Ivo Gueorguiev, Co-Founder and Executive Chairman of Paynetics shares some insight on the complications around payments that are specific to the Latin America region. These may have informed this move, but which might hold WhatsApp/Facebook back from rolling it out to the rest of the world in the same way.
There’s no doubt that across a great many sectors, against an existing backdrop of vast digital transformation, we’ve seen years’ worth of disruption happen in a few short weeks. Worldwide, some parts of the economy have been threatened with an almost complete shut-down, and businesses have had to move quickly to keep trading and respond to huge changes in consumer demand. Perhaps the fintech industry can lay claim to being one of the industries at the vanguard of helping companies move from how they conducted business previously to face this “new normal”. We’ve had to provide innovative solutions that can support consumers and businesses as they navigate their way back to stability. But this innovation will also help to pave the way for the next iteration of the digitally-led world that will emerge in the months to come.
Even before the pandemic there were huge shifts happening in ecommerce and payments across the world, reflecting changing consumer attitudes towards cash and increased use of contactless and digital options. These trends have recently accelerated in the US, with research from Square payments revealing that only 8% of merchants identified as cashless at the beginning of March, but that before the end of April that number had jumped to 31%. And in the UK, recent stats from UK Finance show that fewer than one in four payments last year were made with cash and more than half were made by card last year.
Furthermore, figures from Mastercard show that, globally, the financial fallout from the COVID-19 pandemic has left small businesses as some of the hardest hit. Historical data shows that 82% of SMEs fail due to cashflow issues even in the best of times, but with the use of cash falling and 130 million SMEs not able to accept electronic payments due to obstacles such as expensive additional hardware, they risk falling even further behind.
It’s within this global context that we saw the news that WhatsApp has launched its payment service for individuals and SMEs – but in Brazil only. It’s an interesting development in a number of ways, but does this give us the full picture of what the future of payments will look like worldwide?
In this instance, we must take into account certain complications around payments that are specific to the Latin America region and which will have informed this move. These, coupled with the well-documented issues from the Indian roll-out of the service, might hold WhatsApp back from expanding it to the rest of the world in the same way.
If we examine the region more closely, figures from McKinsey show that up to 65% of adults in Brazil do not use formal financial services, and other established payments services – many of which are household names in the West – do not have a presence in LATAM. But WhatsApp claims that it has 120 million Brazilian users, and we’ve seen how influential the platform is on a broader, cultural level in the country, via national events such as the 2018 election. Already, 46% of users in the country have said that they have bought products through the app, and so there is an opportunity to enhance these existing ecommerce transactions and make them more seamless and efficient for the user. But there is also an opportunity to start reaching more people, a lot of whom may not be engaging with traditional finance solutions, on a platform that is already so far ingrained into society.
There are also some significant advantages to WhatsApp’s current offer which are very particular to this region. These are as a result of the company catering to factors such as the country’s individual tax systems, the high level of remittance – Brazil’s remittance flows are currently valued at $2.5 billion – as well as nuances associated with the Brazilian currency. But on a global level, and so in countries without these associated advantages, there may not be as much of a requirement or, indeed, demand for a payment service like this.
On top of this, there is the often-cited general lack of trust in Facebook and ongoing security and privacy concerns associated with the company that will continue to affect all of its products. We’ve been here before with Facebook’s Libra initiative. From a brand reputation perspective, this will no doubt play a part in how the company approaches growing its payment platform going forward.
Whilst this new service appears perfectly suited to the Brazilian market, and perhaps LATAM more broadly, a more viable option for ROW could be one where payments are embedded into the Facebook marketplace or other channels, such as Instagram, and where they can drive frictionless payment experiences for WhatsApp users as a result. In a climate where ecommerce is booming due to the COVID-19 pandemic – global ecommerce retail sales have grown by 209% since last year – a move like this from Facebook could be a significant challenge to more established players in the industry.
As a fintech industry we have a responsibility to push the envelope for consumers and the SMEs that are the lifeblood of our economies as they weather the storms caused by this global pandemic – ecommerce, mobile payment or wallet solutions are just some of the areas in which I have seen vast amounts of both innovation and demand in recent weeks. Another example of this kind of innovation, this time in Europe, is the network of interoperable wallets built by phyre and currently used by telecoms companies A1 and Vivacom, which brings together Apple Pay, NFC, QR codes and IBAN transfer payments in one app. Flexibility and incorporating as wide a number of payment options as possible could be a key to future success for businesses.
But ultimately, our job is to listen and respond to the specific needs of an individual, business or even entire country, and provide tailored solutions that can solve particular problems, so that no one is left behind.