FinTech: Facebook’s WhatsApp Payments Service Hits Regulatory Wall in Brazil

June 25, 2020 | FinTech, News
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Brazil’s central bank and competition authority have suspended the barely two-week-old service.

Banco Central Do Brasil (BCB), the Brazilian central bank, has ordered Visa (NYSE: V) and MasterCard (NYSE: MA) to suspend payments transactions through the payments service newly introduced by Facebook’s (NASDAQ: FB) WhatsApp message application. Brazil’s antitrust regulator, Cade, also blocked Cielo S.A, the payments processor partnering the WhatsApp events service, from continuing the arrangement. (Bloomberg)

The Brazilian Central Bank is miffed

In a notice titled “new payment solution requires prior authorization from the PCB,” the Brazilian central bank barred Visa and MasterCard from initiating payments and transfers through the WhatsApp messaging app.

“The BCB’s motivation for the decision is the maintenance of an adequate competitive environment, which ensures the operation of a payment system that is interoperable, fast, safe, transparent, open and inexpensive,” the central bank said.

The bank said it needed to assess independently any risks to the country’s payment system, as well as the new payment solution’s compliance with the regulations prescribing in law 12,865/2013. The referred document regulates the payment schemes and payment institutions that are allowed to become a part of the Brazilian payments system.

“Initiation or continuity of operations without the prior analysis of the Regulator might cause irretrievable damage to the SPB, particularly with regard to competition, efficiency and data privacy issues,” the BCB added.

A person familiar with the deliberations told Bloomberg that Facebook was surprised by the action of the BCB. The two sides were in regular touch with each other prior to the launch of the payment service.

Brazilian anti-trust regulator also in the act

In an injunction issued on Tuesday, the Administrative Council for Economic Defence (CADE), the Brazilian anti-trust regulator, blocked the transaction between Facebook and Cielo for processing payments while the WhatsApp messaging application. The regulator cited Cielo’s high market share in Brazil and WhatsApp’s millions of users for its decision. It said WhatsApp’s user base presented an exceptional opportunity to Cielo if the two parties agreed exclusively with each other.

“Despite the investigation on this transaction still being in its initial stage, there is already considerable potential harm to competition which must be mitigated or prevented by this Council. These effects might be a consequence of this transaction and could cause irreparable or very difficult to reverse damage to the affected markets,” said CADE.

WhatsApp puts on a brave face

“Our goal is to provide digital payments to all WhatsApp users in Brazil using an open model and we will continue to work with local partners and the Central Bank to make this possible,” said a WhatsApp spokesperson, as quoted by Bloomberg. “In addition, we support the Central Bank’s PIX project on digital payments and together with our partners are committed to work with the Central Bank to integrate our systems when PIX [Brazil’s proposed instant-payment system] becomes available.”

Goldman Sachs agrees with the BCB on WhatsApp payments service

“We think the central bank’s measure is consistent with its intention to promote competition, especially as the regulator has been vocal in saying that it will not allow closed-loop schemes or exclusivity and that interoperability is essential to promote competition,” analysts at Goldman Sachs (NYSE: GS) said in a note to clients.

Facebook’s Jio deal in India gets the nod

Meanwhile, according to a report today in the Economic Times, the Competition Commission of India approved Facebook’s purchase of a stake in the Jio Platforms for ₹ 43,574 crores ($5.7 billion).

Jio Platforms holds RIL’s telecom business under Reliance Jio Infocomm. It is the largest in the country with nearly 400 million subscribers, besides other digital properties and investments.

Related Story:  Facebook’s WhatsApp Kicks Off Mobile Payments in Brazil; India to Follow?

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