September 15 2022 GM
Glitter Meetup is the weekly town hall of the Internet Freedom community at the IFF Square on the IFF Mattermost, at 9am EDT / 1pm UTC. Do you need an invite? Learn how to get one here.
Date: Thursday, September 15th
Time: 9am EDT / 1pm UTC
Who: Vanessa Koetz
Where: On IFF Mattermost Square Channel.
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WhatsApp Pay and financial data monopolies
After India, Brazil is the second country in the world with WhatsApp Pay service. Vanessa Koetz investigated next to Bianca Kremer and Joana Varon the process and its impact on data monopoly and data colonialism. “This case is fascinating because it exposed the need for cooperation within regulatory authorities on data protection, competition law, financial law and consumer rights, especially between Global South countries that hold a vulnerability position towards the Global North. Thus, practical issues such as internet access, connectivity, inclusion, and gender asymmetries are very important to consider in this case” the researchers state.
Vanessa Koetz is Project Directress and Research Fellowship in Coding Rights. She is a lawyer from Brazil.
Can you tell us a bit about yourself and how you started to research Whatsapp Pay in Brazil?
- I am Vanessa Koetz, lawyer, project directress and researcher at Coding Rights a Brazilian feminist organization working with tecnlogy and human rights.
- On May 2022, Coding Rights launched a study developed by Bianca Kremer, Joana Varon and I called Whatsapp Pay: The next frontier for the expansion of data monopoly and with support of Derechos Digitales, most of the reason I am here today.
- The study (in Portuguese) and its executive summary (in English) is available here.
How did you know about Whatsapp Pay and why this topic grabbed your attention?
- Facebook/Meta launched that service in June 2020 but it was suspended indefinitely a few days later, at the behest of the Central Bank of Brazil and the Administrative Council for Economic Defense (CADE). Any failure to comply with the determination would result in a fine of BRL 500,000 per day.
- Only on March 30, 2021, the Central Bank of Brazil approved the use of Whatsapp Pay in the country. It is a feature for money transfer through the app itself, and no fees or charges are applied to payments carried out through the functionality.
- The focus of Whatsapp Payment is on small payments, and users can make up to 20 transactions a day of up to BRL 1,000 per transaction, with a monthly limit of BRL 5,000 - BRL 5 = USD 1 approximately.
- And everything related to Whatsapp is very important in the country, as the app holds the largest user base in Brazil (around 120 million consumers). Some surveys say that it is installed in 99% of smartphones, followed by Instagram (82%) and Messenger (76%).
- Facebook/Meta is responsible for the three main apps that are in our daily lives (family, affective, professional, commercial communication, etc.)
What do you think could happen? Considering that Whatsapp is owned by Meta, the same that owns Instagram and Facebook.
- Whatsapp has become part of our everyday life and, even more during pandemic and world accelerated digitalization.
- Whatsapp is present in such many dimensions of life as professional, product and services, family, etc. - and has become the world's most popular messaging application.
- One of Facebook's market strategies to reach this dominant position in the country was the zero-rating agreements with telecom operators. This means that users can access the app without being discounted from their data franchise (which in Brazil is extremely expensive, compared to the national minimum wage). It definitely contributed to the popularity of Whatsapp.
- Consumers will be charged by accessing their bank account while it's discounted from their mobile data pack, but won't be charged with this zero-rating policy to access Whatsapp.
- A digital payment tool, available without time/day restrictions, accessed without financial cost in internet connection plans, already has a huge market power and on a worldwide scale.
- Before Facebook/Meta, through its various products, collected social network data from the users, now it is also collecting financial data, consolidating itself even further as a data monopoly.
- Now, besides all the personal data they used to collect during social interaction, they collect transactional data. Never has a bank or a credit card company had so much information about us.
Do you think we are witnessing the development of a new financial data oligopoly?
- For answering this question, it is important to mention what is this service provided by Facebook/Meta.
- So, the Central Bank of Brazil authorized in March 2021 Facebook Payments of Brazil to operate in the payments market as a payment transaction initiator - instituidora de transação de pagamento (ITP).
- The ITP was in the Open Banking normative but it wasn't regulated yet.
- Soon after the suspension of the Whatsapp Pay functionality by the Central Bank of Brazil, on June 23, 2020, the Central Bank launched Public Consultation No. 77 of 2020, in which it was possible to send proposals for changes in the regulation of payment institutions, with an emphasis on the payment transaction initiator, that time, a new type of payment institution.
- Whatsapp Payment was one important cause for the ITP's regulation.
- The ITP creation is inspired by the European Union Directive 2015/2366 and resembles the payment initiation service provider - PISP of the European financial system, responsible for executing a customer's payment transaction without participating in the settlement of this operation (without "touching" the money).
- In Brazil, the PISP regulation is guided more by the concern with the information flow protection than the finance flow itself.
- In first place, while banks and fintechs are created to primarily operate financial services, these services are a small portion of what big techs offer.
- However, the nature of the payment initiation activity per se is that of an activity that essentially involves transmitting data and transactional information, activities that are at the core of these companies’ business model.
- As we mentioned in the study, while the idea of big data efficiency is questionable, it is an attractive narrative for investors and consumers.
- And one cannot deny that the massive size of the databases held by big tech increases their competitive power in our information society and positions them in a unique place in the face of smaller initiatives.
- The entry of these companies into the payments market and in other elements of the financial system contributes to this repetitive cycle (loop) of data generation. And this loop has three key elements: data analytics, network externalities and interwoven activities, that feedback on each other in this data generation repetitive cycle.
- If Facebook, through its various products, was already collecting data from the users’ social networks, now it also collects financial data.
- Even if we don't know if WhatsApp intends to become a "super app", it is possible to say that Meta/Facebook further increases its consolidation in the data market.
- This is the entrance of big tech in the financial system, as a big tech, and not trying to be a fintech or a bank.
What challenges for the financial data system and consumer rights do you see in the future, once this is already operational?
- At the same time that the entry in the financial market suggests possibilities for greater financial inclusion, as Whatsapp has enormous penetration and reaches places and audiences that traditional banks have not reached (or did not want to) this big tech increases its control over the data market.
- But it is important to note that even though Whatsapp is the largest messaging app in the country, still the payment feature has not been widely adhered to by the population.
- Some hypotheses can be attributed to the low adherence such as those related to the prohibition in e-commerce and the use of credit cards. Only prepaid and debit cards are allowed. The Central Bank has not allowed credit cards and business to business. For now, you can only transfer money via P2P.
- But another important element is related to the success of PIX in the country, a new instant payment system led by the Central Bank of Brazil, launched in November 2020, while Whatsapp Pay got authorized just in April 2021.
- The presence of big techs in the financial system is a complex issue that requires a new coordinated and cooperative approach from several legal sectors and authorities, specially from antitrust, data protection, financial and consumer authorities.
- As there is no other competitor as big as Facebook/Meta in the Brazilian market today, Whatsapp payment has definitely contributed to the user spending more time inside the application.
Considering this and that this also happened in India. What lessons could we take from their experience?
- We pointed on our study that moreover, Facebook is a company that is present all over the world, whose products and services are offered differently, depending on the vulnerability of the national states.
- Countries of the Global South, like Brazil and India, have a historical position of economic and technological subservience to the countries of the Global North.
- Brazilian authorities have adopted a rather reductionist conception of what, in fact, constitutes the existence of monopoly and harm to competition in the context of the digital economy.
- They tend to ignore considerations about platform capitalism and data colonialism as important driving and perpetuation forces of the leading position held by Big Techs in the technology market.
- In the context of a global, hyperconnected society, it is important to observe that the distribution of digital products and services does not occur unreasonably, as seen, for example, in the discrepancies in the changes to WhatsApp’s terms of service in Brazil/India, given the situation of EU member countries.
- So, practical issues such as internet access, connectivity, inclusion, and the asymmetries of gender and its intersectionalities are not trivial, and gain other contours in the context of the international monopoly.
- It is required to go through processes of international cooperation, especially among the authorities of the Global South.
If somebody would like to talk to you directly, how could they contact you?
- My email is email@example.com, @koetzvanessa on Twitter, or here, on Mattermost, as @vkoetz!