Facebook famously acquired WhatsApp in 2014 for a stunning $ 19 billion and ever since the deal, people have been asking how Facebook is going to monetize on WhatsApp. The first answer came in 2018 when WhatsApp Business was launched, a service aimed at small and midsize businesses (SMBs) allowing them to post catalogues and links within the app. The next answer came a few days ago when WhatsApp launched digital payments in Brazil, where WhatsApp has 120 million monthly active users (MAUs).
WhatsApp, owned by Facebook, has over 2 billion users as of February 2020. Image courtesy of WhatsApp.
As I wrote in a previous blog post, it’s safe to assume that Libra, Facebook’s idea of a blockchain based global digital currency, won’t be coming to WhatsApp anytime soon. Instead, Facebook is probably doubling down on Facebook Pay, which provides a seamless way to make payments on Facebook, Instagram, Messenger, and WhatsApp.
Activating Facebook Pay is straightforward: you connect a supported Mastercard or Visa card once and then you can pay across apps in the Facebook ecosystem. In other words, WhatsApp users in Brazil wishing to send money to friends or businesses while chatting first need to set up Facebook Pay.
The list of countries where Facebook Pay is available is surprisingly long. In Europe, most of the EU countries and the UK are supported. In North America, Canada, Mexico and the US are on the list. It’s worth pointing out that in most countries Facebook Pay can only be used in Facebook (the app). Messenger, for example, is currently only supported in the US.
How is Facebook making money on WhatsApp payments? Well, at least in Brazil Facebook isn’t making anything when two friends are sending money to each other. However, businesses using WhatsApp Business pay a 4% processing fee to receive payments. That’s quite a lot from an SMBs perspective, and let’s see how those numbers change as WhatsApp payments is rolled out to other countries.
Speaking of roll-out, I would assume Facebook wants to quickly conquer as many countries as possible, starting with countries with large WhatsApp user bases. According to rumours, India – where WhatsApp has 400m MAUs – was supposed to come before Brazil, but due to unresolved regulatory challenges that didn’t happen, and India is still on hold.
As of February 2020, WhatsApp has 2 billion users worldwide, which means that WhatsApp payments has the potential of quickly becoming a very big thing. For each new country to be added, at least the following checkboxes need to be checked:
Local regulatory and compliance issues must be resolved.
Facebook Pay must be up and running.
WhatsApp Business must be up and running.
Partnership agreements must be signed with local (Visa/MC) card issuing banks. For example, in Brazil, these are Banco do Brasil, Nubank, and Sicredi.
An agreement must be made with a payments processor who completes the transactions. For example in Brazil, that’s Cielo.
Some resources must be allocated for roll-out, PR, marketing, etc.
It’s possible that I’m forgetting something in that list, but based on the India example, I would bet that the hardest part to fix in most places will be the regulatory part.
Some people have already speculated that a successful global rollout of WhatsApp payments could quickly kill most of the existing local peer-to-peer mobile payments solutions. For example, in Finland and Sweden (which both are small countries but quite advanced when it comes to mobile payments) most people use Swish, MobilePay, or Siirto. Each solution is backed by a bank (or a group of banks) and each have their limitations. WhatsApp, however, is used by almost everybody and it’s relatively easy to see how it could quickly become the preferred platform for sending money.
Now, many might protest and say that we should absolutely not use anything associated with Facebook for making payments. Facebook already knows way too much about us and monetizes on our data, and in general behave in a creepy fashion. Yes, that might be true, but people are still suckers for convenience. And honestly, how many of your friends have actually shut down their Facebook accounts?
The biggest advantage WhatsApp has is that is already plays a central role in our online lives. In many regions, a ton of online communications and socialising occur on the platform. That’s why I believe WhatsApp can quickly become a de facto standard within peer-to-peer payments, at least among friends.
A totally different question is how often we will choose to use WhatsApp payments when dealing with SMBs. In order to answer that questions, at least I would need to understand better all the benefits WhatsApp Business can deliver to SMBs (and ultimately to the customers of those businesses). Facebook certainly seems to believe in it, because as we’ve seen, SMBs are the ones who are financing the WhatsApp payments system.