WhatsApp Pay Vs Google Pay Vs PhonePe: Who Has The Edge?

India’s UPI payments segment is a fight between large tech and ecommerce firms as banks take the back-seat.

Passengers use smartphones at Mumbai Central railway station in Mumbai (Photographer: Dhiraj Singh/Bloomberg)
Passengers use smartphones at Mumbai Central railway station in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

It is a platform that processed more than 2 billion transactions in October. Twenty-one third-party applications are active on it, along with 140 lenders. Yet, it is dominated by two large payment applications with a third new entrant now threatening to play disruptor.

With the entry of WhatsApp Pay — which was permitted to launch services to 20 million users last week — the battle to grab a share of transactions via India’s fast-growing Unified Payment Interface is expected to intensify.

At present, Google Pay and Walmart-owned PhonePe have cornered 80% of the market, split evenly between themselves. Paytm comes in at a distant third position. While the rollout of WhatsApp Pay will happen in stages, many believe it has an edge right from the start.

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Battle Of The Giants

Undoubtedly, WhatsApp’s active user base will be its biggest advantage in a crowded UPI market.

“The fact that they can embed the payments service into the messaging platform is a big benefit. It makes adoption easier and opens up new use cases for UPI,” said Nikhil Kumar, co-founder and chief evangelist at Setu.

Some businesses have begun experimenting with commerce on WhatsApp and a payment option will add to the convenience of buying and selling via the platform. WhatsApp brings a seamless approach toward payments through its UPI services, which other applications may not be able to do well, said Kumar.

“Imagine going to a pizza outlet and getting a QR code, which you can scan and get a business account added to your contact list on WhatsApp. An AI (artificial intelligence) bot discusses what you like and gives you a catalogue where you can select the pizza of your choice and pay for it right there. The entire experience will be seamless,” Kumar said.

While it is still predominantly a messaging application, WhatsApp has been testing other services as well.

In October, BloombergQuint had reported that WhatsApp has entered the e-commerce space which will allow customers to shop and soon pay using the messaging service. In April, Bloomberg reported that Mukesh Ambani’s Jio Mart was testing WhatsApp-backed online stores in India, where customers will be able to order products directly from their messaging application. WhatsApp’s owner Facebook had inked a $5.7-billion investment deal with Ambani’s Jio Platforms in April.

In its response to BloombergQuint’s queries, WhatsApp said its collaboration with Jio is focussed on enabling new opportunities for businesses of all sizes, but especially for the more than 60 million small businesses across India. “Our collaboration will create new ways for businesses to find and interact with customers and drive sales in the growing digital economy,” WhatsApp said in its response.

The move to target small shop owners has an added significance in the context of UPI payments, where peer-to-peer transfers still make a large share of transactions and merchant payments contribute less than 40% of volumes.

Competitors like Google Pay, PhonePe and Paytm have been focussed on growing the peer-to-merchant payment segment. And they have their own inherent strengths.

PhonePe has a formidable merchant franchise since it is backed by Walmart-owned Flipkart. Google Pay, too, has a broad ecosystem including the Google app store, which may hand it certain advantages.

Merchant payments is where a lot of the existing players will compete going ahead, since that shows engagement among users and the data can be used further, said Gautam Chhugani, director- financial and fintech, Bernstein Research.

There is an initial period of integrating long tail of merchants and utilities, where WhatsApp will have to catch up with existing players. WhatsApp will also need to put feet on street on engaging with offline merchants, where others like Paytm and PhonePe have invested... It is going to take longer for a new entrant to build its own network of merchants.
Gautam Chhugani, Director- Financial and Fintech, Bernstein Research

PhonePe declined to comment on queries sent by BloombergQuint on Friday. Google Pay did not respond to queries.

Where Are The Banks?

While the number of use cases, users and service providers have increased exponentially in the last four years since UPI launched, there is no direct revenue to be gained from this fight.

That’s one reason why banks, which have a large captive client, have taken a back-seat in the UPI fight.

When there was MDR (merchant discount rate), there was an incentive for the banks to participate in UPI. But once it became nil, the revenue pool vanished, even the large banks did not see much incentive in playing in this space.
Shishir Mankad, Leader- Financial Services, Praxis Global Alliance

In December 2019, the government scrapped the merchant discount rate on UPI transactions. The MDR allows participants in payments chain to make money on transactions conducted at merchant outlets. It is the amount of money which a merchant pays to be able to accept digital payments. The MDR is split among the issuer bank, the service provider, and other parties involved in facilitating the transaction.

With banks choosing to withdraw from the fight, the field has been left wide open for larger technology and e-commerce platforms, which can leverage the customer knowledge and data they gain from payments, to cross-sell a wider array of products.

“The fact is that India lacks internet companies which can look beyond the MDR and have other revenue streams who make sure that the UPI transaction becomes a good business for them. A pure play payments company, with the exception of PhonePe, will find it difficult to maneuver the UPI space right now,” said Kumar of Setu.

Ashneer Grover, co-founder and chief executive officer of BharatPe, said the only way a payments company can ensure a revenue stream in India is by getting into lending. “But for that, companies have to develop a network of lenders who will provide capital, they will also need to have an underwriting and collections process in place, which is a lot of work people are not ready to do,” Grover said.

Setting Up Guard Rails

Perhaps recognising the disruption that the large technology platforms and e-commerce firms can bring to the UPI payments segment, the National Payments Corporation of India has said a third-party application cannot control more than 30% market share in terms of volumes. The rules kick-in starting January 2021 but existing players have two years to comply with them.

Was this the only way to prevent one-sided dominance of the UPI payment segment?

R Gandhi, former deputy governor of the Reserve Bank of India, said the intent behind NPCI’s diktat must be understood. Gandhi is an adviser to Paytm Payments Bank, which is active on the UPI network.

All it is saying is that the transactions have to be within 30% of the preceding three months rolling average. This eliminates the chance of someone suddenly doubling their transactions base. Organic growth is still entirely possible for anyone offering UPI services.
R Gandhi, Former RBI Deputy Governor / Advisor To PayTM Payment Bank

Mankad of Praxis Global Alliance said while the NPCI has defined a transaction cap, it could be cumbersome to implement. Most third-party applications have relationships with multiple banks to enable transactions for customers and merchants.

“The NPCI can only implement the cap through the banking network. So, let’s say, if an application can only process 700 million transactions, then each bank will have to reduce the number of transactions it processes with the application to be able to meet the limit,” Mankad said.