Digital Payment Platform

Fintech quartet erodes merchant banks in Tokyo

Photo by rupixen.com on Unsplash

Dressed in fast fashion clothes from fancy retail outlets, both young and middle-aged Tokyoites rush to the railway station in the deprived time of the morning hour. Mere a period of three minutes is critical enough to finish a make-up or a comb of hair for human tellers at the over-the-counter (OTC) of merchant banks. Surrounded by punctual business cosmopolitans in the old-fashioned wall, they found a vacant facility with a short line of customers during the operation hours.

Tokyo dwellers rarely ask for bank-to-bank payment service at OTC anymore. Instead they wait in a long line of patient customers at ATM for three to five minutes until the service is provided. Even under this circumstance, service representatives used to earn fairly well at megabanks in Tokyo. Compensation reached well above the average per year. (My sister-in-law used to worked for a municipal bank for years)

A story of digital payment platform in a British newspaper came to my attention two months ago. Investors learned in 2018 that Ant Financial, a Chinese payments giant, raised $150bn from private funds. Regulators in China cancelled its IPO from the capital market. Banks and credit-card firms in U.S. have fiddled with the posted-check and the hand-signed credit-card receipts. On March 14, one of digital payment quartet, Stripe, closed a fundraising round at $95bn, three times as high as the valuation 11 months ago. That is a big signal for investors as well as corporate executives. Other three platformers give clear evidence.

PayPal allowed payers to beam each other to transfer money. eBay, an online marketplace, bought its service and later spun it off at $45bn. As of today, the newspaper reports that its valuation reached $275bn, more than that of Citygroup or Wells Fargo. The other two champions, Square and Adyen, a Dutch firm, achieved the scale on online-payment “platform” similar to a physical transport system. It is illuminating to read the episode of digital-payment industry in the comparison of other industry like transport system.

Has the trendy moment finallay surfaced so your writer can begin a debate here? Half a way through the episode, the correspondent of The Economist began the controversy with typical compounding approach. Three opportunities in the trend come from the environmental sketches, a network between customers and payment firms. For one thing, e-commerce during the pandemic pushed it up, adding the scheme with cashless habit at retail and increasing market share within digital payments. Few customers want to send money in a physical touch processing of possibly virus-contaminated hands.

But the neat story tells the reader that there are some threats in SWOT analysis, a very popular situation analysis framework of business. SWOT stands for strength, weakness, opportunity, and threat. Big tech firms such as GAFAM are threatening behind the scene. Established retailers with outlets of Walmart and Target have already built their own acquirers and wallets. Service diversified in the area of buy-now-pay-later, cryptocurrency, and credit-card transaction. Each service is supported by app developers who prefer fast and easy transaction for business and don’t like to wait in the physical line in the narrow winding space. Antitrust watchdog observes the trend but it is far behind this evident trend line to draft the legislation and pass it in the Congress.

Two concerns mount to in the minds of debaters. Many non-techinical people are worried about a hacking to private data stored on the server and a cyber-attack to malfunction the whole system that eventually ruins the service providers. Yet busy bees in the city have heard no report of such incident of platformers in Silicon Valley, including Coinbase, crypto currency giant, ran by 38-year Brain Armstrong.

Users in Tokyo metropolitan districts have already shifted their payment function from OTC service to ATMs to online digtial transfer. Customer service representatives remain behind in a plastic window. Few customers aligned to interact with human tellers from 9:00 am to 3:00 am, an face-to-face operating hours of typical merchant service offering to ordinary citizens. It is very hard to justify a good number if the majority of the banking service is confined to payment functions. The sign is clear that digital payment firms in U.S. and Europe erode the old-fashion activity of the counter service in Tokyo.

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Hiroshi Hatano

Taught marketing @ universities in Tokyo, ex-I-banker @ UBS & mgmt consultant @ Kurt Salmon (Accenture Strategy now), Utah, Michigan + Georgia Tech educated