Facebook's entry into the payments sector was derailed first in India and now Brazil.
Cielo, the major Brazilian electronic payment company, might be the main loser of the Central Bank’s decision to suspend the ambitious WhatsApp payments tool for its 120 million local users last Tuesday night. Both companies immediately urged the Brazilian monetary authority to reconsider its bold decision, which was based on the antitrust regulator’s (Cade) assessment that the new system would facilitate the concentration of the payments market into the hands of WhatsApp—the main Facebook messaging platform—and Cielo—which controls 40% of the transactions in the country, with more than 1.2 million active customers. Experts say any solution would involve dismantling the Cielo’s temporary monopoly in this system and bringing at least one more of its competitors to the core of the new tool.
The Central Bank and Cade requested more information from the companies three days after they released Facebook Pay, as the new system was named, on June 15. It was a daring move by WhatsApp and Cielo. The main attraction for users—individual consumers and small businesses—would be the lower costs offered by the new system. For WhatsApp, Facebook Pay would mark Facebook’s entry into the highly competitive world payments market after it failed to launch the same tool in India. Cielo saw in this partnership a chance to strengthen its fragile market leadership and throttle its Brazilian competitors whose more aggressive strategies caused an abrupt net profit shrinkage in 2019.
The expected benefits for Cielo were at the heart of Cade’s concerns about market competition, in which the Central Bank will take an active part in when its payments system, the PIX, goes live in November. The plan to integrate Facebook Pay to the PIX was deemed insufficient. Cade estimates that if only 10% of the Brazilian WhatsApp’s users chose Facebook Pay as their new payment system, Cielo would enjoy 140,000 new transactions annually or 1.8% more than it facilitates today. With 50%, the company would aggregate 720,000 new operations or a 10% increase. “These are extremely conservative scenarios, as they consider a low use of this new payment method, but it is useful to demonstrate the high impact this relation might have in the market,” concluded the antitrust regulator.
Cade also raised concerns that Facebook Pay would distort the banking market given that Cielo is co-owned by the state’s Banco do Brasil and the private bank Bradesco, both large credit card issuers in the country. The use of Facebook Pay would be allowed only for WhatsApp users that have credit cards—Visa and Mastercard—issued by these two institutions. More worries were raised as the initiative was launched without the approval of the Central Bank and Cade. It would cause “irreparable damage to the system, especially concern[ing] competition, efficiency and data privacy,” according to the monetary authority.
The release of Facebook Pay last week was applauded by the financial market and caused 28% rise in Cielo’s shares for seven consecutive days until the fatidic Tuesday. During the year, the company’s share price fell by 4%. Facing this abrupt oscillation, the administrative council of the company approved today the reacquisition of 2.6 million shares until July 3. “The members of the board of directors […] feel comfortable that the repurchase of shares will not prejudice the fulfillment of the obligations,” said Cielo in a statement. The firm remains silent on the Central Bank’s recent decision. Only WhatsApp through spokesman Will Cathcart commented on the case, pledging to work with its partners and the Brazilian authorities to restore the new financial service quickly albeit without mentioning how.
