TOKYO -- Google's foray into fintech services in Japan threatens to drastically change the smartphone payment market, challenging PayPay and other leading cashless payment companies that are already struggling to win customers after offering big refunds.
As barriers between finance and other sectors lower, leading financial institutions are being forced to rethink their strategies.
U.S. tech giant Google is in final talks to purchase Pring, a Tokyo-based cashless payment and settlement startup owned by Metaps, Mizuho Bank and others.
Metaps is a Tokyo-based IT company best known for an app monetization platform that uses artificial intelligence.
Google Pay is already available in Japan but its smartphone payment service does not have a dedicated pay function. Customers need to register credit cards, electronic wallets or other payment methods to use it.
Japanese user numbers have not been disclosed and Google Pay maintains a lower profile compared to leading cashless payment services like PayPay, which has more than 40 million registered users.
Acquiring Pring, which is not a bank but provides remittance services, will enable Google Pay to be linked to bank accounts and offer its own remittance and payment services.
Japan's smartphone payment market has grown rapidly since about 2018 with the entry of internet and telecom companies. National cashless payment transactions using QR codes hit a record 4.2 trillion yen ($38.2 billion) in 2020, quadrupling year on year, according to the Payments Japan Association.
The annual turnover for cashless transactions was still much lower than for credit cards at 61 trillion yen, but it was higher than debit cards -- 2 trillion yen -- and approaching electronic money's 6 trillion yen.
Large payment services such as PayPay and Rakuten Pay try to lock customers in to their other services, particularly e-commerce. Different bonus points are offered to customers for similar smartphone payment services, making redemption programs hard to grasp. Some points may only be used for specific services, while others cannot be cashed in.
Cashless payment companies in Japan have been competing for customers by giving large refunds. There were once 20 such operations, but internet companies have driven consolidation.
Mercari, the operator of a flea market app, in January last year acquired Origami, a struggling cashless payments startup. PayPay, Japan's biggest QR code payment provider, logged an operating loss of 72.6 billion yen in the fiscal year ending in March.
If marketing based on refunds continues, profitability will remain elusive. Google already has tens of millions of users in Japan, and its entry into the payments market can only intensify competition. The company plans to make Google Pay in Japan available for international use as well. Users in the U.S. are already able to transfer money to India and Singapore.
Pring lacks a strong customer base and name recognition, but one source told Nikkei that Google was impressed by its "open service design and unique strategy of carrying out business for a wide range of companies." The company's remittance app is easy to use and well regarded by service developers.
Google uses cashless payments to complement its other services and technologies. Google Pay in the U.S. has a feature that recommends products and benefits to customers individually. Google can blend services in ways its Japanese competition cannot. For example, it can display nearby restaurant locations and place preorders using Google Maps.
In India, Google Pay has already become a threat to Paytm, India's largest online payments company. It accounts for 35% of transactions in India's small-payment infrastructure, surpassing Paytm's 11%. Paytm has 150 million monthly users but posted a net loss of 17 billion rupees ($228 million) last year.
With so many financial services going digital, legacy financial institutions must also review their tie-up strategies. Google has partnered with Citigroup in the U.S. and Oversea-Chinese Banking Corp. in Singapore. But flexibility is required in Japan, where alliances can involve more than two companies.