Why we complain about Whatsapp Payments and UPI

Because people don’t like competition.

The Indian internet community is agitated over the imminent rollout of Whatsapp’s payment service, sitting atop the UPI infrastructure that NPCI maintains.

Accusations of favouritism, ecosystem and competition risk, and paeans to the needs of the hallowed Indian consumer are being adduced for why Whatsapp’s implementation of UPI is a negative outcome for everyone involved except Whatsapp; the feared bogeyman of Facebook always looming large over the proceedings.

Leaving aside the question of partial treatment, the argument about market size, competition, and consumer benefit is dubious.

Guess what’s easier for everyone to find and use than 323aef@icici?

Your Whatsapp account, tied to your phone number.

This is a step function improvement in UX.
Trust me, I’ve been using Whatsapp payments non-stop this week.

This is wrong.

The point of P2P payments is for money to move easily. The container/application layer is just a medium to facilitate this easily.

Interoperability at the application layer, via allowing UPI handles, is a good idea when all containers of value, ie wallets or bank accounts, are fragmented, i.e., potential customers are all over. This creates a network, and the network creates tremendous payment volume.

If Paytm has 100M customers with 1 Billion saved and Mobikwik has 80M customers with 800M saved, interoperability is a great idea so that the payment network has 180M customers who can send 1.8B freely.

But interoperability at the application layer doesn’t matter if your ICICI bank account can send money to my Kotak bank account through any payment application/container,ie, Paytm, BHIM, Whatsapp. That’s because the actual value resides farther down the value chain, i.e., your bank account.

If everyone in India uses Whatsapp to transfer money from any bank account to any bank account, the container that the customer uses doesn’t matter as much, simply because Whatsapp has a bigger network of phone numbers than any payment company has UPI handles that will miss out.

The point of UPI is to have infrastructure that enables better application level competition, i.e., let a thousand flowers bloom.

Because the switching costs are so low — just use a new app — the only consumer lock-in comes from delivering better product value or creating a network effect, or some variation thereof.

So what everyone is complaining about is Whatsapp competing with them while using its network effect to provide tremendous product value to its customers.

Payments companies are complaining that they don’t have a bank’s switching cost.

When you think about consumer lock-in, you have to think about switching costs.

One of the problems of banking is that switching bank accounts is painful. Hence you end up with a whole host of banks with subpar consumer satisfaction ratings, but rarely any churn when it comes to customers.

The corollary for internet businesses is that churn is a huge problem. Therefore the incentive is to deliver consumer product value, since the the next guy can always compete with you, and take your customers away.

Payments is a brutal war zone; most of the business gets commoditised rather easily, and hence creating sustained differentiation is hard. Customers don’t care; they leave you if someone else gives them more value.

A network effect that comes from providing consumer value.

Whatsapp has that. People actually use Whatsapp daily. Global communication is massive consumer value. Making communication easier gives you tremendous customer loyalty.

Payments is a form of communication—of monetary value.

It means they’re competing orthogonally with payment businesses.
They don’t need to meet some value criterion for new customers; their existing customers already use them effectively all the time.

All they’re doing is providing a new medium of communication—Payments. Since P2P payments happen inside networks, Whatsapp instantly enables anyone to transfer value atop the banking network.

The market rewards companies that create consumer value. Whatsapp does that by enabling everyone in its massive network to send money easily. Whatsapp doesn’t preclude others from utilising the same infra towards distinct product experiences.

A good rule of thumb when people argue complain about fairness is to ask where their incentive lies in pushing forward a claim. In the case of payment companies in India, it’s obvious—Whatsapp has beaten them at their own game.

Remember what Peter Thiel said: every company wants to be a monopolist; as a corollary, only losers complain about fairness. You will never hear a company talk about interoperability, data monopolies, or network effects when the company is able to capture value itself.

As it stands, Whatsapp Payments is a fantastic step for consumers in India. There are risks—data, for example—but Whatsapp’s product design isn’t one of them. Rather than carp at anyone who will listen, payment companies need to figure out what they can do to compete with Whatsapp in creating product value; customers will follow.

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