- The Facebook is building out a payments infrastructure around the world to position its four popular digital platforms.
- They are Facebook, Messenger, Instagram and WhatsApp — as ways for people to send money to each other and to shop for goods and services.
- Keeping the user within its digital ecosystem through the entire shopping journey requires deep integrations with merchants and payment intermediaries.
- Facebook Shops and WhatsApp Business accounts aim to attract businesses to sell their wares on their digital platforms.
- PayPal and Stripe already support payments on Facebook and Messenger in the U.S. Outside the U.S., the social media company has either rolled out or is launching Facebook payments in at least 36 countries.
- It has similar plans to offer payments on Messenger, Instagram and WhatsApp around the world.
A recent news published in the Platts written by Sampath Sharma Nariyanuri, CFA deals with the idea of Facebook launching its payment gateway through its four soical networking platforms – Facebook, Messenger, Instagram and WhatsApp.
WhatsApp the key
Of the four platforms, WhatsApp could make the biggest dent in digital payments, due in large part to its popularity in emerging markets, where most people still deal in cash and buy from mom-and-pop stores.
India, Indonesia, Brazil and Mexico could be key to the WhatsApp-led push in digital payments as the majority of their combined $2.259 trillion of retail sales happened offline in 2019, according to 451 Research, part of S&P Global Market Intelligence.
WhatsApp has the potential to facilitate remittances in India, Mexico and the Philippines; the three countries received more than $157 billion in aggregate inbound remittances in 2019, according to World Bank estimates.
Facebook does the groundwork
Facebook has already laid the groundwork to make money from WhatsApp in two ways. Companies using WhatsApp Business APIs can respond to customer messages for free for up to 24 hours, after which they will have to pay a fee per message.
Click-to-WhatsApp advertisements sold to businesses are another source of revenue. These monetization efforts resemble the strategies of Chinese social network Tencent, which provides a myriad of services with an integrated payment solution through its WeChat app.
Regulatory hurdles in building payments infrastructure
Facebook cannot hope to replicate the proprietary digital payment platform of Tencent. Operating a closed-loop system can be very expensive as Tencent bears the card processing costs when users fund their wallets, but it gives Tencent control over the service of completing payments and discretion in adjusting the payment fee.
Closed-loop payments systems providing value storage are subject to greater regulation, and getting necessary licenses in the multiple countries where Facebook operates could be a tall order.
Overlay services
Instead of developing proprietary payment platforms, Facebook will likely build overlay services that plug into existing retail payment systems such as card networks, interbank payment systems and third-party closed-loop systems.
In developed markets with high credit card ownership, Facebook payments will rely on card infrastructure. Few people in emerging markets own cards, which makes it imperative for Facebook to explore noncard payment alternatives.
Partnerships key to building e-commerce and payments in India
Facebook has invested about $5.7 billion for a nearly 10% stake in Jio Platforms, a telecommunications business owned by Reliance Industries, which wants to leverage WhatsApp’s reach to build an e-commerce venture.
The partnership aims to have JioMart integrated into WhatsApp and allow consumers to use the messaging app for ordering groceries from neighborhood shops and making payments.
By piggybacking on India’s most popular messaging app, JioMart could gain a quick foothold in the country’s extremely competitive e-commerce space.
Jio Platforms
The deal appears to reflect the value of integration with WhatsApp as Facebook managed to invest at a relatively lower valuation than the investment firms that acquired stakes in Jio Platforms along with the social network over the past couple of months.
We estimate that a financial investor would have had to shell out at least $700 million more for the same size stake purchased by Facebook.
Collaborations with e-wallets in Southeast Asia
Facebook’s undisclosed investment in ride-hailing service Go-Jek could pave the way for integrating the popular GoPay wallet into its messaging app in Indonesia, which does not allow companies with foreign ownership of more than 49% to operate electronic money.
The investment was particularly meant to inject funds into the GoPay fintech business, in which Facebook now owns a 2.4% stake, according to Reuters.
Access to real-time payments could bring fee disruption
Several Asian and Latin American countries are either already adopting real-time payments or considering implementing them. Facebook could potentially seek to leverage interbank transfers that bypass card rails to lower merchant costs and reduce the working capital needs of businesses through the instant collection of payments.
In India, it hopes to build services on top of UPI instant payments. Seeking bank partnerships in Singapore, Malaysia and Thailand could allow it to tap into their centralized payments infrastructures.
Mexico and Brazil are implementing similar schemes. Central banks are increasingly mulling allowing nonbanks to take part in these schemes, but at present few of them provide nonbanks with direct or indirect access to the infrastructure.
India’s growing success with mobile payment adoption by creating a role for nonbanks in its payments scheme could inspire other developing countries to emulate it.
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Source: Platts
