WhatsApp payments service faces delay as govt seeks clarity on data storage

India’s government is holding up Facebook Inc.’s plans for a nationwide launch of its WhatsApp payments service over concerns about how users’ data will be stored and other issues, according to people familiar with the matter.

The country’s Ministry of Electronics and Information Technology, or MEITY, has asked WhatsApp and its partner banks to supply more details about the payments system, said ministry officials, who asked not to be named because the matter is private. The ministry has also requested that the industry’s payments overseer, the National Payments Corporation of India, confirm that WhatsApp is fully compliant with its requirements, they said.

“We are working closely with the Indian government, NPCI and multiple banks including our payment service providers to expand the feature to more people,” Anne Yeh, a WhatsApp spokeswoman, said in response to emailed questions, declining to elaborate on the timing of a country-wide launch. Dilip Asbe, NPCI’s chief executive officer, declined to comment.

The delay comes just as WhatsApp has been embroiled in a controversy over lynchings in the country. Doctored images and fake videos on the messaging platform of child abductions have gone viral in rural areas, whipping up mobs who have beaten and lynched about two dozen Indians. On Thursday, MEITY warned in a statement the company faces legal action for abetting violence if it doesn’t act. WhatsApp didn’t respond to requests for comment on the Ministry’s statement.

It’s not clear what role -- if any -- the scandal is playing in the WhatsApp approval process. Among the compliance standards, India’s central bank recently required payment services to store customer data on local servers to safeguard privacy and security. The expansion delay could cost the Facebook-owned company amid rising competition from local leader Paytm and global rivals such as Google Inc’s Tez and Sweden’s Truecaller.

“Rivals have an early-mover advantage and a further hold-up could mean that WhatsApp loses out on converting users and business customers,” said Arnav Gupta, a New Delhi-based digital business strategy analyst at Forrester Research Inc. “The faster they roll out, the quicker they can make improvements based on user and business feedback and make it seamless.”

The WhatsApp messaging service, where groups share gossip and viral videos, has been a powerful growth engine for the technology giant. India has grown into WhatsApp’s largest market globally with 230 million users and the payments business has drawn nearly 1 million people since the limited, beta test was unveiled in February.

WhatsApp had been expected to expand the service nationally as soon as June, Bloomberg News reported in May.

WhatsApp’s digital payments push poses a threat to rivals because of its sheer number of users confined to a Facebook ecosystem. Its service has been likened to China’s WeChat, which also amassed hundreds of millions of users before diving into payments, ultimately becoming a major player in mobile finance. Vijay Shekhar Sharma, the founder of Paytm, has accused Facebook of evading security requirements during its pilot so it can create a “walled garden” -- a large database of lucrative user information over which it exercises full control.

WhatsApp’s regulatory tangles coincide with a government effort to preempt its service from fueling violence. The company’s taken out full-page advertisements in prominent English and Hindi newspapers warning readers on fake news. On Thursday, WhatsApp said it would test curbs on users’ ability to forward photos and videos.