Facebook's e-commerce, payments playbook may underpin $5.7 billion Indian Internet bid

23 April 2020 00:00

This week’s announcement that Facebook had secured nearly 10 percent of Reliance Jio, India’s largest Internet provider, was light on detail and revealed little about how the partnership would work.

However, a new offering from each of the two companies suggested that e-commerce and payments would be revealed as the heart of the deal between the social network and India's largest Internet provider.

This points to an arrangement of such significance that it would be likely to pique the interest not only of the competition regulator, but possibly the telecom and the banking regulator and, even, a yet-to-be-established e-commerce regulator.

The stated focus of the new deal with Reliance Jio, which will see Facebook receive 9.9 percent of Jio Platforms in return for a $5.7 billion investment, are micro-, small- and medium-sized businesses, farmers and small merchants.

However, it looks like Facebook’s popular messaging app WhatsApp, which counts more than 400 million users in the country, may also be part of the US company’s decision to acquire another slice of India’s booking Internet market.

In February, WhatsApp gained permission to roll out WhatsApp Pay in India, after some regulatory setbacks.

Banking regulator the Reserve Bank of India, or RBI, had refused to allow WhatsApp Pay, a payment service, to move out of its beta-run and add more than 1 million users until it localized payments data.

As for Jio’s side of the deal, the partnership could be aimed at pushing the company’s new JioMart, which was launched in January, as an online grocery store. Whether the platform limits itself to groceries in future remains to be seen, with stock-exchange filings and press releases now referring to JioMart as a “small business initiative” or a “commerce” platform.

One filing said that, “concurrent with the investment,” Reliance Retail and WhatsApp have also entered into a “commercial partnership agreement” to push Reliance Retail’s new commerce business on the JioMart platform using WhatsApp.

Facebook said in a statement that “by bringing together JioMart, Jio’s small-business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience.”

Facebook’s big ambitions

The investment is Facebook’s largest since it acquired WhatsApp in 2014. It’s also the largest investment for a minority stake by a technology company anywhere in the world and the largest foreign direct investment in the technology sector in India.

The social network undeniably has big ambitions for the world’s second most populous country.

But following the delay by the RBI, WhatsApp has come quite late to the unified payments interface, or UPI, market — Google Pay, PhonePe and Paytm provide the most UPI services, with millions of transactions every month.

And India’s online grocery market is also hotly contested, with Amazon.com’s Pantry competing for market share with Walmart’s Flipkart and BigBasket, which is backed by China’s Alibaba.

But Reliance Jio has form when it comes to disrupting established markets. It’s a relative newcomer to India’s Internet scene, launching in 2016 with offers of free calls to any network and cheap data plans. It is now India’s largest Internet provider and established players have had to consolidate to stay afloat.

Jio’s early incentives to lure new customers attracted charges from its competitors that it was engaged in predatory pricing and abusing its market dominance. However, the competition regulator declined to investigate the company because, back then, it wasn’t found to be dominant.

Now, the Competition Commission of India, or CCI, is certain to be interested in any deal involving Facebook.

The WhatsApp acquisition escaped scrutiny because its India turnover didn’t hit the specified threshold. But since then, Facebook has gone on to be penalized in other jurisdictions for fudging its disclosures on data-sharing plans, which also attracted ire in India.

India still doesn’t have a comprehensive data-protection regime in place, so that is one less hurdle for the companies to clear. But in recent months, the CCI has taken a bolder view on data issues: in January it came out with a report that said e-commerce platform businesses should publish a policy on data collection and usage.

The Confederation of All India Traders, a group that represents 70 million traders and 40,000 trade associations, has already said that neither Facebook or WhatsApp should be permitted to use existing data for the new venture.

E-commerce has had a particularly turbulent couple of years in India — a lot of which has had the effect of making life considerably harder for foreign players like Walmart and Amazon.

A new e-commerce policy is expected to be introduced shortly, with a focus on protecting consumers and ensuring fair competition, and there has even been talk of introducing an e-commerce regulator, with powers to demand information and impose penalties.

The new policy is expected to extend to cover social media companies as well.

Regulatory setbacks

Facebook has already suffered a major regulatory setback in India.

Four years ago, the social-media platform’s first major gamble in the country, Internet.org — or Free Basics — was disallowed, following a 2016 decision by the Telecom Regulatory Authority of India, or Trai, to uphold net neutrality.

Net neutrality is the principle that Internet providers should not be allowed to prioritize certain sites and services, since this could fundamentally alter the level playing field of the Internet.

The social-media giant will be keen to ensure its latest gamble doesn’t fail. To that end, it has chosen a formidable partner in Reliance Industries, India’s largest privately held company, chaired by Mukesh Ambani, India’s richest man.

But India is a developing country and its rules are developing too: other big US companies have struggled to stay on top of the changing regulatory environment.

Facebook will have to deal with a multitude of regulators in India as it moves forward. In the past, it has attracted criticism globally for not always being wholly honest with both the watchdogs, as well as its users. It would do well to try to get off on a good footing with both in India now.

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