LINE vs. Yahoo! payment battles commence — customers win
We have recently covered the dismal state of cashless payments in our piece “The Curious Case of Cash in Japan”, as well as the establishment’s response in creating a “Cashless Promotion Council”. While the talking heads are still putting their chairs in place, LINE and Yahoo! have started what could turn out to be a fierce battle for customers and merchants using QR code technology that is widely used in China, for example, but has not reached high levels of awareness in Japan just yet.
QR codes have been generally neglected in developed economies with an established payments infrastructure, while gaining significant traction in the developing world, as the technology does not require any merchant payment terminals to be purchased & installed — a smartphone with the appropriate application installed will suffice. Given the industry dynamics, the technology has made its way through international standards bodies slowly, with payment standards body EMVCo publishing the standard for mobile payments only in July of last year.
Meanwhile, Chinese payment giants Alipay and WeChat Pay have made inroads into Japan, although at this point only as a point-of-sale service for the large contingent of Chinese tourists. Both are looking to obtain the required licenses and launch a domestic service for Japanese residents during the second half of 2018.
On June 28, LINE announced that the merchant fee for LINE Pay using QR codes will be set to zero yen for a duration of three years. This obviously compares favorably with credit card charges that can run up to 5% in Japan and are a major factor in — especially smaller — stores shying away from accepting credit card payments (some would argue that the anonymous nature of cash makes tax avoidance much easier, too). Additionally, LINE distributes the payment applications free of charge to merchants, as no additional infrastructure and upfront investment is required. If you have a smartphone, you will be ready to accept QR code payments.
Not to be outdone, it has become known that Yahoo! will also start a zero fee service from October. In one Yahoo! payment offering, the customer reads the QR code posted at the shop on her own smartphone application and then enters the amount to complete the payment. In other words, the merchant only needs to put up a sign with the QR code. As an alternative, Yahoo! has also started a QR code payment in which the customer displays a bar code on a smartphone application, and the merchant reads this code and receives payment.
So how does one make money with a business model that is based on zero fees? In the case of the Chinese FinTech giants, payments are the premier means for customer acquisition. Alipay and WeChat Pay do not have to be profitable by themselves, they are merely the gateway to get customers onto their platform, which then opens up a world of ancillary services, from money market funds to stock brokers to insurance.
For Yahoo!, if the merchant withdraws funds only once a month, there is no fee. If a higher frequency is desired for liquidity, Yahoo! will charge a fee of up to 1% for withdrawals, which still is a bargain compared to credit cards. After three years, Yahoo! reserves the right to adjust the fee structure.
In addition to LINE and Yahoo!, Rakuten and NTT Docomo are also expected to enter the QR code race. Both already have a large captive customer base. Contactless payments have become somewhat popular in Japan, especially for smaller amounts. “Suica” of JR East, Rakuten’s “Edy”, Seven & I’s “Nanako”, Aeon’s “WAON”, NTT Docomo’s “iD” and JCB’s “QUICPay” are only some examples. However, as they all require expensive payment terminals to be installed, they are not necessarily popular with merchants.
Also read: How LINE dominates social networks in Japan
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