The ‘messenger’ of payments

As mobile wallet companies face the heat of KYC norms, instant messaging/chat apps have been leveraging their popularity and stickiness to expand into payments. How will things pan out?

whats app, digital payments
From the payment ecosystem point of view, digital payments as a percentage of overall payment in the ecosystem are around 12% to 15%.

Facebook-owned WhatsApp recently expanded beyond its core area of communication to offer a platform to use (and buy) services, with the launch of its UPI-based payment feature and a separate WhatsApp Business app. It is not the only player to tread this path; last year, we saw Hike and Truecaller joining the UPI bandwagon with P2P (peer to peer) offerings, with Hike also offering services such as Ola Cab and Auto, bus tickets and bill payments.

Conversely, Google has also announced a chat feature for its UPI-based payment app, Tez.

“We believe every transaction between people happens after a conversation, whether it is over a call or SMS. The idea behind Truecaller Pay was to create a solution which seamlessly integrates transactions with conversations on a unified platform,” says Alan Mamedi, co-founder and CEO, Truecaller. The platform has more than 150 million users in India.

Hike, which reported over 100 million users in 2016, has a fairly young user base (15-24 years) and launched Hike Wallet last year incorporating features like free and instant money transfer and UPI transfer. It claims to have crossed 10 million transactions per month in December last year since the launch, of which around 70% were on recharge and the remaining 30% were P2P transactions.

All this is not new. Globally, WeChat in China, also known as the bellwether of the mobile messaging space, has built a whole ecosystem of services around itself.

What is more, Facebook Messenger too announced a tie-up with PayPal for P2P payments in the US last year.

So, why are messenger apps tapping payments? Experts say the idea is to further engage their user base with add-on services in commerce and finance, enabling consumers to maximise the mobile real estate by edging out standalone payment apps.

Beyond communication goals

The closer payments is to your engagement platform, the higher the possibility of adoption. Messaging apps have very high engagement levels. For example, WhatsApp currently has over 200 million monthly active users in India.

“Chat apps are best poised to integrate payments as they are already downloaded and all one has to do is plug-in payments to build more stickiness,” says Ritesh Pai, senior president and country head, digital banking, YES BANK. This is unlike a mobile wallet app which has to be downloaded separately.

From the payment ecosystem point of view, digital payments as a percentage of overall payment in the ecosystem are around 12% to 15%. The market is huge. “Chat players will carve a niche, especially in the P2P space,” says Jose Thattil, founder, Phi Commerce.

“We see many small businesses benefitting from WhatsApp payment services and accepting payments via UPI. Thus far, these were purely cash transactions,” Thattil further adds.

Also, considering the popularity of chat apps, the P2P service has a sizeable population to reach which will further aid in monetisation goals for these players. For WhatsApp, monetisation is not difficult. It is already running experiments in the enterprise messaging space with MakeMyTrip and BookMyShow. “Businesses now have options to list store addresses and access user metrics (like the number of messages read). The version also helps companies chat with users and address their queries,” says Ujjwal Chaudhry, engagement manager, RedSeer Consulting.

However, compared to WeChat, Indian chat apps are at a nascent stage. WeChat is able to create an open ecosystem around its messaging app, allowing other businesses to ride atop its platform. “This is where local messaging apps can learn from WeChat,” says Saurabh Mathur, head, strategy and planning, VML India.

But compared to WeChat, Indian chat apps may opt for a different monetisation strategy as Chinese customers are more advanced tech users. “Private spending per capita in China is at least thrice that of Indian consumers. Also, WeChat has over 5,80,000 mini-apps on the platform. It will take some time before that kind of system evolves in India,” says Chaudhry. Adding payments will also give chat apps additional data of users such as financial data and data about their affluence level, in addition to social data, which chat apps already have. And here, WhatsApp clearly has the advantage of the volume of transactions.

But then, Paytm has a very strong presence when it comes to offline payments. The maximum percentage of large scale B2B transactions is still happening through RTGS/ NEFT till now. When those start shifting to the likes of Paytm, WhatsApp or UPI, is when things will get interesting.

The late-mover advantage?

The entry of messenger apps will not only further boost the adoption of digital payments in India but also in turn will get benefitted by customer education done by the incumbents, mostly mobile wallet players. As pure wallet companies feel the pinch of RBI guidelines, they may not be able to scale in the future unless they diversify into other services. “Within four-five months of the launch, Google Tez has overtaken Paytm in terms of total payment value. Wallets are going to face difficult times as consumers get more comfortable with UPI,” observes Chaudhry. Furthermore, there is a difference of four-five times in the average transaction value of the wallet versus UPI payment.

The entry of chat apps into payments will make digital payments more mainstream, though. “Currently, only a single digit percentage of GDP is in digital payments,” says Bhaktha Keshavachar, co-founder and CTO, Ezetap.

Also, the new RBI rules may weed out non-serious users of wallets. “It is also a function of at what point in time you start. Many mobile-wallet players started as pure-play stored value methods, and invested in a large ecosystem of merchants and users, which now seems like a write-off in terms of cost,” notes Pai of YES BANK. “Now they are left with the merchant ecosystem as non-serious users get weeded out.”

But there is another scenario to consider. There are multiple stages of maturity in payment and P2P payment is stage one. On the other hand, payment companies, which have used wallet at one point of time, will move on to UPI. “Their core is the payment business as opposed to a messenger app whose core business is to remain socially relevant,” says Vivek Belgavi, leader, Fintech, PwC India. “The new RBI guidelines will further push towards making the usecase of wallets sharper for low value transactions, making mobile wallets the ‘sachet’ of the payment world.” Whereas high value, infrequent transactions are the sweet spot for UPI.

In case of chat apps, the real game changer is likely to be P2M payments, which will involve building dispute resolution mechanisms and adequate security features.


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