The launch of WhatsApp’s payment service in Brazil made for an intriguing development for a number of reasons, not least because the service was then pulled a week after launch. Ivo Gueorguiev, co-founder and Executive Chairman at Paynetics, ponders over the future of WhatsApp Pay.
Whilst no one foresaw 2020 being the year that it has unfortunately turned out to be, the shift towards digitalisation, especially within the payments industry, shouldn’t be a surprise to anyone. Even before the advent of COVID-19 we were seeing a drive towards e-commerce and digital payments across large parts of the world.
This reflected consumer attitudes that were also changing as customers shunned cash and embraced contactless and mobile payments, for instance. And the pandemic has accelerated this trend as, in the UK alone, cash withdrawals decreased by 60% during lockdown.
A subsequent report from Mastercard has shown that, globally, over recent weeks small businesses have been some of the hardest hit. This is, in part, due to a lack of an online presence, as well as the use of cash declining and 130 million SMEs not able to accept electronic payments.
It’s against this global backdrop that we saw WhatsApp launch its next payment service, this time in Brazil. This made for an intriguing development for a number of reasons, not least because the service was then pulled a week after launch by the country’s national bank, on supposed competition grounds.
We could dismiss WhatsApp’s latest product offering as BigTech’s latest attempt at infiltrating the financial services industry, but before we do we must consider several market and region specific factors which will have informed the move. But these, coupled with the well-reported issues the company has seen with the Indian roll-out of the service, could have also prevented the expansion to other parts of the globe.
Competition issues aside, it would be hard to deny how well suited and fit-for-purpose the Brazilian WhatsApp Pay package is for the country, and perhaps the wider LATAM region too. WhatsApp’s own data tells us that it has 120 million users in Brazil – no small sum in a country of just over 210 million – and you only have to look at its supposed influence on the 2018 election to catch a glimpse of its societal significance. Even before WhatsApp’s latest announcement, 46% of users in Brazil have bought products through the platform.
Figures from McKinsey reveal that as many as 65% of adults in the country do not use formal financial services. Reduced demand has meant that established payments services – many of which are household names in the West – do not have a presence in LATAM. There is a huge opportunity to reach a large chunk of the population, many of whom are not engaging with traditional finance solutions, and enhance e-commerce solutions for merchants all via a platform which is likely to already be on their phone and which is already far ingrained into the cultural narrative.
And there were some important advantages to be had for those that choose to engage with the app in this way, and which are very particular to this region. These would have been driven by things such as the country’s individual tax systems, the high level of remittance – Brazil’s remittance flows are currently valued at $2.5 billion – as well as nuances associated with the Brazilian currency.
Whilst, on the face of things, WhatsApp Pay could have fitted well into the Brazilian market, I see a more viable option for ROW as one where they can provide frictionless payment experiences for WhatsApp users by being embedded into the Facebook marketplace or other channels – Instagram being one example.
Ecommerce is looking like one of the big winners of the current economic crisis; online retail sales globally have already grown by 209% on last year. And so if Facebook takes advantage of this opportunity, albeit in a slightly different guise for a global market, this could be a significant challenge to more established players in the industry.
The fintech community has a responsibility to push the boundaries of our technologies to support consumers and SMEs at this most testing of times. Ecommerce, including wallet solutions and mobile payments, are just a couple of the areas in which I have seen a huge amount of opportunity and innovation arise over the last couple of months.
An example of this kind of evolution, this time in Europe, is the network of interoperable wallets built by phyre and currently used by telecoms companies A1 and Vivacom, which brings together Apple Pay, NFC, QR codes and IBAN transfer payments in one app. Employing and offering a flexible and broad payments menu to customers could be a crucial element to the future success of some businesses.
What we’ve seen happen to WhatsApp Pay in Brazil is a clear example of how establishing a financial services offering might seem like an obvious move for BigTech behemoths such as Apple, Facebook, Google and Rakuten. They command enormous resources and have billions of clients, but their offerings can ultimately be unsuited to the complexities of the sector.
What’s interesting is that this trend, of BigTech making a finance play, is a catalyst for closer collaboration between fintechs and established players in the industry. This way they can bring ‘best in breed’ solutions to market which can compete with the tech giants, but which will have the adequate regulatory and supervisory frameworks in place in order to make them successful, and drive innovation in the sector too.
Looking at the industry as a whole, what is really needed here is a new breed of “regulated fintechs”, to bridge the gap between runaway, disruptive ideas and down to earth, complex, regulatory frameworks. No one can compete against BigTech alone, and so successful responses to their market ambitions require full-blown cooperation.
Ivo Gueorguiev is co-founder and Executive Chairman at Paynetics.
The views and opinions expressed in this Viewpoint article are solely those of the author(s) and does not reflect the views and opinions of Fintech Bulletin.