Salvador Brazil should, if it is after FacebookChief Mark Zuckerberg is going to be the global test market for WhatsApp Pay. In the South American country, the new payment system for cashless payments via smartphone was to be introduced for the first time worldwide. The social chat platform WhatsApp should be used for this.
In early June, Zuckerberg advertised it on his blog: “With WhatsApp Pay, we want to make money transfers as easy as sending photos,” he wrote. But the way there turns out to be a little easy.
In Brazil, resistance to the new payment system from WhatsApp quickly formed: The central bank and the antitrust authorities have prohibited the Facebook subsidiary from operating the new payment system via the WhatsApp chat platform.
The credit card companies involved like Mastercard and Visa and the payment processor Cielo face severe penalties. The authorities fear that the Facebook subsidiary could build a monopoly that excludes other competitors from the market.
Zuckerberg’s hope of catching up with WeChat from China with WhatsApp Pay has not been fulfilled for the time being. For the Facebook founder, this is a sensitive defeat – the second in a row.
Facebook had previously tried for two years to launch the new payment system in India on a mass scale. The company was able to launch a test version for around one million users there, but was then slowed down by the authorities. With 400 million users, India is the largest location for the Facebook subsidiary. Overall, the subcontinent represents at least a fifth of global users.
The difficult regulations in the financial sector in particular were the reason for ever new delays. Two weeks ago, Zuckerberg pulled the ripcord: Instead of India, Brazil should now become the global test market for WhatsApp Pay.
Brazil is the second largest WhatsApp location worldwide
Zuckerberg decided to test the new payment system in Brazil now because the country with 120 million users is the world’s second largest location for the Facebook subsidiary WhatsApp, which the US company took over six years ago.
WhatsApp is by far the most used private communication system in Brazil, which is increasingly being used commercially in the business world. And it is precisely in this area that the use of WhatsApp exploded during the corona crisis.
According to various surveys, the number of self-employed and small businesses that use WhatsApp to conduct their business has more than quintupled. Whilst the shops are closed, retailers’ sellers – from car dealerships to electronics chains – are now working daily with WhatsApp lists of potential customers that they get every morning from the parent company.
Via Varejo, for example, one of the leading chains in the country, now sells a fifth of its goods via WhatsApp. “We have become a worldwide test case for Facebook because nobody else uses the instrument so massively in a systematic way,” says operational director Marcelo Ubriaco.
So it would have been a good time for Facebook to launch its WhatsApp payment system. With the payment system via WhatsApp, Facebook had planned to gain new and loyal customers, especially in the informal sector in Brazil.
The Nubank involved estimates that there are 45 million people in Brazil without access to financial services. For private users, it was planned that the payments will be free, but limited to 5000 reals (currently 850 euros) per month. Commercial users have to pay a fee of around four percent.
But Zuckerberg underestimated the resistance of the Brazilian financial industry. Because WhatsApp in Brazil is not breaking new ground for payments by mobile phone, nor is the new system meeting sleepy competition. “It is hard to imagine WhatsApp in Brazil becoming a super app like WeChat in China,” says digital expert Edson Santos of the business service Brazil Journal.
The successful payment platform Mercado Livre in South America has launched its own system, Mercado Pago. The Brazilian PicPay app also has 20 million users.
Itaú and Bradesco, the two large private banks in Brazil, did not comment on the launch. In the financial sector it is said that the two banks are developing their own payment systems, which they also want to launch shortly.
The regulator himself is likely to become a problem for WhatsApp as well: The Brazilian central bank plans to offer a payment system in November that allows transfers between private individuals in real time. Strategically, it was probably not a good idea to compete directly with the top tax authority.
Problematic connection to Facebook
The connection to the mother Facebook should also be problematic for the success of WhatsApp Pay in Brazil. Because for Facebook, WhatsApp Pay is a strategic tool to access detailed data from millions of users.
Because they not only have to register with Facebook themselves, but also with their tax number, name and account with the Facebook subsidiary Facebook Pay, which was first introduced in Brazil together with WhatsApp Pay.
World Bank digital expert Yasodara Córdova estimates that Facebook will now collect a complete database of small business owners and workers from Brazil’s informal sector.
It fits that WhatsApp says it does not aim for any profits with its service in the medium term, as WhatsApp operative boss Matt Idema explained. However, Facebook’s reputation has been badly affected, among other things because of the debates about fake news in the country’s politics.
There is a lot at stake for the US group in Brazil. This was the starting point for a broad market launch of WhatsApp Pay. At the beginning of the year, the group announced that additional payment platforms in Mexico, Indonesia and India should be launched in 2020. That should now be delayed.
More: Facebook is looking for a business model for WhatsApp in Asia.