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Business Trends

Bike-sharing boom in Japan a prelude to online payment war?

Tech companies seen copying Chinese model of using two-wheelers to market e-pay

Bicycles from Mobike Japan await riders. The company launched a bike-sharing service in Sapporo, Hokkaido in 2017.

TOKYO -- Bike-sharing via smartphone apps is on a roll in Japan, with flea market app Mercari and messaging app Line having entered the market in the last six months and Yahoo Japan set to follow suit soon.

So why are online technology companies so keen on bike-sharing?

Analysis suggests that it is a prelude to a "payment war" like the one that took place in China, where bike-sharing was used as a way to boost online payment services by internet companies.

Mercari launched a bike-sharing service on Feb. 27, choosing Fukuoka in southern Japan as its pilot city. It set up 22 "ports," or bases, where customers rent and return bikes.

Currently, 120 bikes are available, with the company planning to increase ports to 50 and bikes to 400 by the end of March. By the end of summer, the company hopes to have a fleet of 2,000 bikes.

People wanting to rent a ride download the company's bike-sharing app, called Merchari, then register online. Those with Mercari accounts will have their customer information automatically loaded onto the app and are ready to ride.

The app shows the locations and numbers of available bikes, which are unlocked by scanning a QR code. 

The first major bike-sharing service in Japan was launched in 2011 by NTT Docomo in partnership with a local government. The market rapidly expanded in 2017 as Mobike Japan, a unit of Chinese bike-sharing company Mobike, kicked off a service in Sapporo, Hokkaido.

Line said in December it will invest in Mobike Japan and send a director. A week after Mercari launched its bike-sharing service, Yahoo said its subsidiary will take a majority stake in OpenStreet, which has been in bike-sharing since 2016.

As the transportation sector pursues autonomous driving and flying cars, it may seem odd that tech companies are interested in the lowly bicycle, but there are good reasons.

First, the government enacted a law last year encouraging bike riding to reduce traffic congestion and improve health. "Local governments are increasingly interested in bike-sharing," an executive of Docomo Bike Share says.

Another reason is bike-sharing's compatibility with payment and verification services. In China, far ahead of Japan in the field, Tencent Holdings, backer of Mobike, and Alibaba Group Holding, a major investor in Ofo, used bike-sharing to spread their online payment services, WeChat Pay and Alipay, respectively.

Japanese bike-sharing operators are looking at the same model. Gai Inoue, in charge of Merchari, said the bike-sharing service will eventually be connected to yet unlaunched Merpay, Mercari's payment service.

Yahoo Japan also said it is considering connecting its bike-sharing service with Yahoo Wallet, an online payment service with about 39 million accounts.

NTT Docomo has already introduced a payment system that links bike-sharing fees to monthly mobile phone bills, according to a Docomo Bike Share official, adding that the company may use customer data to provide marketing assistance to other companies.

Competition in bike-sharing is getting fierce. In China, it started heating up in 2016, with nearly 60 startups jockeying for market share. But price wars and rising costs have caused many to drop out. One person said that "less than 10 would survive," while another predicted that bike-sharing services "would eventually converge under a single operator, just like ride-hailing."

But caution is key. Since it began in 2015, Docomo Bike Share has been mostly in the red. According to a private research company, in the year to March 2017, the company's net loss increased by 40% from a year before. In addition, the initial cost of purchasing bikes is significant.

"The cost of relocating bikes is heavy," the Docomo Bike Share official said.

If too many bikes clutter areas around ports, or bikes are abandoned on streets, the company could face criticism. On the other hand, if a port doesn't have any bikes, customers will be inconvenienced.

Docomo Bike Share, among others, is trying to develop an artificial intelligence-based system that can predict demand and decide how to best allocate bikes. Mercari is planning a rewards system for people who return abandoned bikes to ports.

In general, the bigger an online business becomes, the larger its profit margin. But this model does not exactly fit bike-sharing, which includes activities such as purchasing bikes, relocating them and operating ports. 

The key to making bike-sharing part of people's lives is to build a sustainable cost structure. How tech companies fare in linking real-world activities with their online business remains to be seen.

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