As India rolls out a stricter digital payment policy, it seems the US-based Amazon and Facebook-owned WhatsApp will have to wait a little longer before they can launch their payment service in India. The Indian government wants digital payment companies to store user data in the country and to have an office and a local team.
The Ministry of Electronics and IT (MeitY) in a statement issued earlier this month, said WhatsApp can’t launch its payment service in India unless it sets up an office and recruits a local team in the country. Media reports say WhatsApp’s team led by its chief operating officer Matt Idema met government officials and was told to set up a physical office in India before rolling out its new payment service.
While Amazon Pay India started its service in July last year, WhatsApp has been silently beta testing its payment service in the country since six months on a select 1 million users. Even though WhatsApp has removed the ‘beta’ tag from its payment service, it’s unlikely the messaging platform can launch the payment platform in India any time soon. The Instant Messaging platform has already partnered with multiple Indian banks, the latest being Axis Bank and HDFC, to facilitate funds transfer.
Amazon Pay India and WhatsApp Pay both use Unified Payment Interface (UPI) to enable inter-bank fund transfer. UPI is a virtual ID that allows users to directly send and receive money through their bank accounts without using electronic wallets.
WhatsApp has been slow in rolling out the payment feature on its messaging app, as it had to deal with regulatory issues on several fronts. Before adding banks on its platform, Whatsapp had to take permission from the Reserve Bank of India (RBI), the country’s apex bank. In April, RBI ordered payment companies to store data in India and gave six months' time to comply with it. However, according to Reuters, the Finance Ministry in June recommended relaxing the RBI ruling. “Mirroring of data in India along with the country where the data is being currently stored could be a possible solution,” the ministry said in a note to the RBI.
Once WhatsApp Pay formally launches in India for its 200 million users, Paytm, that claims to have 300 million users, will be its biggest competitor. In November last year, as the rumours of WhatsApp’s payment plan surfaced, Paytm launched its own chat feature inside its payment app. Paytm spokesperson declined to comment on the number of users it has on its chat platform.
After the over-night demonetisation of Indian currency in late 2016, Paytm and other digital payment companies benefited from the sudden lack of currency in the market. Riding on the back of nearly USD 2 million raised from China-based Alibaba and Japanese VC firm SoftBank, Paytm was swift to capitalise on the need for digital payment as an alternative to cash. It brought small merchants on board making it easier for them to receive payments from users for their purchases.
Since then the Indian government is pushing for digital payments as well. In partnership with National Payment Corporation of India, it launched its own payment app BHIM in December 2016, thereby making all wallet-based payment companies redundant.
Neil Shah, partner and research director at Counterpoint Research, said, “WhatsApp of course has a greater share of the pie in terms of app usage on the phone, so adding commerce capabilities to the same adds further stickiness. This makes Paytm redundant and which therefore threatens its existence.”
The news of WhatsApp Pay beta testing its product on one million users in India has sent jitters among other Indian payment companies, especially Paytm. Vijay Shekhar Sharma, founder of Paytm, took to Twitter to denounce WhatsApp Pay. Sharma tweeted, “After failing to win war against India’s open Internet with cheap tricks of free basics, Facebook is again in play. Killing beautiful open UPI system with its custom close garden implementation.”
According to Sanjay Swamy, managing partner at Prime Ventures, WhatsApp payments cannot be stopped from entering India. "As a lot of people are already using WhatsApp, many will automatically have access to digital payments, which I believe will be good for the industry. Sure, it will create disruption, but it will not be the only option available to the consumers,” Swamy said.
Using the open source UPI system, deep pocket US-based companies such as Google Tez, Amazon Pay India and now WhatsApp Pay would benefit from India’s "digital first" approach and eat into the market share of existing players like Paytm, Freecharge and Mobikwik. According to a report by Credit Suisse, digital payments in India would grow five-fold from current USD 200 billion to USD 1 trillion by 2023.
“No lobby is going to help here, as WhatsApp payments will definitely come to India. Also, there is a low chance that the Indian government will go against WhatsApp payments, because it’s a foreign company. Paytm is also backed by Chinese Alibaba, so this assumption doesn’t make sense,” said Rajat Deshpande, founder, Finbox.