Podcast | Editor's Pick of the Day - WhatsApp can disrupt payments space

Barely a day goes by without us having to hear something or the other from the world of social media and messaging apps that we have made a part of our collective lived experience.

You wake up in the morning, and even before you’ve brushed your teeth, you know which friend got married and which friend ate mangoes; you’ve been wished a good morning by the uncle you have never seen and the cousin who’s never seen vowels; you’ve consumed “Breaking News” from “news sources” and wondered if the news was broken; you’ve consumed propaganda and misinformation and casually hit forward becoming complicit in the factory of fake news and its success. All this before you have had your morning cup of coffee.

All this on just one app – WhatsApp, that app that your allegedly "not tech savvy, Luddite" parents have come to grips with faster than you can say Mark Zuckerberg. The next time they trouble you about what to do with a remote control, point this out, and recite to them that line they told you when you were a kid - where there is a will, there is a way.

The point is WhatsApp (and to an extent Facebook) have been instrumental in incorporating the older demographic into the world of mobile technology. And now, one can even start making payments on WhatsApp. Potatoes and tomatoes (and flight tickets and television sets) bought using WhatsApp - assimilation complete. And that story is our Editor’s Pick of the Day. My name is Seetal, and you are listening to Moneycontrol.

Paytm, Google’s Tez, the government’s own BHIM app, AEPS, USSD, online wallets like Freecharge, PhonePe, Mobikwik, PayU, Money, Oxigen, Jio Money etc etc – the online wallet space in India is a very crowded one. To add to these, there are those run by the banks themselves — like State Bank Buddy, ICICI Pockets, Citi Master Pass and another by HDFC bank. Entering this field now is one of the country’s favourite apps with over 200 million users – WhatsApp.

Almost one million people in India are "testing" WhatsApp's payments service, and the company is working with the Indian government, NPCI and multiple banks to further expand the feature to more users, a company official said. The Facebook-owned company does not have a launch date yet but industry watchers expect it to be out for general use in the next few weeks.

A WhatsApp spokesperson told PTI, "Today, almost one million people are testing WhatsApp payments in India. The feedback has been very positive, and people enjoy the convenience of sending money as simple and securely as sending messages."

WhatsApp has received permission from NPCI to tie up with banks to facilitate financial transactions via Unified Payments Interface (UPI).

It has not been without naysayers. Paytm founder Vijay Shekhar Sharma had earlier this year alleged that WhatsApp's UPI payment platform has security risks for consumers and is not in compliance with the guidelines.

The Reserve Bank of India has mandated all payment system operators to ensure that data related to payments is stored only in India giving firms six months to comply with it. According to sources, the Ministry of Electronics and IT has asked NPCI to check if WhatsApp's payments service conforms to the RBI rules and data security of customers. They added that NPCI has been asked to check that all compliances are in place before the US-based messaging app is allowed to scale up its services.

WhatsApp had stated that sensitive user data such as the last 6 digits of a debit card and UPI PIN are not stored at all. While it admitted to using the infrastructure of Facebook for the service, it asserted that the parent firm does not use payment information for commercial purpose.

The spokesperson for WhatsApp went on to clarify, "Facebook processes UPI transaction data as a service provider for WhatsApp, and does not use WhatsApp payments transaction data for commercial purposes," Concerns have been growing around security of consumer data on various online social media platforms, especially after the data breach incident at Facebook where data of about 87 million users are harvested illegally by data analytics and political consultancy firm Cambridge Analytica.

WhatsApp, some analysts, believe is well placed to get into the mobile payments system. Going into this rather crowded marketspace, WhatsApp already has a few advantages. The first advantage WhatsApp has is its large user base. As we said earlier, it has over 200 million users. That is 20 times higher than Paytm's daily active users.

Vivek Belgavi, head of financial technology at PwC India said, “WhatsApp has a great starting point: a monopoly in chat. High engagement makes it a credible competition.” This move could introduce millions into mobile payment systems. This move is obviously a culmination of months of beta-testing. WhatsApp has been taking this seriously considering they had even put an advertisement looking for an India Head where the focus was on Payments, as The Indian Express had reported.

Bhakta Kesavachar, CTO and co-founder of Eze Tap, a mobile payments company, elaborated further writing for our sister publication Firstpost said, “First, WhatsApp has incorporated payments in its chat application itself. It’s not upfront telling its users what the virtual payment address (VPA) is. This will have implications in the future, especially, if a non-WhatsApp user wants to raise a collect.

Second, payment space (whether P2P or P2M) can be split into three parts; the owner of the transaction, the processor(s) and the entity which controls the money and its flow. Given this framework, WhatsApp controls only the first; the rest are beyond its control. Then the conformance to NPCI guidelines for the full-scale launch might create friction in the UX significantly affecting adoption.

Further payments have a different social behaviour than exchanging messages, users might not flock to payments in WhatsApp as they have in sending and receiving messages. Moreover, WhatsApp, currently, is primarily a P2P app, to make a significant dent in the P2M space, WhatsApp will have to acquire merchants which is not only a considerable task but a different ball game altogether.

And last, but not the least, mass adoption of UPI and other digital payments are yet to happen, if WhatsApp can address these issues, it might end up disrupting a dynamic market like that of India a second time round.”

Concerns about data privacy still abound of course. Facebook and WhatsApp have had a difficult relationship ever since they joined hands together. The Wall Street Journal reported the goings on before Jan Koum, co-founder of WhatsApp, quit the company. The bone of contention – privacy. The two companies were founded and continue to believe in entirely different business philosophies. The Washington Post reported WhatsApp’s founders “clashed with Facebook over building a mobile payments system on WhatsApp in India.” The NCPI though seems convinced that there are adequate checks and balances in place to prevent any privacy-related disasters from happening.

There is no dearth of competition either. PayTM is among the fastest growing companies in the country. A mammoth spending spree saw Paytm beat rivals like FreeCharge and MobiKwik to become India’s largest digital payments brand. News reports have noted that Paytm raised more than $2 billion and counts the Alibaba Group and the Softbank Group as two of its key investors.

From a valuation of under $200 million before the start of 2015, Paytm has ballooned to $10.2 billion in 2018. That valuation hinged on the assumption that the PayTM juggernaut shall roll on unchallenged, but that is not going to be the case in the wake of WhatsApp payments, a company with deeper pockets and larger user base. But then again, one must bear in mind that PayTM too enjoys a wide brand recognition, has $1.5 billion in cash on hand, and the backing of major investors.

Google Tez has been a favourite of some users, removing the need for a wallet and transacting directly between bank accounts securely. Google Tez recorded 60 million transactions in April this year, and Paytm reported 63 million transactions during the same period. What we have now, therefore, is a showdown among three companies, all of which have brand recognition and backers with the bandwidth and the money to put up a strong fight. The names you may be seeing are WhatsApp, Tez, PayTM, but the Svengalis behind these names are Facebook, Google, Alibaba and Softbank. For a local payment systems war, the fight could not get more global or more gigantic.

What WhatsApp intends to do is not merely threaten the prime position enjoyed by PayTM. Some analysts feel the play here is to be the WeChat of India. China’s WeChat, backed by Tencent, is a social networking app that allows users to do everything from messaging, calling, shopping, payment, and host of other services you can think of in just one app.

Citing another Chinese success story, Kunal Shah, founder and former CEO of FreeCharge, says, “You have to see what happened in China—Alipay was the biggest payments company for years but the market moved towards mobile payments suddenly when WePay came in and became really big, because it was a higher-frequency app.”  He adds, “WhatsApp will lead to a digital payments revolution in India. Not just wallets, even services like NEFT could potentially become irrelevant or less used.”

Payments are merely one aspect of the multiple avenues WhatsApp hopes to enter. NDTV Gadgets reported recently that, “WhatsApp Business is reportedly adding a feature to let businesses offer an online catalogue of their products. While WhatsApp is yet to announce the new development, a screenshot showing the online catalogue feature has emerged online to reveal its existence. It could give a boost to the user base of the business-focused app that already has over three million active users. Last month, it was reported that in addition to the existing Android app, the Facebook-owned team is working on a WhatsApp Business app for iOS to expand its presence. The app is also in the rumours to receive a chat filter feature to help businesses easily find the important messages from their customers.”

The screenshot was leaked by WhatsApp beta tracker WABetaInfo and shows that the WhatsApp Business app will enable businesses to add information such as Title, Description, Link, and SKU of their products in addition to their images. The app is not likely to offer businesses the option to directly sell their products. Having said that, the online catalogue feature will enable them to easily showcase their new products to customers. People from WABetaInfo additionally claim that the catalogue will be visible in the standard WhatsApp as well. WhatsApp Business was launched in January for Android users in six countries, including India, Indonesia, Italy, Mexico, Britain, and the US. Facebook CEO Mark Zuckerberg during the company's Q1 2018 earnings call in April highlighted that the app has surpassed the mark of three million active users.

WhatsApp has also been in the news recently owing to an important judgment heard at the Bombay High Court. Legal notice or messages sent through WhatsApp messaging app are valid legal evidence under law, and the blue tick over the messaging app is a valid proof that the respondent has accepted the physical copies of the communication, said Bombay High Court.

The Bombay High Court, while hearing an application filed by the SBI Cards and Payments Services Pvt Ltd (the claimant) against a resident Rohit Jadhav, observed that the defaulter, who was evading the bank, had not only received the notice in a PDF file but also read its contents. Justice Patel of the High Court noted, “I do so because the icon indicators clearly show that not only were the message and its attachment delivered to the respondent's number, but that both were opened."

So, blue ticks are no longer the dreaded brandmarks of lovelorn youngsters obsessing over why he/she has not responded, but may yet come to be the bane of those running from lenders. Although not all lawyers seem convinced about the judgment. Personally, I do wonder, what about those who have disabled that feature on their phones? What does the law have to say there? As the country goes more digital the arguments we get to hear in court seem more and more like a rant by an obsessed teenager. We, for one, cannot have enough.

What we cannot also have enough, apparently, is fake news propagated by WhatsApp. Abijeet Nath and Nilotpal Das were driving back from a visit to a waterfall in Assam earlier this month when they stopped in a village to ask for directions.

The two men were pulled out of their car and beaten to death by a mob that accused them of stealing children. Source of suspicion? Fake news on WhatsApp. The Guardian notes that the problem is near global.

In Brazil, WhatsApp has been blamed for a yellow fever outbreak after being used to spread anti-vaccine videos and audio messages. In Kenya, WhatsApp group admins have been described as a major source of politically motivated fake news during recent elections.

There are signs that the messaging service is being used as a conduit for misinformation in the UK. How WhatsApp was used in the recent Karnataka elections is all too well known. “WhatsApp Election” was how some of the most prominent publications from around the world described it.

This is, simply put, dangerous. Especially in the wake of a recent report from the University of Oxford’s Reuters Institute which said consumers around the world are reading less news on Facebook and are increasingly turning to WhatsApp – which has 1.5 billion active users worldwide – to share and discuss news stories. Reuters Institute conducted a survey of 74,000 people in 37 markets and has found the world's largest social network Facebook usage drop down 9 percentage points from 2017 in the United States and down 20 points for young users. The study found the average usage of WhatsApp double in four years.

It has gone up to 16 percent as more discussions take place on WhatsApp. WhatsApp discussions are more likely to get about 24 percent of respondents take part in a private discussion about news. Also 16 percent are likely to take part in a group created specifically to discuss a news topic.

The news is not all grim however. Believing in the end-to-end encryption that WhatsApp promises, the report found that use of WhatsApp for news has almost tripled since 2014 and overtaken Twitter in importance in many countries, especially among younger users.

In some countries, such as Malaysia and Turkey, the encryption makes it a far safer place than Facebook for individuals wanting to discuss political issues without attracting the attention of the authorities.

But the belief that the parent company’s founding philosophies will not seep into its most expensive acquisition is one of either great optimism or sheer ignorance. That WhatsApp’s co-founder Koum left the company in apparent disagreement about Facebook’s privacy standards ought to tell us something. And this concern is what clouds the latest foray by WhatsApp into Payments as well.

For a brand that is as prevalent and well-recognised in India as WhatsApp, the challenge here is to get the user to trust it with their money. WhatsApp’s cousin Facebook — recently mired in the data privacy scandal – may prove to be an unsavoury family relation, but this is India, and willful ignorance is part of the country’s DNA. We are told that WhatsApp Payments system is safe. Of course.