WhatsApp means Business, joins payments companies in race for revenue

Even as Paytm, PhonePe and Amazon Pay collectively lost $1 billion in FY19, WhatsApp has come up with Business, its first revenue-making initiative in India

Aishwarya Sharma, a finance professional and frequent flier, had to pull out tickets from her email app every time she was at the airport: slightly bugging when you are in a rush. Now she gets tickets on WhatsApp. “It is much easier to find it in WhatsApp than to look through hundreds of emails,” said Sharma, who books her tickets on Ixigo, an AI-based travel e-commerce website.
 
Ixigo uses WhatsApp Business, a feature that allows business to interact with customers over WhatsApp chat. The Facebook-owned messaging giant started the service in 2018, and its adoption has gone up particularly in the lockdown to contain the spread of the coronavirus.

 
Café chain Chaayos, for instance, uses WhatsApp Business for contactless ordering at its stores. Users message on Chaayos's WhatsApp number, receive menus and order. Certain accounts even get a special ‘shopping’ button, at top right of the app, to access catalogs.
 

WhatsApp Business is perhaps the messaging platform's first revenue-making initiative and part of its strategy to get a foothold in Indian e-commerce. WhatsApp said about 175 million people globally interact with at least one Business account daily, without giving a figure for companies that use the service.
 
Gatekeeper of e-commerce
 
“WhatsApp will not directly get into e-commerce, (but) it will allow its platform to be used by Jio Mart to create an e-commerce play,” said Rajesh Sawhney, founder of GSF Accelerator and an angel investor. “That way it will become a distribution platform for Jio Mart, and potentially for other retailers as well.” Facebook invested Rs 43,574 crore in Jio in April.

 
WhatsApp will become a gatekeeper of sorts for e-commerce, according to experts. If all kirana stores come on WhatsApp, through Jio, customers may find it easier to simply browse and order over WhatsApp. On the other hand, kirana and other business owners will find it hard to ignore WhatsApp simply because everyone uses it.
 
WhatsApp, after waiting for almost two-and-a-half years, on November 6 got regulatory approval to roll out WhatsApp Pay to an initial set of 20 million users. Rival companies realise that WhatsApp, with its 400 million users in India and 2 billion globally, could become the leading payments platform. Experts say that payments is just one of the central pieces in WhatsApp's strategy to become an e-commerce powerhouse.

 
Paytm, India's biggest digital payments firm by valuation, has tried many things to keep ahead. It started with ticketing and utility bill payments, launched a payments bank, then an e-commerce portal called Paytm Mall, and is now promoting Paytm Money. Paytm Money is a wealth management platform that sells mutual funds and insurance.
 
Paytm's boss Vijay Shekhar Sharma hinted there was pressure to earn money when he spoke at a press conference in Bengaluru in April. “What do you think of the commercial model for digital mobile payments? How do we make money?” Sharma asked Nandan Nilekani, an architect of Aadhaar and Unified Payments Interface (UPI). There was no clear answer.

 
Sajith Sivanandan, managing director and business head of Google Pay, too has said India’s model for UPI had forced Google Pay to operate without a clear business model.
 
Paytm, PhonePe and Amazon Pay, the leading apps in India, collectively lost $1 billion in FY19. When mobile wallets were still in fashion, Paytm charged merchants a small fee for its service. The fees was scrapped in 2017-18 when the government called for free digital payments and as UPI kicked in.
 
Searching for revenue
 
Digital payment companies have been changing their plans in search for revenue. Mobikwik, which started in 2008, has built a sizable payment gateway business which contributed Rs190 crore, or 50 percent, to its FY20 revenue. Google Pay a posted revenue of Rs 1,119 crore in FY19 and paid out Rs 1,028 crore in cash rewards.

 
“Payments is only a hook, a point of stickiness, which leads the consumer to other services which make money,” said Byas Nambisan, CEO of EzeTap, an enterprise payments company. “There are service adjacent to payments that will pay the bills, till some time, until that too gets commoditised.”
 
“Eventually, all of these companies will have to enter some form of credit,” said Rajan Bajaj, founder and CEO of Slice, a credit service for young professionals. “Or it could be innovations on the merchant side, like payment gateways, etc which are a real source of revenue.”
 
Companies believe that with their troves of data on transactions they can set credit scores of their users and then offer loans. Fin-techs, before wooing individuals, have tried loans products for businesses and merchants. In July, Google offered loans for merchants through its business app Google Pay for Business. Amazon gives working capital loans through Capital Float, a non-banking financial services institution start-up it has invested in. Paytm offers collateral-free loans under its 'Merchant Lending Program' in Paytm for Business app.

 
Such business loans haven’t taken off however and companies are hesitant to enter retail category, analysts said. “These are still experiments,” said a partner at an early-stage VC firm which focusses on fin-tech. “One would like to see how Paytm Money pans out, but even there isn’t a clear path to profitability.”
 
Paytm Money, in which Vijay Shekhar Sharma has committed to spent Rs 250 crore as growth capital, has two verticals: mutual fund investments and stock broking. The first vertical claims to be the largest in the country with 6.6 million registered accounts. It sells ‘direct’ mutual funds, a class of MFs where there is no commission for the broker and does not earn anything for the distribution platform either. In traditional broking services, there are commissions for every trade a user makes.

 
For now, the strategy of digital payments companies is to capture bulk of the market, then wait for either wealth management services or loans to pick up, or hope for the unlikely event of government allowing service providers to put a fee on UPI transactions.
 
Government's protectionist measures
 
The way UPI is structured, the payments business is a loss leader, said Sawhney of GSF Accelerator. “The government’s objective is for digital payments to penetrate.” But in doing so, its policies have created an uneven playing field. Only companies with deep pockets can continuously spend money on user acquisition without earning anything. UPI is managed infrastructure on which all consumer digital payment applications work.

 
“They (American tech firms like Google Pay and Amazon Pay) can sustain without making money, but a new the start-up in UPI cannot,” he said. Google Pay and PhonePe held 80 percent market share with about 820 million transactions each in October.
 
The companies' market share has got the government worried of the growing influence--and the perceived monopoly--of American big tech. The National Payments Corporation of India (NPCI), which manages the UPI network, asked in November payment firms to cap their market share to 30 percent in any given month. NPCI said its directive aimed at addressing the “risks” and “protecting the UPI ecosystem as it further scales up.” The cap starts in January 2021 and Google Pay and PhonePe will have two years to comply with the order in a “phased manner.”

 
In November, the Competition Commission of India (CCI) ordered a detailed probe against Google for alleged unfair business practices with respect to Google Pay as well as Google Play's payment system.
 
The move could backfire. “Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation. A choice based and open model is key to drive this momentum," said Google’s Sivanandan in a statement November.
 
“This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion,” he said.

 
WhatsApp strategy
 
In the two-and-a-half years, WhatsApp has lost ground to Google Pay in India. As WhatsApp waited approval to launch, Google Pay climbed to about 60 million users and a market share of about 40 percent. Further, WhatsApp faces political pressure and is accused of not doing enough to prevents its platform from spreading fake and malicious news.
 
It’s run in with regulators is not new. Brazil’s central bank moved quickly to suspend WhatsApp's payments service—launched in June-- to “preserve an adequate competitive environment”. The central bank said its aim is to ensure “functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap.”

 
Observers are wary of the Indian government’s protectionist bent. Besides the cap of 30 percent, which will restrict WhatsApp Pay and its move in commerce or any other service will be closely watched.
 
“Customer are looking for speed of transaction and they are looking for simplicity,” said Slice’s Bajaj, sharing results of an online survey his firm did recently. “They don’t care about the social network. So WhatsApp doesn’t have an advantage because of the social network. And, now P2M (peer to merchant) is where the game is going to be played. In P2M there is no advantage of speed and simplicity.”

 
He pointed out an advantage WhatsApp has in payments. Members of a WhatsApp group can split payments--pay to one member or to multiple people--within the chat itself. And all this is recorded. “This will also be a much liked and used feature,” said Bajaj.