(Reuters) – The Brazilian central bank has effectively suspended a newly introduced system that allows Facebook's WhatsApp messaging service to send money via chat, instructing Visa and Mastercard to stop payments and transfers through the system.
The central bank said in a statement that the introduction of the service without prior analysis by the monetary authority could harm the Brazilian payment system in terms of competition, efficiency and data protection.
The system, launched last week as part of a nationwide rollout, allowed users to transfer money to individuals or local businesses in a chat, and to attach payments like a photo or video.
The move by the central bank is the recent payment backlash for Facebook owner, who has withdrawn its plans for a global payment system called Libra after fierce opposition from regulators. WhatsApp has over 120 million users in Brazil, the second largest market after India, where it has also had difficulty introducing a payment system.
If Visa and Mastercard did not match the order, they would face fines and administrative sanctions, the statement said.
A WhatsApp spokesman said the messaging service will continue to work with “local partners” and the central bank to provide digital payments to its users in Brazil. A business model is used that is open to more participants and would address the regulatory authority's concerns about market concentration.
The Tuesday before the Visa and Mastercard operations with WhatsApp ceased, the central bank said market participants might need prior approval to operate payments.
WhatsApp started its service in Brazil without applying for central bank approval because it acted as an intermediary between consumers and financial institutions.
Some observers called the regulator's decision an overreaction, while others said WhatsApp was a potential risk in terms of market concentration and data protection.
"It is somewhat strange that the central bank has decided to suspend WhatsApp because the regulator can already monitor all market participants who have joined WhatsApp," said Carlos Daltozo, co-head of equities at Eleven Financial. "WhatsApp is also open to new partnerships."
WhatsApp started its business in Brazil in collaboration with the fintech company Nubank, the state-controlled lender Banco do Brasil SA (BBAS3.SA), Visa, Mastercard and the lender Sicredi.
In a separate setback for the company on Tuesday, Brazilian cartel keeper Cade blocked WhatsApp's partnership with credit and debit card operator Cielo to process payments.
Since Cielo is already Brazil's largest payment processor, partnering with the largest messaging service could pose a market concentration risk, said Cade. Cielo's shares were up 30% on the day WhatsApp announced its payment service in Brazil.
The move by the central bank comes as the regulator prepares to launch its own instant payment system, Pix, in November, with more than 980 participants participating.
"It's complicated when the regulator also becomes an actor and appears to be more concerned about their own payment system," said a source from a financial institution that worked with WhatsApp.
The WhatsApp spokesman said the company was determined to work with the central bank to integrate systems as soon as Pix became available.
Private banks were also wary of opening up valuable customer data to technology giants like Facebook. Some executives have highlighted security issues and lack of accountability when a transaction goes wrong.
Mastercard said it would comply with central bank regulations and continue to develop an innovative payment environment. Facebook and Visa did not immediately respond to requests for comments. Cielo declined to comment.
(Reporting by Carolina Mandl in Sao Paulo and Isabel Versiani in Brasilia. Additional reporting by Tatiana Bautzer, Gabriela Mello, Aluisio Alves, Katie Paul and Gabriel Pontes. Edited by Lisa Shumaker and Sam Holmes.)