Africa’s WhatsApp Pay Hypotheses Spell Boon And Bane For Local Fintechs

Take a few seconds to imagine a world where payment is as swift as sending photos to family and friends. Exciting right? This is what the world’s most popular instant messaging app, WhatsApp, seeks to achieve with the rollout of its payment feature.

The goal of WhatsApp’s payment feature is to make payment super easy, seamless, and performed in just a few clicks. This feature would enable users and small businesses to send and receive money on the go.

The beta test for WhatsApp’s digital payment feature took place in India in 2018. However, the product was first rolled out fully in June this year, in Brazil, a country with about 120 million WhatsApp users; its second-largest market.

Although this feature was later banned by Brazil’s central bank about a week after its release, it has now fully launched in India which happens to be its largest market with an estimated user base of 400 million. 

In India, WhatsApp’s payment gateway is powered by the country’s secure Unified Payments Interface (UPI) system. This means that the payment system of WhatsApp would utilize India’s already-existing national payments infrastructure.

The big question now is; Is WhatsApp’s payment feature likely to come to Africa? If it does, would it have a good outlook in Africa? Also, to what extent would the initiative by WhatsApp affect the payment ecosystem in Africa?

In reflection, payment has been known to be a big hassle for the African continent and the past few years have seen payment gateway companies emerge, like the recently acquired Paystack.

Here’s something to ponder on: If the giant, WhatsApp, succeeded in wiping out SMS messaging drastically, then it appears to stand the chance of being a threat to fintech companies in the peer-to-peer (P2P) payments business across Africa.

WhatsApp Pay in Africa?

From an outward look, there seems to be a likelihood for WhatsApp’s payment feature to also be rolled out in Africa at some point. This is due to the wide similarity between the Indian (Asian) and the African market.

Firstly, WhatsApp’s payment strategy seems to target emerging markets, with Africa forming one of such markets, as with Asia. Also, like India, the poverty and inequality margin is on the high. 

Looking at precedents, it has been observed that technology solutions for emerging markets have been tested in countries like India, before being rolled out to Africa.

An example of this is the advent of motorcycle-hailing, which first began in Asia and was later seen to be viable in Africa. Products from giant companies like Google have also been known to be tested in Asia before its emergence in Africa.

Another reason for this likelihood is the relatively large population size in Africa. The continent houses Nigeria, the largest black country in the world (based on population size). Interestingly, data from a UN report projects Nigeria to be the world’s third-most populous country by 2050.

The ugly side of things 

While there are many seemingly attractive reasons for WhatsApp to begin operations in Africa, it is likely still that it doesn’t turn out as projected due to several factors.

The first important thing to note is that payment is quite a sensitive feature and hence unique and different. This answers why it cannot easily be rolled out like other regular features.

The biggest hurdle WhatsApp is likely to face is regulation, which is commonly championed by the banking regulatory authorities in a particular country.

This then, presents the question of how friendly regulatory authorities in Africa will be in granting WhatsApp the approval to operate. Think of Brazil which had its central bank bring the WhatsApp payment feature to a halt, a week after it had been launched.

Another unattractive detail to note is the seemingly small internet market size in Africa. India alone has about 400 million WhatsApp users, in comparison with the  African continent with about 200 million internet users in total. This is relatively due to Africa’s poor internet connectivity and the adoption of smartphones.

The lack of a uniform fintech infrastructure in Africa also poses a threat to the ease of adoption of WhatsApp payment. Unlike India, with a Unified Payments Interface (UPI) which acts as a link to over 160 banks, right from a single platform, Africa is known to have a more broken structure. The fragmentation causes a lack of uniformity.

However, if granted its way, WhatsApp’s strike in Africa could likely cause a displacement in the continent’s banking structure, and might also trash the hard work startups have put in building payment structures over the years.

For WhatsApp, transaction charge rates are believably going to be one of its biggest competitive advantages,  as the platform may have cheaper transaction rates. 

In India, the UPI charges INR 0.50 per session of use on its platform and this is expected to be maintained by WhatsApp payments this equates to about USD 0.0068. No African payments platform is known to charge rates that are that low at present.

A glimpse of hope?

On the flip side, there’s a possibility for the occurrence of a collaboration between WhatsApp and the already-existing payment gateways in Africa. Just like in India, where the already-built UPI was utilized, it’s pretty unlikely for WhatsApp to begin building a payment gateway from scratch in Africa.

Hence it’s possible that WhatsApp could utilize the existing infrastructure already put in place by the Nigerian payment companies, thereby leading to synergy and maybe a win-win.

However, nothing is certain, and it would be great to watch how it all unfolds, in the coming years.

Featured Image Courtesy: Tekedia