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India has granted WhatsApp Pay the permission to enrol 60m new users, a move that some believe has the potential to shake up the Indian payments landscape.
Last week (April 13), the National Payments Corporation of India (NPCI) gave WhatsApp the green light to add 60m new users to its digital payments on the Unified Payments Interface (UPI).
With this approval, WhatsApp will be able to more than double its user base from 40m to 100m users.
Following the announcement, media reports cited industry experts saying that the increased cap may enable WhatsApp to disrupt the current payments landscape. However, it faces a significant challenge to do so.
India is the single largest market for WhatsApp’s messaging services, with 487m registered users. By contrast, its second-largest market is Brazil, with 118.5m users.
Despite of the large user base, WhatsApp’s payments solution has not gained significant traction in the country yet.
According to March data, there are over 65 apps processing payments on the UPI instant payment system but the vast majority of transactions (94 percent) are concentrated through just three payments apps: PhonePe; Google Pay; and Paytm.
WhatsApp is currently 18th on that list in terms of volume, having processed just 2.5m transactions in March, or just 0.05 percent of all UPI app-based transactions.
Low adoption is partially the result of a phased approach that NPCI, the operator of UPI, took when it allowed WhatsApp to roll out its payment service, which was intended to prevent the overload of the UPI infrastructure. At that point, WhatsApp was allowed to sign up only 20m users, which has now been increased to 100m.
Meanwhile, an upcoming regulatory change may provide an opportunity for smaller UPI processors to increase their market share.
The high concentration of UPI apps has been a big concern for policymakers.
To level the playing field, in November 2020, NPCI ordered that no single app can process more than 30 percent of the total volume of the transactions on UPI. The decision means that existing payment app providers, such as PhonePe and Google Pay, have until the end of this year to reduce their respective 45.8 percent and 33.4 percent share to below 30 percent.
It has already prompted some market players to build up new offerings, with Indian conglomerate Tata Digital being the latest to roll out an app that offers UPI payments services.
Manesh Mahatme, director of payments at WhatsApp India, welcomed the increase of the cap and said they hope it will accelerate the adoption of UPI for the “next five hundred million” Indians.
“As part of this roadmap, we have planned significant investments in ‘payments on WhatsApp’ across India including – ‘India-first’ features and focus on creating awareness and driving adoption among our users,” Mahatme said in an email statement.
He also stressed the importance of UPI in the country “especially in rural regions where digital and financial inclusion can significantly improve [people's] lives.”
“We believe that ‘payments on WhatsApp’ can be a key partner to NPCI and RBI as we all aim to scale adoption of UPI and financial inclusion to those most in need,” he added.
Although the increased cap from 40m to 100m has significantly increased the potential number WhatsApp’s users that can use UPI, it still represents a small portion of the total 487m Indian users.
One of key use cases for WhatsApp’s adoption of UPI is to embed peer-to-peer payments into its social media platform so that groups can send P2P payments to each other.
With only 20 percent of the users being able to initiate payments, it is unlikely that the network effect would kick in as long as the service is not available for a significant proportion of customers on its platform.
