NEW DELHI: It changed the Indian messaging landscape in the mid-2010. Seven years and 200 million users later, can WhatsApp play a disruptor again - this time in India's hectic digital-payments space?
The San Francisco, California-based company owned by Facebook joins other global heavyweights such as Google, Amazon, Uber, Samsung, and Truecaller that offer Unified Payments Interface (UPI)-based payments in India. It will also take on home-grown players such as Paytm, PhonePe, MobiKwik, FreeCharge, and the government-backed BHIM.
Venture capitalists expect India's payments industry - buoyed by government-driven digitisation - to produce at least a few rocket ships. To date, VC funds have put in over $2 billion in digital-payments companies, with top cat Paytm alone garnering $1.9 billion from SoftBank, Alibaba and SAIF Partners. Next in line is Mobikwik, which bagged $115 million from Sequoia Capital, Cisco Investments, and Bajaj Finance. PhonePe, owned by Flipkart, India's largest e-commerce company, has so far secured $75 million with a further investment commitment $500 million, while FreeCharge was acquired by Axis Bank for $60 million last year.
In sheer disruption potential, WhatsApp's entry could top it all.
For one, it could be a shot in the arm for the creator of the BHIM app, the National Payments Corporation of India (NPCI): WhatsApp's massive user base could give the biggest fillip yet to the adoption of UPI - the government's flagship, real-time digital-payment system.
Then there's WhatsApp's stranglehold over Indians' mobile screens and, increasingly, lifestyles. According to Mary Meeker's 2017 Internet Trends Report, it is the most downloaded Android app in India.
Does this clout mean WhatsApp is guaranteed to conquer the payments business in India by merely entering it? Tempting as it is, believing that could be as hazardous as blindly accepting one of those ubiquitous WhatsApp "forwards".
The India puzzle
WhatsApp's first challenge will be a cocktail of uniquely Indian factors: the dispersed nature of Indian electronic payments methods, the heterogeneity of the Indian consumer market, and the resilience of Indian entrepreneurs.
For starters, in India, an overwhelming share of big-ticket business-to-business online transactions flow through three systems: Real Time Gross Settlements System (RTGS), National Electronic Funds Transfer (NEFT), and Cheque Truncation System (CTS). These three tools accounted for 98% of the Rs 131,95230 crore worth of transactions that went through India's electronic payments system in January 2018.
In the same month, the total amount transferred through UPI stood at a fraction of this: Rs 15,540 crore.
The upshot: Even if WhatsApp does win the UPI market, it will not even be a rounding error in the larger Indian-payments landscape.
Today, a majority of the UPI transactions are peer-to-peer (P2P). Be it Google Tez, Paytm, PhonePe, or BHIM, cashbacks and incentives are fueling peer-to-peer transaction. The numbers claimed by these players notwithstanding, peer-to-peer transactions are unlikely to help them make money. The much bigger, much harder task before them is making UPI the go-to choice for merchant transactions, starting with changing the way India's burgeoning small businesses look at payments. (Traditionally, large businesses are resistant to such behavioural changes.)
That's where the real pot of gold lies, and to win here, WhatsApp might have to look to a country where it is banned.
Can WhatsApp look at the WeChat playbook?
WhatsApp's payments strategy finds parallels with Tencent's approach with WeChat in China. WeChat, which started as a messaging app, monetised the platform through online payments, commerce, games, and more.
Vivek Belgavi, Fintech Lead, PwC India, says, "The good part is WhatsApp already has a large footprint for its core application, and its closest comparison would be WeChat in China. WeChat made payments part of social communication and achieved tremendous success."
On the condition of anonymity, the founder of a Mumbai-based payments firm, says, "WeChat was a chat app, and when it launched payments in 2014, Alibaba's Alipay had a market share of 74%. But now WeChat holds a market share of 45% in payments. This clearly shows how the app changed the market dynamics for existing players."
India, of course, is not China. Consumers here might prefer different kinds of instruments for different kinds of transactions. Paytm may still be preferred for ride-hailing apps or food delivery, or small-ticket transactions on the go. A merchant may remain loyal to Paytm as the payment is guaranteed and time to close the transaction is close to zero, making the experience frictionless. Closing a taxi ride at a busy airport via UPI may well mean death by a hundred honks.
Merchant relationships hold the key
"Payments is no longer a technology challenge as it was five years ago, it's more of an acceptance challenge," says Sanchit Vir Gogia, founder and CEO, Greyhound Research.
Much of that owes to one company: Paytm. The company, which claims 100 million downloads on Android, says it has a user base of 280 million. It also boasts of widespread merchant acceptance, with over 5 million of them, both online and offline, on its network.
Besides the wallet play, Paytm also announced its support for UPI in November 2017. COO Kiran Vasireddy recently said, "Paytm already has captured between 15% and 20% of the total share of UPI transactions, and within the next two to three months it will have a leadership position in UPI as well."
Google Tez and PhonePe have also started getting merchants on their platforms. Tez says more than 5,00,000 self-declared merchants use it for small-value payments. The app has also partnered with 70 billers for utility bill payments.
On the other hand, PhonePe has so far integrated over 60,000 online and offline merchants on its platform and is aggressively reaching out to more. There is also the possibility that India's largest e-commerce player Flipkart can make PhonePe the default, if not the only, payment app on its marketplace.
While the total number of business users on WhatsApp is not known, in an earlier interview with the Economic Times, the company claimed that "over 84% of small businesses who use Whatsapp in India think that it helps them communicate with their customers, and 80% of them think that it helps them grow their business".
"Whatsapp has all the advantage to swing the numbers and lead the surge in peer-to-merchant payments," says Gogia of Greyhound Research. "Having said that, WhatsApp's biggest challenge will be Paytm for a while because Paytm's acceptance has come over time and it has the right feet on the street. Whatsapp may have already won the major battle of achieving that critical mass, but it lacks feet on the street which is required in a country like India," he adds.
(Neeraj Arora, Vice-President at WhatsApp, also sits on the Paytm board. Paytm and WhatsApp did not respond to detailed queries seeking comments on potential conflict of interest, among other issues.)
Belgavi of PwC echoes the sentiment. "A few things are yet to be tested on WhatsApp Payments. [For instance,] how much on-the-ground activation and support they would be able to offer. If they just leave it for organic growth and adoption, then people will go for the lowest-hanging fruit, that is P2P payments."
But for merchant payments, organic growth is difficult, says Belgavi. "The biggest example is BHIM. It has got a merchant option where merchants can download it, register it, print the QR code and he is good to go...but BHIM has not seen much success."
"In emerging markets one has to establish merchant relationship, one has to propose, one has to manage. Whether WhatsApp will be doing any of these things themselves or through partnerships is yet to be seen," Belgavi points out.
The battle for all players then is to really make the peer-to-merchant transactions efficient. Anything else is just an ephemeral skirmish. Like an argument on a WhatsApp Group.
The San Francisco, California-based company owned by Facebook joins other global heavyweights such as Google, Amazon, Uber, Samsung, and Truecaller that offer Unified Payments Interface (UPI)-based payments in India. It will also take on home-grown players such as Paytm, PhonePe, MobiKwik, FreeCharge, and the government-backed BHIM.
Venture capitalists expect India's payments industry - buoyed by government-driven digitisation - to produce at least a few rocket ships. To date, VC funds have put in over $2 billion in digital-payments companies, with top cat Paytm alone garnering $1.9 billion from SoftBank, Alibaba and SAIF Partners. Next in line is Mobikwik, which bagged $115 million from Sequoia Capital, Cisco Investments, and Bajaj Finance. PhonePe, owned by Flipkart, India's largest e-commerce company, has so far secured $75 million with a further investment commitment $500 million, while FreeCharge was acquired by Axis Bank for $60 million last year.
In sheer disruption potential, WhatsApp's entry could top it all.
For one, it could be a shot in the arm for the creator of the BHIM app, the National Payments Corporation of India (NPCI): WhatsApp's massive user base could give the biggest fillip yet to the adoption of UPI - the government's flagship, real-time digital-payment system.
Then there's WhatsApp's stranglehold over Indians' mobile screens and, increasingly, lifestyles. According to Mary Meeker's 2017 Internet Trends Report, it is the most downloaded Android app in India.
Does this clout mean WhatsApp is guaranteed to conquer the payments business in India by merely entering it? Tempting as it is, believing that could be as hazardous as blindly accepting one of those ubiquitous WhatsApp "forwards".
The India puzzle
WhatsApp's first challenge will be a cocktail of uniquely Indian factors: the dispersed nature of Indian electronic payments methods, the heterogeneity of the Indian consumer market, and the resilience of Indian entrepreneurs.
For starters, in India, an overwhelming share of big-ticket business-to-business online transactions flow through three systems: Real Time Gross Settlements System (RTGS), National Electronic Funds Transfer (NEFT), and Cheque Truncation System (CTS). These three tools accounted for 98% of the Rs 131,95230 crore worth of transactions that went through India's electronic payments system in January 2018.
In the same month, the total amount transferred through UPI stood at a fraction of this: Rs 15,540 crore.
The upshot: Even if WhatsApp does win the UPI market, it will not even be a rounding error in the larger Indian-payments landscape.
Today, a majority of the UPI transactions are peer-to-peer (P2P). Be it Google Tez, Paytm, PhonePe, or BHIM, cashbacks and incentives are fueling peer-to-peer transaction. The numbers claimed by these players notwithstanding, peer-to-peer transactions are unlikely to help them make money. The much bigger, much harder task before them is making UPI the go-to choice for merchant transactions, starting with changing the way India's burgeoning small businesses look at payments. (Traditionally, large businesses are resistant to such behavioural changes.)
That's where the real pot of gold lies, and to win here, WhatsApp might have to look to a country where it is banned.
Can WhatsApp look at the WeChat playbook?
WhatsApp's payments strategy finds parallels with Tencent's approach with WeChat in China. WeChat, which started as a messaging app, monetised the platform through online payments, commerce, games, and more.
Vivek Belgavi, Fintech Lead, PwC India, says, "The good part is WhatsApp already has a large footprint for its core application, and its closest comparison would be WeChat in China. WeChat made payments part of social communication and achieved tremendous success."
On the condition of anonymity, the founder of a Mumbai-based payments firm, says, "WeChat was a chat app, and when it launched payments in 2014, Alibaba's Alipay had a market share of 74%. But now WeChat holds a market share of 45% in payments. This clearly shows how the app changed the market dynamics for existing players."
India, of course, is not China. Consumers here might prefer different kinds of instruments for different kinds of transactions. Paytm may still be preferred for ride-hailing apps or food delivery, or small-ticket transactions on the go. A merchant may remain loyal to Paytm as the payment is guaranteed and time to close the transaction is close to zero, making the experience frictionless. Closing a taxi ride at a busy airport via UPI may well mean death by a hundred honks.
Merchant relationships hold the key
"Payments is no longer a technology challenge as it was five years ago, it's more of an acceptance challenge," says Sanchit Vir Gogia, founder and CEO, Greyhound Research.
Much of that owes to one company: Paytm. The company, which claims 100 million downloads on Android, says it has a user base of 280 million. It also boasts of widespread merchant acceptance, with over 5 million of them, both online and offline, on its network.
Besides the wallet play, Paytm also announced its support for UPI in November 2017. COO Kiran Vasireddy recently said, "Paytm already has captured between 15% and 20% of the total share of UPI transactions, and within the next two to three months it will have a leadership position in UPI as well."
Google Tez and PhonePe have also started getting merchants on their platforms. Tez says more than 5,00,000 self-declared merchants use it for small-value payments. The app has also partnered with 70 billers for utility bill payments.
On the other hand, PhonePe has so far integrated over 60,000 online and offline merchants on its platform and is aggressively reaching out to more. There is also the possibility that India's largest e-commerce player Flipkart can make PhonePe the default, if not the only, payment app on its marketplace.
While the total number of business users on WhatsApp is not known, in an earlier interview with the Economic Times, the company claimed that "over 84% of small businesses who use Whatsapp in India think that it helps them communicate with their customers, and 80% of them think that it helps them grow their business".
"Whatsapp has all the advantage to swing the numbers and lead the surge in peer-to-merchant payments," says Gogia of Greyhound Research. "Having said that, WhatsApp's biggest challenge will be Paytm for a while because Paytm's acceptance has come over time and it has the right feet on the street. Whatsapp may have already won the major battle of achieving that critical mass, but it lacks feet on the street which is required in a country like India," he adds.
(Neeraj Arora, Vice-President at WhatsApp, also sits on the Paytm board. Paytm and WhatsApp did not respond to detailed queries seeking comments on potential conflict of interest, among other issues.)
Belgavi of PwC echoes the sentiment. "A few things are yet to be tested on WhatsApp Payments. [For instance,] how much on-the-ground activation and support they would be able to offer. If they just leave it for organic growth and adoption, then people will go for the lowest-hanging fruit, that is P2P payments."
But for merchant payments, organic growth is difficult, says Belgavi. "The biggest example is BHIM. It has got a merchant option where merchants can download it, register it, print the QR code and he is good to go...but BHIM has not seen much success."
"In emerging markets one has to establish merchant relationship, one has to propose, one has to manage. Whether WhatsApp will be doing any of these things themselves or through partnerships is yet to be seen," Belgavi points out.
The battle for all players then is to really make the peer-to-merchant transactions efficient. Anything else is just an ephemeral skirmish. Like an argument on a WhatsApp Group.
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