By Ira Dugal

India is WhatsApp's biggest market, but turning its 500 million users into a payments and commerce powerhouse has proved tough.

Two recent developments shed light on the company's ambitions and the regulatory hurdles it faces. That's our focus this week.

And global investors are taking a second look at India as oil prices fall. But the flow of dollars is closer to a trickle than a flood so far.

Have thoughts and suggestions on the India File? Write to me at .

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WHATSAPP'S INDIA CHALLENGE

Meta's NASDAQ:META WhatsApp is the dominant messaging platform in India - from family and workplace groups to sales pitches. Yet for years, analysts have said it has made only limited progress in turning that vast user base into a meaningful business through commerce or payments.

Late last month, Meta appointed Indian fintech founder Kunal Shah as WhatsApp's global head while investing $900 million in Shah's startup CRED, which operates a members-only platform for consumers with high credit scores.

Analysts reckon the deal was aimed at recruiting Shah - with his reputation for sharp insights into the Indian consumer - and reflects Meta's ambitions to deepen its commerce and financial services offerings.

Read here for more on Shah and this BreakingViews analysis on Meta's push to grab a larger share of Indian payments.

Weeks later, WhatsApp was back in the headlines, but this time for a run-in with regulators.

Authorities that were already cracking down on anonymous messaging balked at a planned feature that would let WhatsApp users reserve a unique username and ultimately message others without sharing their phone numbers.

However, authorities ordered WhatsApp to freeze rollout in India pending consultations with the government. Read more here on the New Delhi's concerns.

"Usernames could support commerce on WhatsApp by enabling businesses to use handles instead of phone numbers," said Prachir Singh, senior research analyst at consultancy Counterpoint Research. But without strong verification and anti-fraud measures, usernames could increase the risk of impersonation, he said.

The government also sent notices to Telegram and Signal seeking details on safety features used to prevent misuse of username-based messaging.

Meta said in a statement that it is building "multiple layers of defense against scams" into the feature, including limits on how many new people an account can contact and blocks on repeated attempts to guess a subscriber's username.

The government's action can be seen as an "overreach", said Sharat Chandra, founder of EmpowerEdge Ventures, a venture building firm for fintechs and startups. But at the same time, WhatsApp and Meta can be faulted for a lack of proper communication around the new feature, he said.

REGULATORY RUN-INS

WhatsApp has a history of run-ins with regulators in India, and EmpowerEdge Ventures' Chandra said that improving handling of regulatory and legal matters is definitely an area where it needs to do better.

In 2024, WhatsApp incurred restrictions and penalties from the antitrust watchdog over sharing user data with other Meta entities for advertising. While an appeals court overturned a five-year ban on such data sharing, other penalties were upheld.

In 2022, India placed a rare quantitative limit - later relaxed - on how many payment users Whatsapp could onboard via the country's popular Unified Payment Interface (UPI).

The restrictions allowed competitors Google Pay and PhonePe to race ahead. The two now together hold over 80% market share in payments via UPI, which processes 23 billion transactions a day, while Whatsapp has just a 6% share.

"Despite WhatsApp's massive user base in India, monetisation has been slower than expected due to regulatory hurdles, strong competition in digital payments space, and cautious consumer behaviour regarding digital payments," said Counterpoint's Singh.

MARKET MATTERS

Global equity funds, who have been heavily underweight on India over the past year, are starting to rethink those positions as macroeconomic factors turn less adverse.

With oil prices receding and the Indian currency stabilising, two key risks for equity investors have receded. The next test is an earnings recovery.

Read Reuters' market analysis here.

Bond investors, meanwhile, poured a record $3 billion into Indian government debt in June, after tax relief announced last month and in anticipation of India's entry into the Bloomberg Global Aggregate Bond Index.

THIS WEEK'S MUST-READS

  • Russia has started seaborne imports of gasoline from India, Reuters' Russia bureau reported.

  • India's markets regulator aims to make it easier for investors to short stocks by nearly doubling the number of shares eligible for lending and borrowing and by cutting collateral requirements, Jayshree P. Upadhyay reported.

  • India's insurance regulator is seeking to reform how distributors are paid in an effort to rein in mis-selling, and plans to propose commissions be paid out over the life of a policy instead of in large upfront payments, Ashwin Manikandan reported.