WhatsApp Pay launched, Ant IPO blocked, Google faces CCI/DoJ wrath
It's all about monopolies, competition and, power.
Last week saw an interesting trend play out across India, China and the US.
If you read between the lines, you’ll notice the underlying story remained the same - technology giants becoming too big and governments taking notice. Here are the main headlines we cover in this newsletter.
WhatsApp Pay finally gets the nod while both CCI (India) and DoJ (US) get tough on Google’s monopoly. Would we see a possible anti-trust investigation in India like in the US?
Ant IPO Blocked after Ma’s speech, new guidelines mandate Chinese digital lenders to book 30% of loans on their own books. Could Indian regulators take inspiration?
1. WhatsApp Pay launches in India as Google comes under CCI scanner - again
Earlier this month WhatsApp was finally allowed to launch payments to a wider user base in India using UPI. This was however long due.
The Indian Express explains the delay:
The company has been entangled in legal and regulatory tussles with entities including RBI, NPCI and even the Ministry of Electronics and Information Technology to launch its UPI-based payments service to its entire customer base. After it was allowed to pilot test its product in February 2018 with 1 million customers, WhatsApp was subjected to various demands from these entities such as data localisation, presence of a local grievance officer and having domestic offices. The company was able to meet the data localisation rule issued by the RBI, as per an audit report WhatsApp submitted to the NPCI.
This still doesn't mean that WhatsApp can launch payments for all of its users in India. The National Payments Corporation of India has allowed WhatsApp to scale this to 20 million users, a fraction of its total user base.
Additionally, NPCI, a body comprised of Indian banks, will also not allow any third party UPI based payments company to have more than 30% of the transactions on a 3 month weighted average basis.
The objective for the announcement is to ensure that WhatsApp doesn’t monopolize P2P payments using its dominant market position as a messaging app.
Long time tech policy observer Nikhil Pahwa explains some concerns around this news:
1. No single player is dominant in UPI. At times it is Google Play, close behind it is PhonePe. In the past, it has been Paytm. Now with a new entrant in WhatsApp, who knows? This act of restriction of activity by NPCI is without sufficient grounds.
2. The real monopoly in UPI is NPCI. It's a private company with 100% marketshare of UPI payments, and despite the Watal Committees recommendation of allowing the creation of multiple digital payments infrastructure companies, so that there is competition, we still have nothing.
I would be surprised if any company can take NPCI to court, given its monopoly.
3. Users aren’t locked in to any app, and can use multiple apps. NPCI is thus restricting consumer choice here, by potentially restrictions transactions on some apps.
As this played out, India’s competition regulator, CCI found prima facie merit yesterday that Google is abusing its dominant position in the UPI payments market by pre-installing Google Pay app on all Android devices. Bloomberg Quint reports:
The informant complained to CCI that Google mandatorily asks developers to use its payment system while charging users for apps and downloads from the Google Play Store. Further, if users buy goods or services via an app on Play Store, developers have to facilitate the transaction via Google Play In-App Billing. For both—the payment system and in-app billing—developers have to pay Google a 30% commission. This is over and above the one-time listing fees that app developers have to pay to be listed on Play.
In the US, just this October, the Department of Justice had filed an anti-trust case against Google. The lawsuit marked the biggest antitrust case in a generation and has sparked a debate across the world on whether breaking down tech monopolies would be good for innovation. The last such case was that against Microsoft in 1998 and against AT&T in 1974 which led to the break up of the Bell system - both had considerable impact on the innovation landscape.
The question we’re wondering, is as the Democrats came to victory, would the #BreakupBigTech movement catch further momentum? Be sure to watch this space for more.
Also see Deepak Abbots’s latest analysis of the UPI market
2. Jack Ma botches Ant Financial IPO, takes all digital lenders down with him
There is a word in Mandarin called Guanxi (关系; pronounced gwaan-she) meaning "networks" or "connections". It often refers to having relationships in the government, something that’s considered a must for building a successful business in China.
Jack Ma overestimated his guanxi recently, when he criticized China’s top financial regulators at a public forum in Shanghai for being too risk averse. This is one of the statements he made:
“As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is.”
- Jack Ma in his speech
Several senior financial regulatory officials were furious at Ma’s criticism, two sources told Reuters, with one source characterizing the speech as a “punch in their faces”.
State regulators started compiling reports including one on how Ant had used digital financial products like Huabei, a virtual credit card service, to encourage poor and young people to build up debt, according to the two people.
The general office of the State Council compiled a report on public sentiment about Ma’s speech and submitted it to senior leaders including President Xi Jinping, the sources said.
…with his Oct. 24 speech, Ma misjudged the shifting priorities of Beijing, according to one senior regulatory source, believing he could challenge the financial establishment yet retain the support of the central leadership.
The government took note and immediately blocked Ant Financial’s IPO just 48 hours before it was set to become the world’s biggest IPO (~$40bn worth of shares) by introducing a mandatory regulation for all digital lenders to write at least 30% of loans on their own books.
Now in China, consumer loans sourced via tech firms had reached an impressive 1.43 trillion yuan (~$213 bn) as of end-June, according to the PBOC. The government however, is concerned about the masses (both rich and poor) falling into debt traps by taking too much credit at a time when Liu He (Xi’s main economy man) is trying to clean up the country’s bad debt problem.
Ant Financial through its digital banking service, Huabei, is a major player in this market. But, it underwrites just 2% of the total loan amount disbursed on its own books - the remaining money is lent by partner banking institutions. The regulators changed this number overnight to at least 30% for all digital lenders!
Some napkin math indicates Ant would now need to infuse much more capital into the lending business and TAKE THE RISK on its own books. In my mind, I’m paraphrasing the regulators as thinking: “You want banks to be less risk averse? Let’s see how much risk you take when you’re forced to lend your own money.” 😂
The subtext remained the same - the government finding that one tech company had become too big and having too much influence- in this case needing a reminder on who the real boss is.
It’s all a case of He(Ma) said, Xi said.