Facebook Faces New Hurdles as Brazil’s Central Bank Suspends New WhatsApp Mobile Payment Service

Brazil’s central bank has suspended WhatsApp’s payments feature in the country. The newly-launched system allows users of Facebook Inc’s WhatsApp instant messaging service to send money via chat.

WhatsApp launched its mobile payment services in Brazil in the past week. This was the first time WhatsApp had been able to carry out a countrywide rollout of its payment service in any market.

The central bank stated that it took the decision to “preserve an adequate competitive environment” within the mobile payment space and to ensure the “functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap.”

The WhatsApp fallout

The central bank has also ordered Visa and Mastercard to halt transfers and payments via WhatsApp’s new payment system. If Mastercard and Visa do not comply with this order, then they would be subject to fines and administrative sanctions.

Per the statement, Brazil’s central bank mentioned that it did not have the opportunity to analyze WhatsApp’s payment service before its rollout. The agency said that rolling out the service without previous analysis done by the monetary authority could ruin the Brazilian system in areas of efficiency, competition, and data privacy.

The WhatsApp payment service enables users to transfer funds to local businesses or individuals within a chat, attaching payment in the form of a video or photo. WhatsApp mentioned that it was not charging any fees to users for receiving or sending money but businesses were being charged a 3.99% processing fee to get payments. 

WhatsApp has more than 120 million users in Brazil as this is the second-largest market behind India where the company has also struggled to roll out the new payment system.

Facebook started testing WhatsApp Pay in India for the past two years and has yet to obtain regulatory approval to expand the payment service countrywide. Apart from India, which is WhatsApp’s largest market, WhatsApp also has been testing its payment system in Mexico.

A WhatsApp spokesperson stated that the messaging service would continue collaborating with the central bank and local partners to offer digital payments for its users in Brazil using an open business model that would address regulator’s concern on market concentration.

It emerged that WhatsApp rolled out its service in Brazil without requesting authorization from the central bank, as it was operating as an intermediary between financial institutions and consumers.

While others termed the regulator’s decision as an overreaction, some observers mentioned that WhatsApp created a potential risk in terms of privacy and market concentration.

WhatsApp began its operations in Brazil in partnership with Mastercard, Visa, state-controlled lender Banco do Brasil SA, lender Sicredi, and Nubank.

In a separate setback, Brazil’s antitrust watchdog, Administrative Council for Economic Defense (CADE) suspended WhatsApp’s partnership with Cielo credit and debit card operator to process the payments. CADE said that since Cielo is already the largest payment processor in Brazil, a partnership with the largest messaging service could potentially pose market concentration risk.

The central bank’s move comes at a time when the regulator is preparing to roll out its own instant payments system in November this year, a system known as PIX, joining over 980 participants. The WhatsApp spokesperson also mentioned that it was committed to collaborating with the central bank to integrate systems once the PIX becomes available.

Private banks have been cautious about opening clients' valuable data to tech giants like Facebook. Some executives have identified a lack of accountability and security issues as major concerns if a transaction goes wrong. It is not clear whether Visa, WhatsApp, and Mastercard have already complied with the central bank’s directive.