Brazil blocks Facebook’s payments push

Brazil’s central bank has put an apparent stop to Facebook’s payments plans in the country only a week after the tech giant announced the launch of a new WhatsApp-based digital payments service.

Brazil is WhatsApp’s second-largest market by the number of users.

In India, WhatsApp’s largest market, after a trial programme the national financial authorities also prevented the Facebook-owned messaging platform from launching a large-scale payments service.

Facebook has also received rebuffs from global financial regulators over its plans to launch its own digital currency called Libra.

According to Bloomberg, when suspending WhatsApp’s payment activities in the country Brazil’s central bank cited the need to “preserve an adequate competitive environment, that ensures the functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap”.

The central bank also ordered Mastercard and Visa, on whose payment ‘rails’ the WhatsApp service was to run, to stop payment and money transfer activities through the app.

Card payments dominate online commerce in Brazil: according to JP Morgan, cards are used in 59 percent of online transactions.

Consultant McKinsey says Brazil is the region’s largest payments market, with nearly 40 percent of Latin America’s payments revenue growth coming from card-related fee income.

The Brazilian central bank’s citing of competition concerns as a reason to block Facebook’s payments launch may be seen as controversial.

According to the Bank for International Settlements (BIS), which has published a special chapter on payments as part of its annual economic report, payment processing fees in Latin America are higher than in many other global regions.

“Card payments are a lucrative source of revenue for financial institutions and card networks. Both features reflect the fact that these institutions use payments as a competitive moat,” the BIS said.

“Overall, the ratio of domestic payment revenues to GDP (a rough proxy for costs) is higher where banks’ net interest margins are higher, pointing to lack of competition. In Latin America, for example, credit card fees amount to over 1 percent of GDP,” the BIS said.

“This indicates the potential for reducing costs without weighing on economic activity,” the BIS said.

According to Bloomberg, a spokesperson for WhatsApp reiterated Facebook’s determination to enter the payments market in Brazil.

“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,” the spokesperson said.

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