To enter Japan’s online payments market is to embrace battle with a hydra. Outstrip one competitor, another one grows just as a quickly. Well-known players include the likes of PayPal Japan, GMO Payment Gateway, and Rakuten Checkout. Nipping on their heels is a host of fast-growing payment-focused businesses led by Spike from Metaps and Line Paywith nascent services like Pay.jp from Base (Japan’s version of Shopify) waiting in the wings. Nevertheless, Stripe, the online payments wunderkind of Silicon Valley, announced its invitation-only private beta today, with an eye to having a full launch by the end of the year. (Editor’s note: Y Combinator, an investor in Stripe, is also an investor in Tech in Asia. Please see our Statement of Ethics for further details.)
Invitations are open for the taking. Hopeful companies are asked to submit basic identity verification information like address and bank account details. Sign-up requests will be handled on a first come, first serve basis with little delay. A spokesperson told Tech in Asiathat Stripe expects its Japanese users to start transacting from as soon as today. Currently, there are no limits on the number of companies Stripe will onboard for the private beta.
This launch comes nearly a full year after Stripe Japan was created in June 2014. Led by Daniel Heffernan, a Cookpad engineering alum by way of the University of Tokyo, the team has assiduously kept a low-profile. The consternation this caused amongst local startupseager to access the service indicates Stripe is a welcomed entrant into the payments race.
Standing out in a crowded room
In terms of functionality, Stripe offers standard tools – account management, revenue calculation, bank deposit confirmation – with the selling point of simplicity. Besides providing a well-received user interface, the firm also eschews malleable transaction fees. For Stripe Japan, there is only one fee – 3.6 percent. Typically, payment services skirt the issue of their fees (like GMO Payment Gateway which requires potential users to contact a company representative to learn more) or have a flat rate that can be subject to certain additional fees if various conditions are met (like Spike which has no fees up to US$100,000 in transactions).
Stripe is also joining this fight with a hefty secret weapon – a partnership with Sumitomo Mitsui Credit Card (SMCC). SMCC is part of Sumitomo Mitsui Financial Group (SMFG), the second largest financial institution in country behind Mitsubishi UFJ. SMFG ranks as a top ten Japanese corporation by market cap making it a rubber stamp of respectability – with heat! – in Japanese business circles.
In a statement, Stripe CEO Patrick Collison cited the growing strength of Japan’s startup community as a reason why Stripe decided to launch here.
What does Stripe mean for Japanese startups?
For the sellers, Stripe provides a new alternative. It’s a modern payment company, unfettered by the conservatism and technical debt that seems to plague legacy financial institutions. That has made it a winner with young companies and forward thinking established firms. If history repeats itself, some of Japan’s more entrenched firms may find the ground beneath them a little less solid.
For other payment providers, the inclusion of Stripe is not necessarily a bad thing. Already, payment startups in Japan were running strong. Spike, which also has a modern, sleek and user-friendly interface, has nearly overtaken market leader GMO Payment Gateway in little more than a year. GMO Payment Gateway has over 54,000 e-commerce sites (per its homepage), but Spike has already amassed 50,000 of its own clients.
As impressive as that is, Base will be pushing its Pay.jp service to its 150,000 registered ecommerce stores over the summer. Final conversion remains to be seen, but Base didn’t get 150,000 clients by producing poor products.
Stripe’s entry further confirms that this is indeed a fertile industry. So far there have been enough transactions to go around, but the real mystery is the question of where Stripe’s main transactions will come from.
Where to, Stripe?
Stripe’s real challenge is not just getting users, but going a step further and getting high-transaction-volume users. A local competitor like Spike, for all its success, mostly attracts small, low transaction volume outfits attracted to its limited fees. Thinking long term, that’s a fine strategy if the first priority is securing a user base before worrying about revenue.
If Stripe wants to grow revenue quickly, however, it will need to target larger, more successful firms. And that will be a challenge. Japanese businesses are loyal to their suppliers and there are plenty of outfits that will be reluctant to part ties with their payment service providers.
That’s what makes the SMCC deal so critical. It means Japanese businesses are not facing a choice between domestic and foreign options – they are looking between domestic and localized options, where the latter has an ally more powerful than any other payment competitor.
Loyalty is nice, but in a realpolitik world, some friends are better than others.