What just happened?
WhatsApp has launched the free payment platform in Brazil, indicating the integration of payment services and social media. However, this new service has been suspended by the Brazilian regulator within one week.[1]
What does it mean?
Facebook Inc, the parent company of WhatsApp, has been looking to develop its payment services on its messaging and social media platforms.[2] With the recent launch of WhatsApp Pay in Brazil, users can send payment to their contacts for free while businesses will be charged with a processing fee. Brazil has 120 million active WhatsApp users, which is only second to over 250 million users in India.[3] If the launch were successful, this would be a positive move to develop digital payment channels with a view of expanding to other countries.
However, this development of payment service on Facebook and its platforms has received criticisms. Particularly after the Cambridge Analytica scandal, Facebook was involved in the misappropriation of users' personal data.[4] It is questionable if users are confident in sharing important banking details to WhatsApp under Facebook's control. In fact, WhatsApp Pay's pilot run in India also fell through because it could not obtain the regulator's approval regarding the local data privacy law.[5] The setback in Brazil revealed the potential abuse of market share by their partnership with the local payment processor, Cielo.[6]
How does this affect the legal industry?
The risk of data breach considering the linkage of banking account information to the messaging app is the most prominent legal concern. WhatsApp Pay claims to have its own system to store payment-related data in the defence against the Indian regulator's scrutiny. However, it was challenged that the users' payment data may automatically be shared with the Facebook group, which potentially compromises the privacy of the users.[7] In the UK, processing of payments data will fall into the strict requirement under the GDPR. Therefore, sharing and usage of such data without the consent of the data subject will violate the rule. It follows, Facebook Messenger had launched a P2P payment service in the UK back in 2017, which only lasted for less than two years.[8] While the apparent reason was the low usage rate, the implementation of the EU Payments Services Directive (PSD2) also imposed new regulatory hurdles[GU1] for electronic payment services.[9] Aiming to enhance online security, the PSD2 introduced Strong Customer Authentication (SCA), which requires two-factor identification to complete certain transactions.[10] The SCA will shift the burden of security and risk analysis from pre-existing authentication services such as "Verified by Visa" to the payment service providers.[11]
Another concern, as demonstrated in the suspension of WhatsApp Pay in Brazil, was the distortion of market competition by partnering with Cielo. Because of the large user base of WhatsApp, the new payment service can boost the usage of Cielo by 10% while this local card acquirer already had over 40% market share.[12] CADE, the competition authority, stated that such a partnership could pose a market concentration risk, especially if this involves exclusivity.[13] Under Brazil's competition law, a dominant position will be presumed if the company or group of companies controls 20% or more of the relevant market.[14] While the EU has one of the strongest competition policies in the world, any form of partnership with Facebook or WhatsApp in the region may need to be tactfully handled. On the other hand, new digital payment start-ups are welcomed by regulators as they can offer greater market competition [GU2].
Written by Cleo Ho
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References:
[1] Hannah Murphy, ‘WhatsApp blindsided by Brazil block on payments’ (The Financial Times, 24th June 2020)
[2] Peter Walker, ‘WhatsApp launches in-app payments’, (FS Tech, 15th June 2020), <https://www.fstech.co.uk/fst/WhatsApp_Launches_In_App_Payments.php> Accessed 25th June 2020
[3] Josh Ballard, ‘What Countries are the Biggest WhatsApp Users?’ <https://www.conversocial.com/blog/what-countries-are-the-biggest-whatsapp-users> Accessed 25th June 2020
[4] Julia Carrie Wong, ‘The Cambridge Analytica scandal changed the world – but it didn't change Facebook’, (The Guardian, 18th March 2019)
[5] Anandita Singh Mankotia, ‘Concerns over security: Govt fears WhatsApp may share payments data with Facebook, others , By’ <
[6] Hannah Murphy, ‘WhatsApp blindsided by Brazil block on payments’ (The Financial Times, 24th June 2020)
[7] Anandita Singh Mankotia, ‘Concerns over security: Govt fears WhatsApp may share payments data with Facebook, others , By’ <
[8] Charlie Osborne, ‘ Facebook to end Messenger payments in the UK, France, <https://www.zdnet.com/article/facebook-to-end-messenger-payments-in-the-uk-france/> Accessed 25th June 2020
[9] European Commission, Payment services (PSD 2) - Directive (EU) 2015/2366, <https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366_en>, Accessed 25th June 2020
[10] The Financial Conduct Authority, Strong Customer Authentication < https://www.fca.org.uk/consumers/strong-customer-authentication> Accessed 29th June 2020
[11] Barclay Card, What is PSD2 and will it affect how merchants take payments? <https://www.barclaycard.co.uk/business/news-and-insights/what-is-psd2> Accessed on 29th June 2020
[12] Danny Cyril D Cruze, ‘WhatsApp Pay could make a comeback in Brazil’ <https://www.livemint.com/technology/tech-news/whatsapp-pay-could-make-a-comeback-in-brazil-11593136469228.html> , Accessed 25th June 2020
[13] Carolina Mandl, Isabel Versiani, ’ Brazil suspends WhatsApp's new payments system’ (Reuters, 24th June 2020)
[14] Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados ’ Dominance in Brazil‘, (Lexology, 29th April 2019)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.