Rakuten, the Japanese e-commerce, fintech and digital content giant, is planning to issue its Rakuten Coin in about six months as a means of using blockchain to expand its membership-driven internet business to new markets.
Hiroshi Takasawa, Singapore-based managing executive officer and head of the company’s Asian and capital-investments arms, told DigFin an ICO is meant to make its membership system easier to extend overseas.
Speaking on the sidelines at a Money 20/20 conference, he says tokenizing the company’s existing business, based on memberships and loyalty programs, will enable Rakuten to extend these services to customers outside of Japan.
Rakuten, founded in 1997 as an e-commerce business, now enjoys $8.4 billion in annual revenues and counts virtually every Japanese person as a customer, one way or another.
Although its messaging app isn’t as popular as Line, or its online brokerage as big as SBI’s, Rakuten’s strength is in its membership model.
Takasawa, an ex-Nomura Securities executive, says Rakuten’s goal is to become the world’s biggest membership company, in which users derive benefits from an interlinked group of fintech, e-commerce, and digital content services. But in Japan, e-commerce is now a mature business, so the company is looking for ways to add new services or benefits.
To date, the company has grown through a triad of data, membership, and branding. Introducing a crypto-currency would touch on all three aspects, creating a means of letting coinholders access Rakuten financial services and enjoy rebates. Given the scale of Rakuten’s existing membership base and rebate book, its ICO could become one of the most liquid in the nascent world of crypto-currencies. (Line, whose messaging app has 600 million users worldwide, has also recently announced it will launch a crypto-currency exchange.)
Although putting Rakuten’s logo on sports franchises and other marketing campaigns has been a big driver of its expansion, the heart of its business is its “Rakuten Super Points”, which rebate 1% of purchase prices and let people buy services across a growing ecosystem of stores and digital shopfronts.
Financial services comprise more than half of its network of offerings. The heart is Rakuten Bank, which offers high interest rates to depositors and, with a $7 billion loan balance sheet, serves as the liquidity provider to mortgages, credit cards and other businesses. The company issues credit cards (15 million cardholders), provides securities brokerage, investments and life insurance – all online, tied together through mobile payments.
Rakuten has grown its financial franchise by offering customers rebates, a smooth digital onboarding process, easy payment options, and high interest rates. It also allows users to open multiple service accounts simultaneously: so someone can open a bank account and a securities account at the same time. All of these financial services, from mortgages to insurance, are bundled in a single app.
The next step for Rakuten within its portfolio of financial services is to move into offline investment and financial planning. “We will replace private bankers,” Takasawa said, noting Rakuten has already amassed $3 billion in its IFA channels.
Rakuten is also acquiring a general insurance company to complement its life-insurance capabilities, he says, without identifying the target company.
The challenges to tokenization
The company has now issued a cumulative 1 trillion points, valued at $9.4 billion of rebates. And the ICO is meant to tokenize this. “We are introducing blockchain technologies to Super Points to enhance the service,” Takasawa said in a speech.
Utility coins act in a similar way to a loyalty rewards program, and the company hopes to attract the growing universe of crypto-consumers by tying its coin to real-world financial services.
Crypto-currencies will throw up problems, too. Most ICOs rely on converting coins from bitcoin or ethereum, so will Rakuten Coin be restricted to existing holders of crypto? Coins are still expensive and fidgety to buy or sell, so can a Rakuten Coin be transacted at fees that make Super Points still attractive? Rakuten offers some services that are universal – such as books via Kobo, or messaging via Viber – but can it sell financial services to a non-Japanese clientele?
Takasawa says the company’s goal is to nearly double the number of people using a Rakuten service, from 1.2 billion to 2 billion worldwide. Getting there depends on how well its engineers can address the technical hurdles in blockchain and crypto-currency.