WhatsApp Pay and the War for Digital Payments – The Law of Competition and the Impending Nigerian Dilemma

Introduction

Recently, Facebook/WhatsApp created a ‘payment gateway service’ which it intends to integrate into its WhatsApp messenger app to allow for peer to peer payments (i.e payments directly between WhatsApp users) right on the platform. The payment service, once it becomes functional, will allow WhatsApp users to send money to each other on Whatsapp as easily, and as routinely, as chatting.

The payment service, conveniently named WhatApp Pay, is likely to lead to a perfect coup for Facebook/WhatApp, in the digital payment market. The combination of digital payment services and cross-platform messaging would allow WhatApp Pay provide payment convenience in a way previously unconceived on this scale, and will allow Facebook/Whatsapp directly capitalise on its vast customer base for cross-platform messaging, for its payment services.

When the news of Whatsapp Pay first made the rounds a while back, it was met with a lot of buzz and rightly so. This was especially true from a Nigerian perspective. Whether you are a fan or not, a techie or an observer, it is hard to imagine that the integration of payment services into a platform as widely used within social circles in Nigeria as Whatsapp would be anything less than an curious prospect. In Nigeria, Whatsapp has no less than 20 million users, the largest in the cross platform messaging space. Most Nigerians have need to transfer money regularly and would gladly capitalise on the convenient option of sending money using their preferred messaging platform, or may already trade on Whatsapp and would appreciate the ease of business.

With this in mind, the recent news of WhatsApp Pay’s struggles in India and Brazil has been particularly interesting from a Nigerian perspective.

The Indian Experience

Whatsapp Pay first launched in India, and has had quite the interesting history there. The service has come under increasing scrutiny over the course of its time in India and has faced various regulatory challenges, mostly pertaining to data privacy, antitrust and competition.

After its beta launch in 2018 saw over a million users registering for the service, it failed to materialize into a full-fledged payment service when government regulatory controls and new data privacy laws prevented it from getting the necessary approvals for launch.

It was latter touted to go live sometime in May 2020, after finally getting approval for rollout from the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), but is still yet to be fully launched following a complaint filed against Facebook/WhatsApp as recently as mid-march 2020, on the ground that the offering of digital payment services to Indian consumers through WhatsApp messenger was inconsistent with competition law. Precisely, it was claimed that Facebook is abusing its position of power in India by offering payment options to penetrate India’s booming digital payments market. The complaint stated that the bundling of the messenger and payment service into one single channel violates antitrust laws, particularly the law pertaining to abuse of dominant position.

Currently, the Competition Commission of India (CCI) is reviewing the complaint and is expected to reach a decision soon.

Bedlam in Brazil

In Brazil, WhatsApp Pay has faced even more problematic conditions. While it did not experience as many delays to launch as it did in India, the payment service which was promptly launched sometime in mid-june 2020 was suspended shortly afterwards, by the Brazil Central Bank due to concerns around antitrust violation. The decision to suspend WhatsApp Pay, the Bank said, was to “preserve an adequate competitive environment”, and to ensure an “interoperable, fast, secure, transparent, open and inexpensive payment system”.

Although the BCB did not state the specific antitrust concerns which led to this decision, it can be approximated that it pertains to abuse of dominant position, as was the case in India. This is given credence by another setback experience by WhatsApp Pay in Brazil, this time coming from Brazil’s antitrust watchdog, Cade, which blocked WhatsApp’s partnership with credit and debit card operator, Cielo, due to antitrust concerns along the lines that Cielo is already Brazil’s largest payment processor and a partnership with the biggest messaging service in Brazil (WhatsApp) could pose a market concentration risk and may lead to abuse of dominance.

Chapter 4 – The Competition Coefficient

Twice now, WhatsApp/Facebook has faced major hurdles in the journey to WhatsApp Pay, in the form of competition or antitrust law. The million dollar question then is whether WhatsApp Pay is anti-competitive.

But before that though, a quick re-cap on competition law.

Competition law is a body of laws regulating the actions of businesses to prevent them from acting in ways that negatively affect competitiveness in the market where they operate. The idea is to ensure a fair marketplace for consumers and fellow businesses by prohibiting practices by businesses meant to get greater market share than what would be gotten through honest competition. (Competition law is also called antitrust law and both terms may be used interchangeably.)

A major practice which is considered anti-competitive in many jurisdictions across the world is abuse of dominant position/abuse of dominant power. Abuse of dominant position is generally described as when a dominant player in a market, or a dominant group of players, engage in conduct that is intended to or has the effect of eliminating competitors or deterring future entry by new competitors, with the result that competition is prevented or lessened substantially. To put it another way, it is when a business which has dominant power in a market, uses such power with the intent to prevent competitors from being able to properly compete in the market.

In considering why WhatsApp Pay would have been considered/argued to be anticompetitive, it is important to address the key ingredients of abuse of dominant position and examine how they interplay with Facebook/WhatsApp’s payment service offering. For an action to be considered an abuse of dominance (or a likely abuse of dominance in this case), it has to be carried out by a dominant market player and it needs to be an act in abuse of that dominance.

It goes without saying that WhatsApp enjoys dominant status in both jurisdictions in view. In India, WhatsApp has over 400 million users, a figure which constitutes about 96% of the market share in cross platform messaging. In Brazil, WhatsApp has over 120 million users, an estimated 89 percent of the cross platform messaging market share.

As to the question of whether WhatsApp Pay constitutes an abuse of dominance, it is instructive to consider the details. First, it is not WhatsApp Pay in itself that is said to be abuse of dominance, but the bundling of WhatsApp Pay with the WhatsApp platform, in a way that excludes other competitors.

Bundling simply applies to situations where two separate products are tied to each other, in a way that compels customers to purchase both, or in a way that limits customers options as to whether to use the subsidiary product by foreclosing competitors from accessing customers and providing them with alternatives. Bundling constitutes an abuse of dominance where the entity bundling has a dominant status in at least one of the products that is being bundled. There are various types of bundling, one of which is pure bundling, which occurs when two products are sold jointly only, making it impossible to acquire the products individually. An instruction on bundling as abuse of dominance is as seen in the Microsoft Cases (Windows Media Player and Internet Explorer), where European Courts held that integration of both products into the Windows OS may be tantamount to bundling and might be deemed an abuse of market dominance.

The case against WhatsApp Pay is most likely that it is pure bundling. For pure bundling to be said to be anti-competitive, the entity bundling the products (WhatsApp in this case) must have dominant status in the tying market (cross platform messaging in WhatsApp’s case), the tied product must have an autonomous demand which does not relate to the tying product (in this case payment services which does not related to cross platform messaging) and there must be some coercion to buy/use both products together; which can be direct as in a refusal to provide both products separately or indirect as in through the offering of significant incentive to use both products together (in this case the offering of WhatsApp Pay only through WhatsApp, which has the appearance of direct coercion).

The case for WhatsApp Pay though, is more likely to be factual differentiation. By pointing out how integrating its payment service is not pure bundling, Facebook/WhatsApp can show that there is (will be) no abuse of dominance. To do this, Facebook may argue:

• No Coercion – that WhatsApp does not compel users to use WhatsApp Pay, as users have to go out of their way to download and enable WhatsApp Pay, thereby taking away a crucial ingredient of pure bundling (this is the only ingredient which can be contended in this specific case); and/or
• Non-Exclusivity – that WhatApp pay does not exclude competitors from providing customers with alternative (if this is the case); and/or
• Mere App Feature – that WhatsApp pay is a payment feature much like Google Pay, and is merely an add-on service offered to customers of the App (this may be a bit shaky.)

Chapter 5 – Conclusion

Facebook/WhatsApp has yet to launch WhatsApp Pay in Nigeria. When it does, it is expected that there will be a deluge of conversations around the implications for the Nigerian digital market space. As with Brazil and India, a decision would have to be made on whether to allow the payment service in Nigeria or not.

In the meantime, there have already been some anticipatory commentary on what the future looks like for WhatsApp Pay and Nigeria. Ademola Adeyoju contends that Nigeria should take the path of Brazil and India (and ban WhatsApp Pay when it launches in Nigeria). Ndubisi Ekweke expects that WhatsApp Pay would be successful in Nigeria if it relies on merchant supported payment (since Nigeria does not have an enabler like the Unified Payments Interface in India which Facebook/WhatApp can leverage on) and Stradalimited believe they predicted the future.

WhatsApp Pay would likely succeed in Nigeria if it can scale legal hurdles. Facebook/WhatsApp has the means to push the product in Africa’s largest market and there is a ready demand for the service it renders – it is hard to imagine WhatsApp failing, except by the effect of Law.

On the question of legal hurdles, Ademola shares his reason for preferring that Nigeria ban WhatsApp Pay to be that “the stakes are simply too high—there will be grave consequences for FinTech companies’ operation, serious data protection issues will arise, and the intents of our competition laws may be defeated.”

While it is unlikely that the general implications for Fintech companies is sufficient reason to ban WhatsApp Pay, competition and privacy present urgent challenges. As for competition, the eventual decision on whether WhatsApp pay is anti-competitive in the Nigerian context (and probably in any context), is likely to be informed more by convenience than by the strict letters of law, since the law can go either ways on the issue. As for Privacy, to be honest, it does not appear that there are any obligations in the Nigerian Data Protection Regulation (NDPR) that WhatsApp Pay cannot meet if it intends to.

From a holistic perspective, the possibility of money transfers through a platform as ubiquitous as WhatsApp has the potential to do a lot of good in an emerging economy like that of Nigeria. WhatsApp Pay, should it launch in Nigeria, would not only create the easiest and quickest way to transfer money peer to peer and for informal business transactions, but will also help provide much needed liquidity for SMEs and individuals, (particularly those in the lower income brackets), provide the more vulnerable members of society with the financial security that banks may not as easily provide and nudge the country closer to financial inclusion. On the other hand, it may be the death blow to some of Nigeria’s Fintech Companies. It is the perfect conundrum.