No ID and no fees: Japanese money transfer app opens for business

Photo credit: kasto / 123RF Stock Photo.

This article is part of Tech in Asia’s partnership with Nikkei BP’s “Nikkei Fintech” publication (paywall). We will periodically publish translated articles highlighting the latest startups and trends for fintech in Japan. This article has been lightly edited from the original version. For the Japanese version, go here.

Hotly anticipated Japanese money transfer startup Kyash is set to launch this spring. Heavily touting the ease of sign ups—with no need to undergo any identification or screening process—the startup is aiming to secure 1 million registered users in its first year.

Kyash was established in 2015 and has spent the past two years in development. It is a service just like a mobile wallet, allowing users to transfer money and make payment settlements with no charges. The app’s simplicity of use is its major calling card. If you download the application and register as a member, you can start using it immediately.

After raising about US$1.5 million (170 million yen) in July 2015, Kyash received a large-scale funding of about US$8.7 million (1 billion yen) in Series A on December 14 of last year. Jafco, Sumitomo Mitsui Banking Corporation, ITOCHU Corporation, Dentsu Digital Holdings, Mizuho Capital, and SMBC Venture Capital joined the round.

Money transfer and payment settlements using virtual cards

In Japan, businesses that deal with money transfers usually register as “money transfer agents.” However, there are many restrictions imposed on money transfer agents, and they are required to deposit 100 percent of the transfer amount immediately. Also, when opening an account, users are required to thoroughly verify their identity just like when opening a bank account. As a result, the time and costs associated with starting up the service and acquiring users are prohibitive.

In Kyash’s case, to ease the regulatory burden, the transfer service is defined as “payment by prepayment.”  Kyash can be used as a prepaid payment method the same way gift certificates, gift vouchers, and telephone cards are used. It can also be used to transfer money. As the funds in an individual’s Kyash account cannot be withdrawn as currency, identity confirmation becomes unnecessary.

Users can specify transfer destinations using social media IDs for Facebook and LINE as well as with their contacts on their devices. It is also possible to transfer money by specifying recipients with their email addresses. If both parties are Kyash users, they can read QR codes with each other to make the transaction. The startup also plans to have a function that displays a list of nearby Kyash users through Bluetooth.

The startup is actually positioned as a Visa issuer so it can instantly issue a prepaid virtual Visa card upon signing for the service. If you register a Visa or Mastercard credit card in the sign-up process and top it up, you will be able to send money or make payment settlements.

Kyash will also issue plastic cards in the future. When they do, they will be valid at approximately 44 million Visa merchants (ecommerce sites and domestic and overseas stores) like ordinary credit cards.

With Kyash’s prepayment method, there is no limitation to the maximum amount that can be held on the virtual card. However, the maximum top-up amount is limited to about US$87,000 (10 million yen), and the amount of money transferred is limited to up to about US$870 (100,000 yen) per transaction.

Revenue without transaction fees

Kyash does not charge users a fee for any transaction. So where does their revenue stream come from?

When users charge the virtual card, Kyash pays the fee to the credit card company. However, if the card is used at a Visa member store, Kyash receives the commission. The difference in these fees generates the profit.

The startup created revenue opportunities by processing payments itself. It developed its own system of credit inquiries to check the validity of registered credit cards and credit liabilities. According to Kyash CEO Shinichi Takatori: “Normally, if you do the processing with another company’s system, it will cost about one percent commission fee. Because we do not have this fee, the difference of the fees will be slightly positive.”

Adaptable infrastructure for value exchange