Is WhatsApp Launching A Payments Service In India?

Facebook-owned WhatsApp is likely planning to launch a peer-to-peer (P2P) payments service in India later this year, per recent reports. WhatsApp co-founder Brian Acton had hinted at such a development on his trip to India in February this year, and Facebook recently posted a job opening for a digital transaction lead with experience in UPI, Aadhaar and BHIM.

UPI – Unified Payments Interface – is a payment system launched by the National Payments Corporation of India to facilitate instant funds transfers between bank accounts through the creation of virtual payment addresses. This helps users to securely transfer funds peer-to-peer without going through a cost-incurring third party transaction enabler. Since UPI is free to use, it is hard to imagine WhatsApp making money off this P2P service by levying transaction charges. However, it could enable merchant payment services such as mobile/DTH recharge, bill payments, travel bookings and online shopping and charge merchants for these transactions. WhatsApp currently has 200 million monthly active users in India, around 15% of its total user base.

WhatsApp’s Monetization 

Facebook plans to make WhatsApp a tool with which businesses can communicate with their consumers, and offer it as a better communication method compared to email and text messages. The company can charge a fee to businesses for using this service and monetize the platform, in addition to monetizing through payments. The former plan is similar to the company’s revenue generation strategy from its Messenger app; however, Messenger already has a few companies on board that are using it as a tool for customer service.

Some reports suggest that Facebook is already working on such a product, currently dubbed WhatsApp For Business – a version of the app aimed at small enterprises to help them manage clients better. This version is likely in the design and testing phase currently, and the company apparently plans to launch it in India. Aimed at enterprises with 10 or fewer employees, WhatsApp is looking to provide an option for commercial messaging to help businesses to reach out to customers at scale. ^[1]

We expect WhatsApp to introduce new enterprise-focused features and start generating revenues by 2019. We also expect the average monthly user base on WhatsApp to increase to over 1.7 billion by the end of our forecast period. Our estimate for WhatsApp’s average revenue per user is around $4.50-5.00 by 2023. This could yield revenues of around $8 billion for Facebook in 2023, contributing about 9% of the company’s total revenues, according to our estimates.

Downside Scenario From WhatsApp For Facebook’s Stock 

According to our estimates, Instagram and WhatsApp account for nearly 23% of Facebook’s (NASDAQ:FB) valuation, and once WhatsApp is monetized meaningfully we expect its average revenue per user to grow at a rapid pace and reach around $5 by the end of our forecast period.

This growth impacts Facebook’s valuation, and if the company is not able to monetize WhatsApp per our expectations, there could be a downside to our price estimate. For instance, if WhatsApp can only generate around $2 per user by the end of our forecast period, there would be a nearly 5% downside to our price estimate.

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1. WhatsApp for Business to debut in India this year, Livemint, Feb 25 2017 [↩]