Japan’s payments industry is going global. Admittedly this is a late development for the world’s third-largest economy. But Japan is now in the sights of global fintechs: PayPal recently acquired local buy-now, pay-later firm Paidy, while Dutch enterprise-payments giant Adyen is now aggressively building a business there, as reported by DigFIn.
Now a homegrown payments player is looking to turn the tables, by connecting Japanese and European merchants, and ultimately by becoming an intra-European competitor.
The company is Degica, which began life in 2005 as a gaming company – which it still is, with over a thousand games it has developed and published.
Its founder and Tokyo-based CEO, Jack Momose, realized the business model contained a conflict of interest between the developers from whom the company sourced games, and the end user: one wanted prices high and the other wanted prices low.
From gaming to payments
Momose expanded the business into payments to serve e-commerce and other businesses, which allowed Degica to help the upstream and downstream at the same time. “We put our gaming profits into R&D for e-commerce,” Momose told DigFin.
(The model was picked up later by Singapore- and Malaysia-based gaming company Razer, whose Razer Fintech arm providing business and consumer payments solutions in Southeast Asia.)
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Degica developed a payments platform called Komoju. It has been designed specifically for Japan – initially for what Momose calls “J-to-J” domestic business. For example, Komoju developed a means of enabling game companies to sell to consumers via the ‘konbini’, the term for the convenience store chains that are ubiquitous in Japan.
For gamers who lack a credit card (especially kids), they can buy a game on Steam, go down to their local konbini, and pay in cash. Komoju is electronically tied to the stores’ cash registers, so once the payment is made, the platform notifies Steam, which releases the game to the player. There’s a risk that the player doesn’t complete the deal, but konbini are so ingrained in most people’s daily lives that the system works, Momose says.
Such arrangements help Japanese people (who generally don’t speak English) take comfort in paying for products from a foreign platform, while giving foreigners a means to access the local population.
“The convenience and comfort factor builds trust, especially when Steam was only in English,” Momose said. “Imagine an American trying to buy something on a Chinese website, and then they see the PayPal logo.”
Most of Komoju’s merchants are small businesses, but in addition to the konbini it is signing up bigger, more international companies – including Big Hit Music, the company behind K-Pop sensation BTS.
To attract more international business, Komoju added artificial-intelligence services for translation, which Degica gives for free to merchant customers, be they foreign or Japanese, to help them interact with each other. It also offers logistics support to e-commerce companies. This has made a big difference in a country like Japan, which has a big, wealthy, but insular population.
Facing new competition
Komoju handles credit cards and other traditional forms of payment as well. It now serves over 4,500 stores, says Christian Desert, Lisbon-based vice president for revenue and growth at Komoju.
“We’re like the Stripe of Japan,” he said. “Japan and Korea are in the sweet spot, because of the size of their ecosystems. Japan has been invisible but it’s the next big market in payments.”
Momose says entrants like Adyen and PayPal mean Degica’s domestic market is now in play. But he believes Degica has two advantages. First it is local, with solutions designed for the local market, such as its konbini payments product.
Second, it has the experience of also being a merchant, in this case an online gaming company, which Momose says gives Degica unique insights into what the market needs.
Therefore Degica’s Komoju business is now applying for a Payment Institution License to give it access to the European Union (via a local branch in Cyprus).
Momose says he hopes it will be approved in the first quarter of 2022, and Komoju has been hiring compliance and sales people in various European markets. Christian Desert is heading the marketing and sales effort. The company is also researching a buy-now, pay-later capability that might come online early next year.
From helping international companies sell into Japan, Komoju is being positioned to help Japanese companies sell into Europe – and ultimately, help European companies sell into other European countries.
The company’s A.I. translation and logistics services, along with a competitive tech stack, might give it a fair shot at succeeding in the intra-European market – and let Degica take on the likes of Adyen in their backyard.