Author(s): Raghu Gopal
Japan is one of the most technologically advanced nations in the world, but despite this, most retail payments in the country are still made using cash. Only 20 percent of all transactions are cashless, which compares with about 90 percent for South Korea and around 50 percent for both the US and China.
But several major providers of mobile payment services are looking to Japan for opportunity. This includes SoftBank and Line, the Japanese subsidiary of South Korean search company Naver. Line's chat app is one of the most popular social networking tools in Japan and has more than 600 million users globally.
In late June 2018, at its annual Line Conference in Japan, the company announced Line Pay. Parent Naver has big ambitions, aiming to turn Japan into a "cashless and walletless" society. Line Pay is a service that lets customers make payments using QR codes at restaurants and convenience stores. The company hopes the payment service will reach 1 million participating retailers by the end of 2018. Naver plans to take advantage of the number of Line Pay users to offer additional services such as targeted marketing and insurance. Transaction surcharges will be waived for the first three years, and the system costs users nothing to set up.
Line is using a no-fee business model as one of its chief weapons against existing financial institutions. This could prove attractive to retailers, because major banks and credit card companies typically earn money from transaction fees. Line's approach aims to generate revenue from transaction data and customer information, and its service is designed to handle transactions carried out entirely by smartphone.
Line will be hoping to evolve its success as a simple, accessible chat app into finance and payments. But despite its well-established brand, success won't be easy. Line is entering the financial sector, where barriers are high and rivals can be very defensive. Nonetheless, the Japanese payments landscape is ripe for disruption. If Line can attract a significant portion of its more than 75 million users in Japan, it could spark a sea of change in the Japanese retail and payments market.