After the announcement by Mark Zuckerberg that Facebook-owned WhatsApp payment feature will soon be launched in “a number of countries later this year”, banks in Nigeria may need to recalibrate their strategies in confronting a bigger threat and give startups room to breathe.
The payment feature which remains at the trial phase has already found a 1 million market in India, since February 2018 when it was released in the country. The trial in India is Facebook’s first attempt at offering peer-to-peer payments through WhatsApp. The company is however familiar with the payment space having offered similar services on Messenger in the United States.
During his keynote address at the F8 Developer Conference, Zuckerberg said he was excited about the “vision” of payments, an area he is convinced Facebook has an opportunity to make things a lot easier for its users.
“I believe that it should be as easy to send money to someone as it is to send a photo,” says Zuckerberg. “It’s being used a lot and the feedback is great. And you can take a look at what the basic experience is and you know overall payments and private commerce is one of the areas that I’m really excited about and we’re going to have a lot more news to talk about here over the coming year.”
WhatsApp is the world’s largest instant messaging service and it has a large customer base in Nigeria. The chat app recorded more than half a billion daily active users worldwide in the first quarter of 2019, up from 450 million global daily active users (DAU) in the second quarter of 2018, according to data from Statista. Overall, there are about 1.5 billion WhatsApp users in over 180 countries. An average user checks WhatsApp more than 23 times per day.
In Nigeria, WhatsApp and Facebook jointly account for 41 per cent of internet users. The digital banking – now the new battle field of players in the financial services sector in Nigeria – rest on the population of people on the internet.
Thus, when an organisation that provides a platform where 41 per cent of the people in the market go to on a daily basis, decides to add a payment feature on the platform, other payment providers will need a miracle to compete. Nigerian banks which for many years have put the threat-neutralising gun on fintech startups now have to change tactics, because the real threat has moved address.
One social media commentator, tweeting from the handle @xynomen captures it this way:
“The threat is, every service provider is creating a payment gateway for their communities, this will eventually ostracise the banking industry. Apple Pay is coming with a credit offer. You don’t even need money as long as you are shopping for their products.”
The banks however are not likely to lose sleep so soon given that WhatsApp still have the very unappealing hurdle of securing a Central Bank of Nigeria (CBN) license if it intends to operate as a Payment Service Provider (PSP) in the country.
Following that, the messaging app is likely to need partnerships with traditional financial institutions to succeed. While that plays into the hands of a few banks that will agree to partner, WhatsApp could potentially benefit from the network of collaboration it has built with Nigeria’s small businesses and tech ecosystem over the years through Facebook initiatives. One of such initiatives is the Express WiFi which gives access to affordable internet anywhere people are – at home, in a café or on the go. The company has empowered small and medium enterprises to grow their businesses at various occasions. Facebook has also facilitated special software trainings, accelerator programs for startups as well provided financial rewards and equity investments in a few.
The threat WhatsApp represents to banks not willing to collaborate with startups therefore, cannot be underplayed. The relationship between banks and fintech startups has not always been mutually beneficial. On every occasion, banks have sought to preserve their dominance for obvious reasons. Startups mostly make do with the hand-outs while battling survival in a very difficult business environment. This is why many of these startups would eagerly turn to companies like Facebook.
Going forward, any chance of surviving the oncoming onslaught may depend more on how the relationship between banks and startups evolve. A few banks have attempted to collaborate with startups to explore new ways of deepening their market share; but it has only been efforts initiated to benefit the banks.
In order to embrace the innovation of fintechs banks may need to take the laboratory approach – a long term view. It could be risky but in their best interest.
A situation where big tech organisations like Facebook, Google and Microsoft practically own most of the innovations from local startups puts the traditional banks at disadvantage.