Will Facebook Soon Dominate Digital Payments in India, Indonesia?

Over the past few weeks, Facebook has made a series of bold investments in Asia. First, it plowed $5.7 billion into India’s Jio Platforms, which is part of the Reliance Industries conglomerate. (Reliance Industries is India’s largest publicly traded company and is engaged in several businesses from petrochemicals to telecommunications.) Then, Facebook invested in Indonesia’s homegrown ride-hailing unicorn, Go-Jek. Through these strategic investments, Facebook appears to be looking to deepen its engagement with vast numbers of middle- and lower-income users on its platforms.

Facebook’s move to embed digital payments in its popular messaging app

With China effectively closed to foreign tech companies, India and Indonesia are the largest contestable markets in Asia. The enormous populations of both countries are increasingly making use of smartphones, cheap data and internet connectivity. Hundreds of millions of people in both countries have flocked to Facebook to establish their online identities, and many have started to use Facebook’s WhatsApp messaging and free calling service. It is now fair to say that WhatsApp is the most used app in both Indonesia and India.

In effect, Facebook and WhatsApp are cornering much of the time spent online by Indonesians and Indians. Thanks to Facebook’s advertising model, engagement equals eyeballs equals profit. But there is more to do, as these users have not been fully monetized. Facebook is aware that its platforms are being used for a great deal of informal e-commerce. CGAP has blogged about the growth of informal e-commerce in Asia, especially among female entrepreneurs. Sellers set up virtual shops, market their products in chat groups and arrange payment and delivery off platform — a phenomenon that Facebook’s recently announced Facebook Shops seems designed to monetize.

If Facebook wishes to facilitate even more online activity in both countries, as WeChat has done in China, it will need to go further and embed digital payments into its communications tools. Facebook already is attempting to do this globally with its WhatsApp Pay pilot in India (soon to be expanded to Indonesia) and Brazil. In China, the ability to pay within a chat group, simple as it sounds, supercharged adoption of WeChat. Splitting a restaurant bill within the chat group you used to arrange the dinner, for instance, has proven appealing to many customers. Once integrated, many of the activities that users do online — such as buying things, booking tickets, sending money — could be done without ever leaving the Facebook universe. This would allow Facebook to capture a sizable chunk of users’ everyday economic activity.

Building bridges from the cash economy to a virtual ecosystem

Even if WhatsApp Pay seamlessly facilitates digital payments, India and Indonesia are cash-based economies and users will need convenient ways convert their cash into electronic value for use within Facebook’s virtual ecosystem. Online commerce requires physical infrastructure for moving goods in the real world.

Both of Facebook’s recent investments address this challenge. Jio and Go-Jek have or are building extensive physical networks that enable customers to exchange cash for electronic value and send or receive goods. Go-Jek has a fleet of 2 million drivers, while Jio Payments Bank intends to open 70,000 “banking outlets” across India. In addition, Jio Mart is gearing up to enlist millions of neighborhood stores to deliver local orders.

Considering its recent investments, Facebook is starting to look like a formidable player in the e-commerce space.

These investments could benefit Facebook in other ways as well. In both deals, Facebook plays to its strengths while using partners to make up for vulnerabilities. As Facebook pursues the necessary licenses and approvals for launching Whatsapp Pay, partnering with highly respected local partners could help the company neutralize the trust deficit of its brand and better navigate country contexts.

Both companies are domestic darlings: Go-Jek’s ex-CEO is a member of Indonesia’s cabinet and Reliance Industries is a sprawling powerhouse in India. Crucially, both are integrated into their respective domestic financial sectors.

What does this mean for low-income customers?

This looks like a new phase for Facebook. It always has found itself operating at the frontier, largely unburdened by regulations. This time is different, as it forays into highly regulated sectors such as finance, which have pushed it into partnerships.

Should Facebook and its partners succeed in the e-commerce space, it will be exceedingly difficult for competitors to dislodge them. They have bitten off two massive and complex markets, so one wonders how they will go about capturing these markets. The question remains: how will they deal with regulatory demands for data localization? Whatever solution is, it is sure to set a powerful precedent.

Entities like Facebook are increasingly looking to play a role in the financial lives of low-income people. Do these enormous businesses represent a powerful force for financial inclusion? What risks do they present to users and small businesses? We aim to tell the story as it develops, but one thing is certain, this is only the beginning.