TOKYO -- "Oh, you can use Alipay," a tourist from Shanghai, China, in her 20s exclaims upon seeing a QR code dandling from the neck of a rickshaw driver along the main street in the crowded tourism hub in the Asakusa district of Taito Ward.
When she scans the code with her smartphone and enters "9,000 yen" to finish the transaction, she and her traveling partner, another young woman, hop onto the rickshaw.
Alipay is a smartphone payment service offered by a financial services group under China's largest e-commerce website operator Alibaba Group Holdings Ltd. Currently, the service boasts 600 million users worldwide. The service withdraws money from the bank account of the user and deposits it in the account of member businesses, and it has spread explosively across China, from department stores to open-air markets. Alipay effectively established a cashless culture in the country. In Japan as well, Alipay can be used at over 50,000 businesses.
There is also another side to Alipay's business -- a giant credit database. Customer data acquired via transactions is combined with purchase history on Alibaba's website as well as personal data from social networking services used on a person's smartphone, to calculate a numerical credit score for the individual. Alipay-affiliated banks carry out micro-credit financing using this big data and AI screening, and are rolling out loan services that can be completed in mere minutes over the internet -- and users are rapidly increasing.
A top member of Alipay's operating firm boasted, "We are partnered with over 200 financial organizations in China alone. With the data, we can provide services to more people -- faster."
Alibaba is not alone. Amazon, Google, Apple and other companies that provide a "platform" for other firms to do business are referred to as "platformers." Their power has expanded along with the spread of the internet, and they collect and analyze a large amount of customer data using IT resources, and some companies are even venturing into the financial service arena, encroaching on the original business of banks -- finance and payment.
The world's largest e-commerce website Amazon is rumored to make its debut into the banking world. The new "Amazon Lending" service is geared toward financing the working capital of the business operators that sell their products on the Amazon platform, and it has already made around 20,000 loans around the world.
Continuing to develop payment platforms internationally, the U.S. company PayPal Holdings Inc. has also begun offering financing to the companies that use its services. In 2017, PayPal acquired a U.S. financial firm, and is working on strengthening its presence in that market.
But all these movements are not limited to companies outside of Japan. At a press conference held at the end of July, an executive from major messaging company LINE Corp. declared that they would "revolutionize payments" with the firm's "Line Pay" QR code transaction service. By employing measures such as making the transaction fees levied on business owners free for a set period of time, LINE plans to increase the number of locations were Line Pay can be used from the current figure of over 90,000 businesses to 1 million by the end of 2018.
President Takeshi Idezawa said that people "will be able to buy insurance and securities through the LINE app," showing his confidence in the company's expansion into the financial sphere.
Meanwhile, major e-commerce firm Rakuten Inc. has also already begun offering financing services that calculate credit scores of companies selling on the website using sales figures and other information, and started its own QR code payment system in 2017.
"Right now, e-commerce and finance are inseparable," said Masayuki Hosaka, representative director and vice chairman at Rakuten, who is in charge of the company's ventures in the financial field. "I would like to further expand the economic sphere of Rakuten using this data."
The feeling of crisis among banks, which once reigned at the pinnacle of the financial sphere, over the threat to their very existence is growing stronger with the rise of so-called platformers.
"The entrance into the market by players with superior customer bases, brands and IT knowledge is a large threat," said an executive at a major bank. "We also have to consider which services to toss out and which to strengthen one by one."
(Japanese original by Business News Department financial news team)
This is Part 1 in a series.