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WhatsApp Payments - A Sleeping Giant?

Updated: Aug 6, 2023


WhatsApp Pay has introduced its payment services in India, its largest market with over 400 million users, after receiving approval from the National Payments Corporation of India (NPCI).

Upon launch, the Facebook-owned company announced that its payment feature was developed in collaboration with NPCI using UPI, a real-time payment system unique to India that facilitates transactions with more than 160 supported banks. With this move, WhatsApp Pay is set to compete with established players like Paytm, Google Pay, PhonePe (owned by Walmart), and Amazon Pay.

The service commenced its operations with five major banks in India: ICICI Bank, HDFC Bank, Axis Bank, the State Bank of India, and Jio Payments Bank. Users can now send money via WhatsApp using any UPI-supported app.

How it Works

For domestic money transfers through WhatsApp, users must have an Indian bank account and a linked debit card. The messaging app will forward instructions to banks (payment service providers), who will then initiate the money transfer via UPI between the sender's and receiver's bank accounts.

This new feature allows WhatsApp users to send money to anyone using a UPI-supported app. During the payment process on WhatsApp, users need to input a personal UPI PIN for each transaction.

WhatsApp described the new payment feature as "This secure payment experience makes transferring money even as easy as sending a message. People can safely send money to family and friends or split the cost of products from a distance without exchanging physical cash or visiting a local bank." The collaboration with NPCI and utilization of UPI, a real-time payment system in India, ensure secure and efficient transactions across more than 160 banks.

Challenges and Roadblocks

Privacy Policy Controversies: WhatsApp's recent privacy policy changes have posed challenges for its payment business expansion. Concerns about user privacy and trust have hindered the mass adoption of WhatsApp Pay.

Regulations: The introduction of WhatsApp Pay coincided with an NPCI announcement in November, which limited third-party applications offering UPI payment services to process a maximum of 30% of transaction volumes starting January 1, 2021. This measure aimed to safeguard the UPI ecosystem's stability and growth. Furthermore, NPCI permitted WhatsApp to launch its payment service gradually, allowing a maximum of 20 million registered users to use UPI for payments.

Lack of Marketing: WhatsApp Pay's entry into the payment sector lacked a significant marketing campaign to announce its presence. Consumer awareness remains low, as WhatsApp is primarily perceived as a communication tool, with limited knowledge about its payment service.

Late Entry: Despite its substantial user base, WhatsApp is trailing behind UPI giants like Google Pay, PhonePe, and Paytm in the payments space. While WhatsApp enjoys widespread usage for communication, it entered the payments sector later compared to its competitors.

Lack of Incentives: WhatsApp Pay's absence of cashback and other incentives discourages users, especially those residing in Tier-III cities and beyond, from using it for payments.

The Battle Continues

The future of digital payments in India looks promising. Innovations like Bharat QR, mobile wallets, USSD banking, AEPS, along with credit, debit, and prepaid cards are driving the shift towards a cashless economy by enhancing payment speed and efficiency. UPI, which has tokenized bank accounts, holds the potential to revolutionize payments. In the past year, UPI transactions increased over 40 times, while transaction values grew over 10 times.

WhatsApp possesses unparalleled reach in the Indian market through its massive user base, positioning it to make a significant impact in the UPI sector. By implementing effective marketing strategies and rebuilding consumer trust, WhatsApp can regain its competitive edge. Such a comeback could signal a transformative shift, unlocking disruptive value in the long run.

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