For about a year now, Facebook has been test-running a new feature on WhatsApp that allows its users to send and receive payments on the messaging platform. The trial, which has been taking place in India, is due to end this July, with the possibility that the feature will be rolled out across that country- and the rest of the world –soon after.
While the prospect of money getting transferred between Nigerians on WhatsApp remains a reality to be experienced at some unidentified point in the future, it does present a challenge for the existing giants of Nigeria’s financial services sector. It’s not hard to imagine the top brass at the country’s biggest banks scratching their heads in fearful anticipation of whatever business-thwarting Tsunami Mark Zuckerberg’s people over at Silicon Valley are preparing against their interests.
Local fintech startups may also be watching the whole experiment with much angst. For all the growth they’ve managed over the past few years, they still hold only a small fraction of Nigeria’s vast market for financial products. They certainly won’t be pleased with having to square off against Facebook’s multi-billion dollar might on their home patch.
Why Facebook Wants a Payment Feature on WhatsApp
Zuckerberg, speaking about Facebook’s plan for WhatsApp Pay at an F8 Developer Conference, said that he believed sending money to people should be “as easy as sending a photo.” Banks and fintech companies might protest that they’re already making this happen. And they may be right in certain respects.
But Facebook’s plan isn’t just about ease as per making payments. It’s about convenience. They want to ensure that their users have even fewer reasons to leave the platform at any given moment; certainly not if it’s because they want to pay for things.
There’s an even more fundamental reason why they’ve created the new feature: user purchasing habits. By having people take more of their buying and selling journeys onto WhatsApp, Facebook is able to pick up more information about users’ purchasing habits, and target adverts accordingly. With more precise ad targeting comes more buys, and more revenue- something for Facebook’s board and shareholders to smile about.
It makes sense that Facebook would begin testing this out in India. The country has over 1 billion mobile users- compared to just over 100 million for Nigeria –and an ever-growing number of people active on social media. That’s a huge market to conquer in anyone’s book. Thus far, they have achieved about 1 million transactions per month on WhatsApp Pay there.
How WhatsApp Pay Could Be Received in Nigeria
WhatsApp Pay may come up against a considerable brick wall if it tries to get into the Nigerian market. That obstacle is the country’s regulatory authorities- in this case, the Central Bank of Nigeria.
Regulatory authorities seem eager to protect key local sectors against foreign competition- or even competition from disruptive forces originating within Nigeria. A not-too-inadequate example of the latter was a comment made by the Central Bank Governor, Godwin Emefiele, which suggested that the CBN was ready to cordon off the banking sector’s prized spaces from encroaching fintech companies. That comment sent shivers down the spine of not a few payment company founders.
If it manages to launch in Nigeria, WhatsApp Pay will very likely be an instant hit. About 41% of Nigerians on the internet use WhatsApp for various purposes, including communication with customers and vendors. Having a payments feature on the app will make it an even more attractive tool for business.
The fact that Nigerians already spend a good deal of their time on platforms like this is what will worry banks. They don’t have its strength of presence, and cannot even afford to match it. With more financial transactions taking place on digital channels removed from their reach, they could be facing a significant decline in the volume of cash going through them.
How the Banks Could Respond
It’s worth remembering that Facebook-owned WhatsApp isn’t the only payment system being launched by tech giants. There’s also Google Pay, Amazon Pay, and Apple Pay, all of which can be used on the platforms which own them. The fear is that as more commerce goes online, banks will see their role in the financial system shrink even further. Every online marketplace or social media channel could soon have its own little payments economy, thus shutting the banks out.
How will the banks ensure that they aren’t squeezed out of existence by big tech?
Besides relying on the CBN to impose restrictions on these giants, they could forge an alliance with fintech companies to offer payment services to small businesses with an online presence. Perhaps they could go it alone by presenting their payment solutions without fintech companies’ input. But it’s hard to see how they would compete against platforms that offer these services for next to nothing.
In the end, banks may have to evolve to stay relevant in a world that’s taking to decentralized financial systems pretty quickly. It will be interesting to see how they get this done.