In June, Facebook unveiled plans to launch a cryptocurrency called Libra, in the firm’s latest effort to expand beyond social networking and move into financial services. But the plan was immediately questioned by US regulators, as well as G-7 central bankers, who cited concerns over virtual units, data privacy and security, as well as Facebook’s poor record in preventing misuse of its user data.
As it seeks to overcome the hurdles, Facebook can perhaps take a lesson or two from an Asian peer, Japan-based messaging app LINE, which has successfully navigated various challenges and emerged as a significant player in financial services.
“We achieved this by establishing joint ventures with traditional entities,” Tetsuhiko Saito, chief executive officer of LINE Financial Corp, told EJ Insight in an exclusive interview.
For social networks or platform-based businesses to move into financial services, where consumers choose to put their money, trust is a critical component, said Saito, who has over three decades of experience at Mizuho Bank in various roles before taking up the Line assignment.
Asked about LINE’s strategy to gain consumer trust and confidence in its financial service offerings, Saito said an important element was entering into tie-ups with traditional businesses in the sector.
“By doing so, we utilize the trust and credibility from existing institutions, and we add LINE’s know-how to operate the app-based services, making a nice integration of both sides,” said the CEO, as he sought to explain how the LINE financial service ecosystem is taking shape on the foundation of the group’s thriving social network business.
LINE, which is owned by South Korean internet giant Naver, currently has 80 million monthly active users in Japan, 21 million in Taiwan, 44 million in Thailand and 19 million in Indonesia, according to the firm.
As part of its Smart Portal strategy, LINE has been ramping up its financial technology (FinTech) efforts by developing app-based financial services. In additional to its mobile money transfer and payment app LINE Pay, LINE Financial has created new offerings such as LINE Insurance, LINE Smart Invest, and LINE Kakeibo (a free personal finance management app), among others.
In 2019, LINE Financial and Japanese banking giant Mizuho Financial Group launched a joint venture to start planning on a new bank, signaling an aggressive new push into financial services.
“What LINE Financial is bringing to the market is our vision of ‘the future of finance, in the palm of your hand,’ meaning you don’t have to proactively go somewhere to get financial services, instead of that, the services will come to you with easy access, and that’s the new thing that has never existed before,” said Saito.
LINE Financial is completely different from internet banking services now available in the market, according to Saito.
“For internet banking, you still have to proactively open the app or go to the platform for the service,” he said. “But LINE Financial is right on the app (LINE messaging app) that you are using on a daily basis, and those financial services and products will come to you.”
In 2018, LINE Financial and Japan’s biggest brokerage, Nomura Holdings, established LINE Securities, to launch the securities brokerage service. It also launched “LINE Smart Invest” with online securities company Folio. In October last year, Tokyo-listed insurance company Sompo partnered with LINE to launch the LINE Insurance service.
In addition, LINE and Mizuho Financial Group agreed to establish a joint venture to start discussion on making a new bank. The company will proceed with preparation, aiming to establish a new institution during 2020, subject to approvals from relevant authorities.
In contrast, in the case of Facebook’s cryptocurrency-based payments network Libra, which is supported by payments giants Visa and Mastercard, among other global brands such as Booking.com and Uber, no banks were on the initial list of 27 partners for the Libra Association, which will oversee the new cryptocurrency.
Furthermore, established banks in the US and Europe have been reportedly steering clear of it, citing money-laundering scrutiny and regulatory concerns.
On LINE’s ambition for the LINE Bank, Saito highlights the crucial role of the banking business in LINE’s financial services ecosystem.
“Banking is the actual platform for financial services, it is the base of everything,” he said, because it can provide loan facilities to customers in need of funds, and “if they have excess money, they may put that into investment and securities service.”
“It is actually quite hard for people to go from a communication platform, all the way to credit or securities services, the barrier is quite high,” said Saito. The firm is leaning on its mobile payment service LINE Pay, personal finance management app LINE Kakeibo, and the upcoming LINE Bank, as the pillars to build the customer base, “so that they can expand to investment, and credit services.”
In June, LINE Financial unveiled a new credit scoring service, LINE Score, which will rate customers based on the information they provide, as well as by analyzing their interactions with other services within LINE’s ecosystem. This information will then be used to determine interest rates and credit limits for a loan service that will be available beginning this summer.
As is the case with challenger banks or so-called virtual banks, LINE Bank does not have to pay for physical locations, which makes it more likely than not that it will incur lower overhead expenses. And the digital-only bank will be able to reach out to the untapped group of customers which the regular financial services offerings haven’t been able to tap.
But Saito said LINE Bank is completely different from the existing virtual banks, “We already have the massive base of daily users, and within that platform, they will start to see banking and financial services available for them to use.”
“If you are starting from a zero base to create [a bank] independently and to gain users from there, it’s extremely difficult,” Saito said. But for LINE Bank, it can have immediate access to LINE’s users. “Nearly 100 percent of the younger generation in Japan is using LINE, that is our existing asset,” he said. “We expect the financial services they use for the first time to come from LINE.”
LINE Financial is working to seek approvals from Japanese authorities and regulators for its banking initiative. Meanwhile, LINE Financial Taiwan, led by LINE Group and including Taipei Fubon Commercial Bank and Standard Chartered, has been among Taiwan’s first batch of virtual banking license winners last week, joined by other two consortiums led by Taiwan telecom operator Chunghwa Telecom and Japanese e-commerce firm Rakuten.
In the interview, Saito said LINE’s banking initiative focuses on its four core markets, namely Japan, Taiwan, Thailand and Indonesia.
“Once that goes well, and we have more experience, we would like to try new markets such as Hong Kong,” he said.
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