LINE Pay’s Ko: "We aim to be part of a world's leading smart portal"

• Getting into the payments business is part of a bigger plan to get into financial services
• May reach the 50 million registered payment users by end 2018 and become the number one payments service in Taiwan
• LINE Pay may succeed where Chinese messaging and payment platforms fail to date – building successful payments platforms outside of their home market.

LINE Pay, one of the leading payments platforms in Japan, Taiwan and Thailand, is becoming increasingly the crucial nod to interconnect LINE’s entire future financial services content such as insurances, asset management and eventually remittances and deposit business.

LINE also wanted to connect the messaging’s app’s large user base to a broader ecosystem and payments was a critical point in this effort.

“LINE Pay is one of our important strategic businesses in LINE’s aim to become the world's leading "smart portal”– a one-stop mobile platform that enables people to connect seamlessly to all the information, services, products and people in their lives, said CEO of LINE Pay Corporation, Youngsu Ko.

As of November 2017 it had a total of 40 million registered payment users across Japan, Taiwan, Thailand and Indonesia. LINE has not disclosed yet any updates to this number nor the portion which is active but the total registered payments base may be approaching the 50 million user mark as of end 2018 primarily driven by its efforts in Japan.

LINE Pay may be approaching the 50 million registered users by end 2018
Fig 1 LINE Pay registered payment users

Source: Asian Banker Research

The company added an estimated one million registered users per months to its payments platform between January 2015 and December 2018, earning a five star in our global digital user growth ranking.

LINE is stepping up its investment into its payments business in an effort to boost engagement of all the other apps in its ecosystem. According to a recent filing with the financial regulators in Japan, the company plans to invest $182 million to develop its fintech businesses.

According to Ko, LINE Pay enhances LINE's overall business ecosystem by completing the Last Mile of any transaction, be it a person-to-merchant online or offline purchasing, or a person-to-person payment that links back to the core of the social messaging of LINE.

“Users on messengers can easily use financial services that are linked to the messenger app directly and this is having a positive impact to both platforms. Merchants for LINE Pay can utilise the user base for LINE Messenger platform and can enjoy network effect among the users in advertising and bringing in customers – which is a win-win for LINE and merchants.”

This attention was not always the case. The merchant side in its core market Japan that could accept LINE Pay has often been regarded as a key bottleneck to increase users and transactions.

Much of it was related to how LINE Pay evolved and learned to operate across its markets in Japan, Taiwan, Thailand and Indonesia.

Paying attention to user and merchants in the payments business

“In 2014 and 2015 we were preparing the payment service and building the infrastructure in Japan, Taiwan and Thailand. In 2016 we were preparing the co-sponsored card with JCB in Japan to combine offline payment which was a basis for creating an important merchant network. Up to 2017, our sticker and content driven business had transitioned into an advertising business. At the same time we realised that acquiring users but also acquiring more merchants is critical. So in 2018 when we were focused on building our merchant network.”

“We learnt that user payment service alone was not enough. We needed to market, create interfaces and create a strategy that would be beneficial for customers to use us.”

2018 was LINE Pay's most critical year in building scale in merchant adoption. It has been taking merchants concerns much more seriously than in the past where the focus was on end user payments. “We want to provide a user experience not only to the retail customers but also to the store managers and owners and employees.”

LINE Pay has been aggressively expanding locations and merchants that revolve around users’ lifestyle such as convenient stores, shopping malls and transport operators

Previously mostly accepted via QR code, the QUICPay partnership based on NFC settlement, allowed LINE Pay to add more than 720,000 merchant locations bringing total merchant acceptance to 1.33 million. LINE Pay handles all digital settlements including QR/barcode, NFC and card.

Asides from the JCB co-branded debit card , Line Pay is addressing the issue with users having limited cash lines on their prepaid LINE Pay Card by announcing in January 2019 the partnership with Visa to introduce co-brand credit card, which will enable users to tap into their existing credit line without needing to top up the balance of their LINE Pay Wallet.

“The reason why we started and continuously focus on plastic cards is that it was the payment method that or existing customers understood the best and thought it was the easiest to use. Given that user experience is critical and the foundation to our company we believe that our payment service should gradually change, it can’t happen too quickly.”

For Ko, however, the most challenging part is not acquiring more users but acquiring more merchants. “From our Japan business, we understood that merchants have difficulties in training their employees, how to use the new services, and that payments took up to months to come into their account. So we listened to those pain points.”

LINE Pay offers different solutions based on the size and sector of that merchant. “For SMEs, we have our own LINE Pay reader in the app (Merchant App) that does not charge transaction fee for three years from August 2018 and we offer LINE Pay original device. Merchants can download the app free and can conduct a merchant review within the app. We also will be creating in the future a service where a merchant designates a date for payment and money can transfer to the merchant's account next day,” he added.

On the other hand, LINE Pay aims to boost payments usage by incentive programs or campaigns which encourage messenger users to use LINE Pay as mobile payment and utilise the network effect of the messenger. Currently out of the more than 164 million active user base of the LINE messaging app, approx. 73% do not use LINE Pay according to Asian Banker Research.

“One of the campaign cases is the ‘10Yen Ping-Pong’, a campaign that was designed to raise awareness on the convenience of sending money through LINE Pay. Just after 18 days of campaign launch in June 2018 in Japan, the number of transfers amounted to 460,000 and after the campaign, active users in Japan increased by 270%.”

Currently, users gain LINE Points for their spending, in combination with “My Level,” a tiered incentive program offering bigger benefits for the most active LINE Pay users, offering up to 3% additional reward for code settlements.

The rise in global transaction volume

“We have increased organically LINE Pay users annually between 5-10% but we need to reinforce our efforts in converting the rest of the 70% of LINE messaging app users. Rather than increasing the number of transactions, our priority in 2019 will be increasing our monthly active payment users,” explained Ko.

Ko believes the way to do that is creating a critical brand image that LINE Pay can be trusted in the transaction business, increasing merchant adoption and areas where LINE pay can be used by showing that it is in the user interest to use its payment service.

Efforts are starting to pay off towards the second half of 2018

Fig 2 LINE Pay global transaction value (non-accumulative, bn, JYP)

Source: Line

Overseas Operations

LINE’s success outside its home market is based on keen insights into their local markets, where local management teams take the initiative to create diverse interfaces and user experiences. Taiwan has become after Japan, LINE Pay's most successful market.

Ko believes its critical to find the right user needs and then couple it with the relevant services. “While others just put out the services we are very good in identifying the right pain points.”

Taiwan
Taiwan is LINE Pay’s most successful messaging app and payments market outside Japan. According to Taiwan’s Financial Supervisory Commission (FSC), LINE Pay, which launched its electronic payment service in September 2018, has become the number one payments service ranked first in terms of users followed by AllPay, Jkopay and Apple Pay. LINE Pay had 5 million registered users as of January 2019.

LINE Pay launched a red envelop campaign during the first month of launch, triggering seven million transaction counts, with a total transaction amount of over $18million.

“We knew that Taiwanese consumers use frequently their credit cards and also like reward points in their credit card usage. So we created a co-branded card with CTBC Bank where users were notified what kind of transactions they conducted and also received a 3% LINE Points rebate for the first year when the card was launched. It became the most issued co-branded card in Taiwan in 2018. We are now transitioning into e-cash and cross-border remittances,” said Ko.

Thailand

In Thailand, where LINE messaging app is used by 95% of smartphone users, Rabbit LINE Pay is in a race with True Money to dominate the e-wallet space. Rabbit LINE Pay had five million registered users as of October 2018, compared to 15 million registered True Money e-Wallet users as of July 2018.

Because people had to wait in long queues to get their tickets in the subway system, Ko said, we provided a mobile service where they could buy them on the app. Within three months we already covered about 10% of the people using the transport system.

At the same time, LINE Pay introduced a new service in October 2018 where subscribers can begin to top-up their Rabbit LINE Pay account balances at BTS skytrain stations in Thailand

It remains to be seen how fast Rabbit LINE Pay can tap into the user based of a capital alliance it entered in Nov 2018 with Thailand's largest telecommunications carrier, Advanced Info Service AIS , Thailand s largest telecom operator with more than 40 million subscribers, through its subsidiary, "Advanced mPay”.

Indonesia

In Indonesia, LINE Pay’s fate still hangs in the balance. It is not only the company’s smallest overseas market with an estimated 2-3 million registered payment users but also faces a declining user based of LINE’s messaging app. Between Q22017 and Q22018 monthly active user base shrunk from 38 million to 24 million, according to LINE’ second half 2018 earnings presentation.

Those challenges are compounded by facing a much more cash heavy payments market, and mobile payment players have to provide also costly discount programs to be able to attract users. The company is focused on delivering digital banking service along with its partner Bank KEB Hana Indonesia.

The making of a regional platform

While LINE Pay operates its service independently within each country, it increasingly aims to make them interoperable and more accessible.

“Our strategic partnership with Tencent will enable WeChat Pay users visiting Japan to make payments using QR codes at LINE Pay merchants and their locations in early 2019. Furthermore, LINE Pay in Japan will connect with its networks in Taiwan, Thailand, and Indonesia, so that tourists can use their local LINE Pay app to make payments in Japan. In Korea, we partner with NAVER, to enable 24 million Naver Pay users to make cashless payments in Japan within 2019.”

LINE Pay as part of a bigger playbook

For LINE, getting into the payments business is part of a bigger plan to get into financial services. Across its countries of operations, LINE has been preparing financial services with insurance and asset management companies, releasing LINE Invest and LINE Insurance in the second half of 2018. It also plans to launch a digital bank with local commercial banks across their markets (see fig 2).

LINE is building a comprehensive mobile banking portal

Fig 3 Strategic business expansion

Source: LINE

In the past, our investment went into the user base and making payment service available, Ko said, and we have started from the second half of last year to connect financial content with our payments and messaging platform.

“We launched LINE Insurance in October 2018 in Japan with Sompo Japan Nipponkoa Insurance. Since its launch we were able to get more than 4.6 million followers on our LINE Insurance Official Account in just 3 weeks,” Ko added.

Likewise, digital platforms have become much more effective alternatives in transferring money across borders. Ko said LINE will eventually also offer cross border remittance and deposit based services via its upcoming ‘LINE Bank’.

LINE Pay may succeed where Chinese messaging and payment platforms fail to date

LINE Pay’s business strategy is currently focused on building up the payment infrastructure and ecosystem and expects only to monetise the overall financial business after 2020, based on financial content services built on top of the payment platform which is already shaping up. It has a dominant market position in Japan and Taiwan. Efforts in Japan, in particular, were paying off driving it strong global transaction value growth in 2018. With the firepower of $180 million spending budget for the next years, LINE Pay needs to show to investors that it can fend off the aggressive regional expansion of Chinese payments players, able to convert a bigger portion of LINE messaging app users into payment users, grow its overall payment user base at the same breakneck pace compared to the period between 2015 and 2018 and overcome the challenges it faces in Indonesia and partially Thailand. With a nose for local market needs, Line Pay may succeed where Chinese messaging and payment platforms have struggled to date – building successful payments businesses outside their home market.