Yeahka Enters Japan's Hermetic Payments Market, But Will It Succeed?

The Chinese payment services firm has been authorized to handle credit card and QR transactions in Japan, but can it crack the notoriously tricky market?

Key Takeaways:

• The company has obtained the licenses through a Japanese subsidiary as it seeks to expand its global reach
• The aim is to serve local customers in overseas markets rather than just facilitate cross-border payments for Chinese tourists

Japan is not short of electronic payment options but cash is still king.

Cashless payments made up only around 43% of transactions last year, mostly involving credit cards, while mobile options such as scanning QR codes accounted for just 9.6% of the total, according to official Japanese statistics.

Most of the mobile payments were processed by Japanese providers such as PayPay, LINE Pay and Rakuten Pay.

Given the adverse conditions, foreign providers have struggled to break into Japan's day-to-day payments market, relegated instead to processing transactions at tourist destinations on behalf of a limited selection of merchants.

But payment technology company Yeahka Ltd. (9923.HK) has decided to take on the Japanese challenge as it seeks to expand outside China.

The company announced this week that its Japanese subsidiary had gained the necessary approvals to process credit card and QR payments in Japan, allowing Yeahka to become a local competitor rather than just a provider of cross-border payment services for Chinese visitors.

Domestic target

Yeahka's new remit differs markedly from the model deployed in Japan by Alipay and WeChat Pay. The Chinese payment giants operate in partnership with local intermediaries who connect Japanese retailers into Chinese cross-border services. Thus, when Chinese tourists use familiar apps to buy goods or services in Japan, transactions are processed through Chinese systems, with currency conversions handled by Japanese QR code payment partners.

That business is centred around the spending habits of tourists, aimed at the locations and retailers that serve the Chinese traveller overseas.

With its new licenses, Yeahka has essentially obtained an entry ticket into Japan's mainstream payment market, allowing it to forge direct relationships with retailers and integrate into the domestic clearing system. With a wider customer base of local consumers and businesses, it would no longer be so dependent on Chinese tourists as a revenue source.

Japan would act as another link in the global chain that Yeahka is seeking to build, after also targeting payment licenses in the United States.

And yet, the complex Japanese system may be a hard nut to crack, with its dominant providers such as PayPay, Rakuten Pay and dBarai, as well as the popular Suica smart card, used for transport and shopping. These cards cover a wide range of services with a large and loyal user base, reinforced by points-based reward schemes. Meanwhile, tech platforms such as Square and Recruit's AirPay are making inroads with small and medium-sized businesses, with their ease of use and integrated merchant solutions.

Capturing synergies

Yeahka is hoping to open up a niche in the saturated Japanese market by applying the same formula it developed in China, combining merchant services, membership management and digital advertising expertise.

The company said it would work with digital solutions partner Shenzhen Fushi Technology to step up the Japanese operations. Drawing on expertise on e-commerce and consumption platforms such as RedNote and Dianping, the service would offer local lifestyle and in-store e-commerce services with Chinese-style business digital processing. Shenzhen Fushi Technology, described in the statement as an investee company, specializes in providing offline merchants with digital solutions through links with more than 20,000 merchants across Southeast Asia.

To make its international mark, Yeahka could position itself as a key infrastructure provider for Chinese e-commerce platforms with global ambitions, offering a mix of content creation, supply chain management, payment settlement and membership services.

It has already been active overseas, securing the first of a set of federal and state licenses it would need to operate across the United States, starting with Arizona.

Yeahka has signaled a stronger focus on in-store business, telling a shareholder meeting in June that overseas e-commerce services within retailers had reached break-even point on a monthly basis, indicating the investment was starting to bear fruit.

Investors have broadly welcomed the international moves, pinning high hopes on the global strategy. Yeahka's share price rose 1.23% after news of the Japanese licenses. The share has jumped 60% since the Arizona approval in late May, to trade at a price-to-earnings (P/E) ratio of 54.3 times, far higher than the 14.5 times for PayPal (PYPL.US).

But with buoyant expecations already priced in, any future upside would likely hinge on whether the company can demonstrate clear progress in its global ambitions and make a deep push into the hermetic Japanese market.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.