest market with over 400 million users and 15 million small businesses using the messaging platform to connect with their customers. One of the reasons why its launch has been restricted by the NPCI to 20 million users is the potential for dominance the platform can have in UPI ecosystem.

While UPI is dominated by two players — Google Pay and PhonePe — that have market share close to 80%, if WhatsApp were to roll out its UPI service to even half of its user base it would create a huge load on the banking infrastructure that supports third-party UPI players, said a senior payments industry expert aware of WhatsApp Pay’s operations in India. “In the last four months, UPI transaction volumes have grown by 100% and this has been creating transaction failures across banks because their systems cannot keep up with the demand. While the banks are working on upgrading their systems, the banks and NPCI will have to monitor the transaction load carefully that comes from WhatsApp even for the 20 million users. Based on this assessment, WhatsApp will be allowed to gradually scale-up over time,” the expert said on the condition of anonymity.

At the same time that NPCI gave its nod to WhatsApp Pay’s launch, it introduced a market share cap of 30% on UPI players beginning from January 1, 2021, ostensibly to ensure that WhatsApp’s UPI service does not crowd out other players in the UPI ecosystem and so that the dominance of other players on the payments platform does not lead to systemic-risks.

According to Deepak Abbott, a payments industry veteran and co-founder of indiagold, existing UPI players are going to continue to push harder on customer and merchant acquisition but with WhatsApp if we assume that 40 to 70 million of its users start using its UPI service by default, it will capture a 25-30% market share over time “For WhatsApp, commerce is the final frontier for which payments is critical as it becomes the common thread between all commercial services. Today, many small business apps are leveraging WhatsApp to reach out to customers and provide product catalogues. So WhatsApp is banking on payments, which will be a cost centre, to enable seamless commerce from selling insurance, groceries and food and a alot of other goods and services which will be a revenue centre going forward,” he said.

Focus on small businesses, financial services

In a video statement, Facebook’s chief executive officer Mark Zuckerberg said that the company has been working with NPCI over the last two years on the UPI service. “With UPI, India has created something truly special and is opening up a world of opportunities for micro and small businesses that are the backbone of the Indian economy. India is the first country to do anything like this,” he said.

In a presentation at the Global Fintech Fest back in July this year, WhatsApp’s India head Abhijit Bose said that the company plans to foray into financial services in the coming years and is launching pilot programs to deliver insurance, microcredit and pension products to “help low wage workers in the unorganised, informal economy” to easily access the three products. Through these pilot projects, WhatsApp is hoping that consumers will build financial assets, history of regular savings, and digital footprint, thereby making it easier for smaller businesses to borrow money, Bose had said.

Bose explained that as small businesses start building their digital footprint with the ability to sell and collect payments over apps, the working capital and credit market for both consumers and micro-small-medium enterprises can open up. “Lending to the digitised and qualified is super easy, but lending to those that are not digitised nor have a history is very hard. If this jump is to happen it will have to built through the data in the hands of our most stable and best banks,” he said.

“If we can get the fly wheel moving, more digital profiles to be created at banks which would lead to larger and smarter lending, which would lead to increased MSME growth, which would lead to increased consumption and richer profiles. There is obviously an opportunity to create significant economic and social impact. WhatsApp will begin working with banking and non-bank financial company partners to test and validate these hypotheses.” — Abhijit Bose, WhatsApp’s India head

WhatsApp has already begun working with Reliance Retail Ventures Limited to push JioMart, Reliance’s small business commerce platform, onto the messaging platform. At the time of Facebook’s investment for $5.7 billion (₹43,574 crore) in Jio Platforms Limited, Mark Zuckerberg had said that the aim of the partnership is to “enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience.”

“India has more than 60 million small businesses and millions of people rely on them for jobs. With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses. This is something we can help with — and that’s why we’re partnering with Jio to help people and businesses in India create new opportunities.” — Mark Zuckerberg, CEO, Facebook.

Why WhatsApp Pay was delayed

WhatsApp Pay’s pilot program in India was launched over two years ago, however the rollout of the service was delayed as the RBI directed the NPCI to restrict the full-scale launch as the platform did not comply with data localisation norms. The messaging platform owned by Facebook Inc. has also been facing legal challenges for the past few years.

In the first case, the Delhi-based think-tank Centre for Accountability and Systemic Change had filed a petition back in July 2018 about WhatsApp’s failure to comply with Indian laws, including data localisation norms. Thereafter, another petition was filed in the Supreme Court by G2 Chambers, a think-tank G2 Chambers, which called for a stop to the pilot program as WhatsApp “has been known to have failed to secure sensitive data of its users” and has also “failed to assume accountability and responsibility for the same”.

In August this year, the Competition Commission of India dismissed a petition filed against WhatsApp which alleged that the company was abusing its dominant position in messaging to enter and expand into India’s UPI payments market.

However, in February this year, WhatsApp received a licence from the NPCI to roll out its UPI payments platform in a limited manner to 10 million users in the country. The NPCI had permitted the company and its banking partner, ICICI Bank, to roll-out the UPI service from June 5, 2020 onward since the platform had complied with the data localisation requirements, the RBI said in an affidavit filed in the Supreme Court.

Read more: