WhatsApp Plans Digital Payments Service

India Will Act as Test Bed

Whatsapp_lWhatsApp, owned by Facebook, has plans to launch a digital payments service and India will be its first market. The social network is preparing to introduce a peer-to-peer payments service in the country in the next six months. This will mark the start of a competitive clash between WhatsApp and Paytm, an Indian payments start-up backed by China’s Alibaba.

WhatsApp will take part in a flagship project of the Indian government, the Unified Payments Interface. Launched in 2016, the platform allows money to be transferred between different mobile money services as well as bank accounts. WhatsApp’s push into digital payments in India resembles moves by messaging apps like Tencent’s WeChat in China.

India is WhatsApp’s single largest market with about 200 million users, which makes it a good starting point for the company in rolling out new services. But there are also internal structural developments that make India an attractive market for digital payments.

Over the past several months, digital transactions in India have surged after the government of prime minister Narendra Modi shocked the country by banning certain high-denomination banknotes in November 2016. The notes that were withdrawn accounted for more than 80 percent of the country’s currency in circulation at the time (see The Digital Push India Has Been Waiting for).

Like WhatsApp, Paytm also has about 200 million users in India. This makes it the largest of the prepaid digital wallet companies that have benefited from the windfall of paper cash shortages that followed last year’s demonetisation. In January 2017, the total digital wallet market in India stood at 262 million transactions, worth a total of $1.3 billion. In October 2016, this number was at 100 million transactions worth $0.5 billion, according to the Reserve Bank of India. This represents a threefold rise in transaction volume after the demonetisation effort.

WhatsApp is well placed to establish its digital payments service in India, but other companies are also attracted by the market’s growth potential. Just last week, Swedish communications app Truecaller, which has an estimated 150 million users in India, introduced a mobile payments service based on the country’s Unified Payments Interface.

With the surge in the number of smartphones and Internet users in India, which are expected to reach 350 million this year, WhatsApp’s parent company, Facebook, could benefit substantially from the country’s digital payments boom.