In Payments

On June 15th, 2020, Facebook announced the launch of payments over WhatsApp in Brazil, the long-awaited payment play of the tech giant that industry players have been speculating about for years. The excitement barely began to effervesce when Brazil’s Central Bank and CADE (Portuguese acronym for the Administrative Council for Economic Defense, the country’s anti-trust regulator), ordered the suspension of the payment service, over fears that the platform would hurt competition.

Since then, the drama has been high: on June 30th, CADE announced that it would restore permission for Facebook to operate its payment service, yet it remained halted because of a Central Bank rule—that card networks needed Central Bank permission payments to partner with WhatsApp for payments—implemented only a week earlier. The Central Bank claimed it needed time to review the payment arrangement to ensure it would not damage the ecosystem with respect to both competition and security.

All this is occurring within the context of the Central Bank’s preparation to roll out PIX, its interbank instant transfer platform, in the works for the past two years and set to roll out in November.

In the meantime, Visa and Mastercard have intervened, filing paperwork with the Central Bank, reiterating that the platform is open to additional partners (currently, Facebook has partnered with Banco do Brasil, Nubank, Banco Sicredi and acquirer Cielo) and does not suppress competition. Moreover, it makes the argument that WhatsApp functions merely as a service provider—it does not transfer values, store funds, or access consumer data.

In response, on July 31st, the Central Bank authorized banks and their card network partners to test payments using WhatsApp. Final permission for a market-wide launch is still pending.

What Is All the Fuss about?

The Brazilian regulators claim that their motivation is to preserve competition in the local market. This is ironic, for two reasons. First, although banking has experienced disruption in recent years (read: neobanks, i.e. Nubank), it remains highly concentrated. Of Brazil’s 150+ banks, the top five hold 74% market share[1].  Banco do Brasil aside, the other two issuers in partnership with WhatsApp, Banco Sicredi and Nubank, are on the smaller side in comparison to the market’s giants. And more issuers are welcome: other banks large and small have expressed interest in the platform.

The second reason is that the regulators have focused their complaints on the processing side of the equation, where Facebook currently has only one partner, Cielo, the market’s leading acquirer, with 40% market share.[2] Yet, the acquiring space in Brazil has earned applause from around Latin American in recent years for its increased level of competition and fragmentation. Brazil is far ahead of regional neighbors, several of whom still have just one or two acquirers dominating 90% of card transaction volume.

So, it seems that the Central Bank and CADE are not so concerned about fostering competition, but rather protecting local infrastructure from big tech competitors. It is true that 65% of Brazilians use WhatsApp (130 million people), far more than any one bank. It is also true that the launch of payments over WhatsApp has the potential to undermine the success of PIX, to which more than 900 financial and fintech institutions have applied to connect to. And, the largest fear, is that WhatsApp could become the next regional AliPay or WeChat, disintermediating the banking industry altogether.

Facebook Won’t Replace the Banks

As fear tends to do, this presumption has taken the industry’s eyes off the facts. As it stands, WhatsApp payments ride upon debit and credit card rails, which of course, connect to users’ funds sitting in bank accounts. Facebook and its partners contend consistently that the platform is open to additional issuing and processing partners, and Facebook has said it’s open to integrating its service with PIX.

The speculation that Facebook is vying to become a wallet, or better yet, a bank, is misguided. Global trends show us that the big techs of the world own almost no infrastructure. Instead, they maintain a technology platform for others to utilize. Think Amazon, Uber, Airbnb, even the card networks. If this trend were to persist, it would be unlikely for Facebook to take possession of consumers’ funds, be responsible for cash management and be subject to strict capital reserve and other requirements. In AMI’s opinion, to become a bank Facebook does not seek. 

Instead, it wishes to be a platform that enables commerce. In the documentation provided to the Central Bank, Facebook and its partners reiterated the idea that WhatsApp merely acts as a service provider in the payment ecosystem—the platform upon which transactions are initiated. This is akin to Uber’s assertion that it is a technology platform, not a transportation provider, making it immune from taxi regulation. This is a clever argument that regulators worldwide have been unable to discredit.

Consumers Will Decide Facebook’s Fate

Does this mean that Facebook does not pose competitive threat? Of course not. The eventual launch of payments over WhatsApp could result in multiple scenarios, some of these being:

1. It becomes the predominant payment method for P2P and P2M payments, essentially replacing POS terminal acceptance and putting other payment ecosystems out of business

2. It could flop completely, with consumers not trusting Facebook as a safe platform and merchants balking at the 3.99% commission

3. It could succeed as a P2P payment method but not for P2M

4. The reverse scenario of #3

5. It could gain popularity among a particular niche of consumers and merchants and co-exist along with other payment schemes

Of course, number five is most likely, especially in the short term. The brand Facebook/WhatsApp and its two billion users worldwide sound intimidating. Additionally, the fact that the similar schemes WeChat and AliPay have disintermediated banks in China, makes payments execs tremble in their boots when they hear WhatsApp and payments in the same sentence. But the reality is that the Brazilian payments landscape is developed and competitive enough—and consumers skeptical enough—that WhatsApp will have to earn its place, just like any other player. If it does, regulators won’t be able to stop it; as we have seen with Uber, technological innovation coupled with powerful consumer demand win out against the constricting tentacles of government bureaucracy trying to stop it.

In an ideal world, where competition is at its healthiest, end users have ultimate choice and determine all of our fate.  Whoever provides the most value and solves the most nagging pain points will win the long game. Those afraid of Facebook should take their eyes off of what scares them and redirect their attention to where they want to go.

[1] When measured by total assets. Banco Central do Brasil, 2019

[2] Reuters, July 27, 2020. “Brazil antitrust watchdog questions Facebook’s WhatsApp payment fees.”

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