Banking News

Smartpay Capitalises on Japan’s Open Banking Ecosystem with Smartpay Bank Direct


A Japanese digital consumer finance service that allows customers to pay for online installment purchases straight from their bank accounts has been launched by Smartpay. The service, called Smartpay Bank Direct, emphasises user security while delivering convenience for the consumer. Through a network of 67 partner banks across Japan, the company is capitalising on the country’s open banking system.

What is Smartpay?

Smartpay was founded in June 2021 by seasoned industry professionals who had previously held leadership roles in Instagram, Standard Chartered Bank, Facebook, Stripe, Adyen and Mastercard across the Asia Pacific, and Middle East, and North Africa (MENA) regions.

The founding team worked in digital payments, banking, and fintech which gave the company the right talent to transform the digital consumer landscape for users seeking reliable financial products and payment solutions. They also had experience working with regulators and central banks which is crucial when building a financial ecosystem.

While Japan remains the third wealthiest country in the world, it has one of the highest credit card penetration rates in Asia, with over 60 per cent of transactions completed in cash.

Road to a digital-based society

Smartpay’s application has received wide acceptance from consumers and merchants that prefer uncomplicated digital payments. This supports the transformation of a cash-based society into a digital one.

The company’s strategy was built in two phases. The first phase was focused on financial inclusion, and helping those that don’t have access to credit, to join the digital BNPL economy. It also solved the issue of cash usage. It created a platform and an ecosystem to move towards a paperless payment system that would be more efficient.

Sam Ahmed, founder and CEO, Smartpay

Smartpay is moving into the next phase of its digital consumer finance journey. Phase two is focused on targeting middle and high-income users. It offers them smart financial solutions that are safe, convenient, fast and create real value for the entire ecosystem.

Smartpay’s founder and CEO Sam Ahmed said: “We believe we are driving digital consumer finance to the next phase of its maturity. ‘Buy now, pay later’ has had to grow up from the perspective of a business model, profitability, and consumer value proposition.”

Finding a gap in the market

The company’s adaptive UX, accessible technology, eKYC (electronic know your customer), dependable security features and sound business model is built for users that have a need for efficient digital finance solutions. It will transform markets with similar conditions, high inflationary pressures on consumer psychographics, and demographics.

High-income consumers who want to extend their monthly cash flow with smart, digital point-of-purchase, cash flow management tools, have been most receptive to Smartpay’s digital solutions. Especially those who want better control over their monthly spending.

Its feel and product features appeal to the high-income segment who have disposable incomes and want to align with smart digital UX brands. The UX has been put together after much consideration, and its design features make consumers feel trusted and accepted for their unique individual traits. Especially when the alternative is being thrown into a mass-made product that does not distinguish between customers.

By targeting this segment of society, Smartpay’s unit economics works well as these are low-risk and high-value customers with an average transaction value of $200, non-performing loan (NPL) rates of less than one per cent, and who want to avoid a bad credit rating and nonpayment on debt obligations. The monthly repeat rate of these consumers has already reached approximately 20 per cent.

This combination of high-income users and high-value design makes Smartpay a premium fintech company. Smartpay’s founder and CEO Sam Ahmed said: “We knew we were on the right track when our key merchant, CEO of TRiCERA Tai Iguchi, had feedback stating: ‘You are the Apple of digital consumer finance, your UX is beautifully designed and makes the consumer feel like you trust them, and respect who they are. This is in a market where other consumer finance companies have made customers feel they are not trusted and undervalued.’”

Expansion

While currently, the focus is on Japan, KSA and UAE markets, in the medium term Smartpay will look towards SingaporeSouth KoreaTaiwan, and other markets in Southeast Asia and MENA. These markets all have the five common factors which are central to Smartpay’s business model:

  • Specific consumer psychographics include a tech-savvy population, smartphone and internet access, high disposable income, increased consumption, and high rates of tech adaption.
  • An economy that is undergoing a digital transformation.
  • Merchants that need help to accelerate a successful digital transformation.
  • Legacy banks that have been disrupted by digital-first solutions have taken away their relevance and limited access to key consumer data.
  • Governments and regulators that want to work with established digital financial solutions that have existing global partnerships (proof of quality and security) and credible local partners (proof of local interests).
Working with the competition

What differentiates Smartpay from other fintech companies is that it works with the existing legacy banks rather than against them. Established banks have been disrupted by financial digital transformation companies that have taken their customers’ relevant details and data.

These banks need help in recapturing these consumers with payment innovation and high-quality, digital UX. In the past decade, the legacy banks fell behind the innovation curve with respect to payments. They often focused on wealth management and insurance products targeted almost solely towards high-net-worth individuals. However, payments represent the fundamental basis of a bank’s daily relationship with their consumer.

When fintechs took over payments, they not only took away the transaction values, but also the critical data that had guided the customer acquisition strategy of banks for decades. Without these insights, the legacy banks had to rely on high acquisition cost for insurance and wealth management.

This affected their profitability. They were missing the key relevant data to offer the right products and services at the right time. Smartpay is able to address this imbalance. It integrates with legacy banks to re-establish their relationship with the right customer through its digital UX.

‘You [smartpay] are the Apple of digital consumer finance, your UX is beautifully designed and makes the consumer feel like you trust them, and respect who they are. This is in a market where other consumer finance companies have made customers feel they are not trusted and undervalued.’ – Tai Iguchi

Benefitting merchants and regulators

The third side of this stable pyramid is the merchant. In high-growth e-commerce markets, merchants need help to drive e-commerce revenue. Generally speaking, merchants have struggled with high drop off rates at the checkout. This is in large part due to clunky and slow point-of-purchase checkout. It does not help consumers with cash flow optionality.

At a time when merchants have to increase their website revenue to survive financially, seeing large drop-off rates is disastrous. Particularly when considering high-value consumers with large average order values.

Finally, there are the governments and regulators that are looking to help banks and merchants accelerate their digital transformation. However, they need high-quality tech companies that have existing global partnerships and global benchmark security to protect their consumers. Regulators want the legacy banking industry to also benefit from the digital transformation and move towards a cashless society.

The perfect match

Smartpay has spent three years analysing the success of “buy now, pay later” in homogenous markets and building systems that will be scalable and commercially sustainable. It’s engineering and product teams have built the elements that are required for the sustained success of consumer finance. These insights include homing in on the right consumer and linking them to the most suitable merchant.

It has also focused on the legacy banks that needed help regaining payment and consumer data of high-income consumers. This is in addition to wanting assistance with digital transformation faster than the previous four-year period they could deliver at.

Finally, the right governments and regulators have been identified. These are the ones which need the technology, UX, and value propositions that will help the ecosystem succeed in a profitable, controlled system, in contrast to the boom-and-bust cycles that have negatively affected the industry.

There are clear signs that governments need help fulfilling their agenda for a cashless society. They also want to help their legacy banks regain some of their power and undergo digitally transformation. However, these governments would only want to work with companies that have designed, built, and executed high-quality technology solutions. Especially those with global recognition from the key players in the ecosystem like Adyen, Stripe, and Shopify.

Replacing one-size-fits-all

Smartpay has realised that the ideal customer is a high-income consumer. Especially one that wants control of their monthly budgeting and wants to extend the monthly cash flow. All the while without paying fees and interest.

These customers want to engage with a brand that is custom-built for their usage. This is in lieu of a one-size-fits-all approach that is for consumers who actually want to borrow money. Instead, Smartpay is a brand designed for their income group and for smart money management. Compared to “non-savings” money management.

Attracting new investors and customers

From its inception, Smartpay has attracted globally renowned strategic investors that include Global Founders Capital (Europe) , Matrix Partners (Silicon Valley) and SMBC VC (Japan) .

It’s plan is to build on these strong foundations. With the right technology and back-office support, each market brings a better overall ROI. This is due to shared costs and higher overall returns, a high-tech, low-asset operations business. Smartpay’s founder and CEO Sam Ahmed added, “We have begun discussions with potential banking partners in other similar markets, such as KSA and Korea, to roll out our learnings and robust business model.”

Regarding his company’s business strategy and future plans, Smartpay’s founder and CEO said: “We are delighted to be the first in Japan to provide digital consumer finance services which supports both credit cards and direct debit through a fully automated, single-click UX at the point of purchase. Our passion is helping consumers manage their cash flow in a smarter way, in a fast, safe and secure click. There are no additional fees or interest for the consumers.

“Since the launch of Smartpay just over a year ago, as Japan’s first BNPL solution payable by credit card, we have continued to expand our partner ecosystem with new retailers and an expanding customer base with revenue growth over 200% in the last three months. It’s interesting that we have lifted merchant average order value more than 30% in four different merchant categories. We attract higher value consumers for the merchant through our eKYC process.”

  • Francis Bignell

    Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.



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