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Chat app Line plots finance 'revolution' with mobile payments

Japanese operator with 75m users aims to beat banks on sheer convenience

Line President Takeshi Idezawa speaks about the chat app operator's financial ambitions on June 28.

TOKYO -- Line, the operator of Japan's leading chat app, is pushing hard into the banking sphere with plans to aggressively expand in mobile payments, aiming to get its 75 million users hooked on transactions without the fees imposed by conventional banks.

In a strategy also geared to take on competitors like China's Alipay, the company outlined on June 28 a three-year plan for a "payment revolution" using its Line Pay mobile transaction service, which lets users send one another money free of charge by smartphone anytime and anywhere. Line is rolling out a version of its app that will let small and midsize merchants accept QR-code-based payments via Line Pay. Transaction surcharges will be waived for the first three years, and the system costs nothing to set up.

"The goal is to overwhelmingly grow the number of stores using" the service, President Takeshi Idezawa told Nikkei in a recent interview. 

Line's user base is nearly double the 40-million-strong individual accounts of Japan's biggest megabank, MUFG Bank, part of Mitsubishi UFJ Financial Group. Shifting such a large audience toward mobile payments could send tremors through the banking industry.

A no-fee business model is one of the chat app operator's chief weapons against existing financial institutions. Major banks and the credit card companies linked to them typically earn money from transaction fees. Line aims to turn a profit from transaction data and customer information, which it uses for marketing purposes.

Line's other edge is the ability to forgo key infrastructure used for traditional banking. Line Pay transactions are carried out entirely by smartphone, rendering ATMs obsolete, for example. And with Japanese interest rates effectively zero, young people hunger for alternative places to park their cash.

Other Japanese information technology players like Yahoo Japan and Mercari, the recently listed online flea market operator, are hurrying to build smartphone payment services as well. Line got out ahead of the competition with the 2014 launch of Line Pay and aims to snag greater market share with its no-fee transactions.

Deregulation has also favored the chat app operator. Companies that wanted to offer transaction settlement or deposit and lending services would once have needed a banking license. But now, those handling small transactions can simply register as a money transfer business, as Line has.

"The range of things you can do without a banking license has grown," Idezawa said.

Line has also laid out the lofty aim of "redesigning" the financial sector, taking aim first at mobile payments and such later targets as asset management and insurance. Its goal appears to be re-creating its success building a simple, accessible chat app in finance and payments.

Translating its chat app experience into success in finance remains a hurdle, however, given that the barriers to entering the financial world are high.

Another issue is whether Line can survive without a partner financial institution. The company has already teamed up with credit card company JCB on a service that lets users pay for purchases in-store with Line Pay by simply tapping their smartphones on a reader device. But the app operator will have a tough time getting around the fact that only licensed banks can offer accounts capable of wire transfers -- an important mechanism for depositing workers' pay, for instance.

There is also the matter of safety and security. Users can suffer greatly when financial systems become unavailable. Line would also need to take great care on the information management front.

If Line shifts its entire mobile base away from traditional banking, it would mark a sea change not unlike the switch from landlines to mobile phones and could make the chat app company an outsize player in the finance world.

Megabanks have grown wary of Line's encroachment, compared with their more cooperative attitudes a year ago.

"It's gotten to the point where we can't catch up unless we buy a communications company," a midlevel staffer at a megabank lamented.

For banks, a shift toward digital payments would mean lower costs related to transferring or managing cash. But the amassed customer data carries the risk of being stolen.

Line classifies users into such categories as gender, age, profession and interests, using the data for marketing purposes. Banks collect comparatively little information on clients and so cannot offer services that are as effective.

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