Madhavan Narayanan Oct 10, 2018 15:12 PM IST
It is not surprising that Facebook-owned WhatsApp has decided to fall in line with the Reserve Bank of India's (RBI) demand to store critical financial data in local storage silos in the virtual world. With 200 million users in the country — equal to 10 times the population of all of Australia — WhatsApp has a huge market to lose if it decides to ignore or fight regulation in the world's fastest growing economy.
Only this week, Facebook celebrated its 'India Startup Day' with a plan to double the number of developers it supports through various means to 100,000, within a year as part of a project that talks of "coding for a billion." In the emerging landscape of Digital India, Facebook is the platform for social connectivity spanning various languages in a country where people in remote areas are easily linked by increasingly cheaper smartphones.
In such a backdrop, WhatsApp connections constitute the virtual equivalent of a bank or e-commerce platform once a combination of a payments mechanism is loaded on a growing potential user base much higher than the current WhatsApp count. Why would Facebook founder and the reigning lord of Instagram and WhatsApp, Mark Zuckerberg, want to miss out on the financial party? Wall Street would rely heavily on Facebook's "India Story" for the company's share price to move strong.
The framework is already in place in India for mobile wallets and payments including payment banks, and time is of importance for WhatsApp to catch up with the likes of Paytm and Google Pay – assuming WhatsApp also conforms well to know-your-customer requirements. Local data storage has been the biggest obstacle thus far, apart from an image challenge linked to the spread of rumours and fake news on the popular messenger service.
There is no doubt that there is now a nationalist lobby within the Internet sector. It is a strange beast fed by Japanese and Chinese money from the likes of Softbank and Alibaba, but nevertheless nurturing ambitions of forming an economic moat that protects Indian entrepreneurs and startups.
An emerging consensus around data protection built around the proposed data protection law clearly underlines not just the ownership of data in the hands of those who generate the personal data, but it also calls out for a policing and regulatory mechanism to supervise or prosecute transgressions. The demand for local storage of vital financial data is but a logical conclusion from this.
No doubt this is a pain for WhatsApp and other foreign players who would rather have a "mirror copy" in India of data stored elsewhere. But they face RBI's 15 October deadline-laden diktat. Even if the deadline is stretched, it would take time for Facebook and others to wade through a labyrinth of lobbying measures as the Srikrishna committee's draft data protection law forms a back-up to a thinking that what happens in India must be policeable in India. The panel's draft requiring that "critical" data should be stored "only" in Indian servers looms alongside the RBI rules.
There is a huge opportunity out there, and local players like Paytm and Flipkart-linked PhonePe are keen on data localisation. Given Facebook Inc's commitment to India as a long-term market, it would be too much of a business risk for WhatsApp to not comply with local data regulation demands amid growing competition.
Representatives of Mastercard, Visa, PayPal, Google, Amazon and Facebook have met Finance Minister Arun Jaitley, to secure an extension of the deadline for local storage of payments data. As far as the Srikrishna draft is concerned, it would be unwise to expect a quick decision on the issue from an election-bound government that must wear its nationalistic colours on its sleeves. To "hasten slowly" must now be the best option then for the US-centric big brands – and that means conforming as much, but as slow as possible, with protectionist or locally concerned regulations.
The Internet and Mobile Association of India (IAMAI) that has a significant presence of leading US giants has been quibbling over the draft data protection bill, and all signs are that this is going to be a long haul, even if it manages to get some leeway.
From all indications, Amazon is also gearing to comply with data storage norms that enable local control as it prepares to unroll its own payment universe to power its e-commerce ambitions.
In a world where "data is money" the giant purveyors of data, inspite of regulatory restrictions that increase the cost of business, stand to gain from emerging opportunities. Therefore, the chances are high that they will fight to reduce the headaches and get the playing field as level as possible, to reduce the height of the economic moat that the digital nationalists are pleading for.
Financial payments are possibly the most challenging ground for regulators and law enforcers but the juiciest link to build growth for the big players.
A tug-of-war between startups and giants alike, it is likely to continue for some time to set rules that would minimise threats and maximise opportunities for each.
The author is a senior journalist and commentator. He tweets @madversity.