TOKYO: Japanese convenience store operator FamilyMart has started a mobile lending service that uses customers’ purchase histories to help determine their creditworthiness in a bid for growth beyond retail.
FamiPay Loan, available through the company’s FamiPay app, seeks lending opportunities in the store chain’s payments business.
FamilyMart lets customers pay for Amazon purchases, utility bills, event tickets and other expenses – a total of ¥3 trillion (US$20.7 billion) in transactions a year, roughly the same as annual sales.
“There are 300 million transactions every year,” said Kazuhiro Nakano, president of Famima Digital One, FamilyMart’s finance subsidiary. “We’re going to turn this point of contact into a business opportunity.”
Payment service transactions bring more than ¥10 billion a year in fees alone.
Convenience stores are ubiquitous in Japan and provide a wide range of services. But the industry is searching for new growth avenues as half a century of expansion has left the market with more than 50,000 locations – a level that some say is unsustainable. FamilyMart trimmed its domestic store count by 77 last fiscal year.
Yet President Kensuke Hosomi argues that “we may not be growing like we did before based on our number of stores alone, but the word ‘saturation’ is very misleading”.
FamilyMart, which reported ¥451.4 billion in operating profit for the year ended February 2022, aims to eventually achieve similar results from nonretail operations alone. Financial technology is a core part of this strategy.
FamiPay Loan, launched last December, is intended to provide an alternative to consumer finance or borrowing from family for people with short-term cash needs.
“There’s a certain number of people who can’t pay their utility bills on time,” averaging around ¥10,000, a company spokesperson said. This could be someone who spent more than expected on a credit card or a student short on money after earning less than planned at a part-time job.
Loans through FamiPay Loan do not require collateral or a co-signer, and applications can be submitted at any time. Users can potentially borrow as much as ¥3 million, or about US$21,000, in ¥1,000 increments at interest rates of between 0.8% and 18%, with terms of up to 10 years.
Credit decisions are handled through a partnership with a Shinsei Bank subsidiary and SecondXight Analytica, a company that offers data analysis using artificial intelligence.
The service’s AI looks at what applicants bought where and when on the FamiPay app. It analyses factors such as amounts spent in different product categories and how these compare with the average, to estimate applicants’ ability to repay loans.
This data, combined with personal information such as income and occupation, is used to set borrowing limits. The results are more accurate for people who have used the FamiPay app frequently or spent a relatively large amount.
The minimum interest rate of 0.8% is a show of confidence in the app’s credit decisions. Competing services from messaging app developer Line and e-commerce platform Mercari go only as low as 3%.
FamilyMart has not provided details about the usage of the service. “Half a year after launch, we’re starting to get out of the learning phase,” Nakano said. “Defaults are within our expectations.”
The market for smartphone-based loans is only expected to grow. Since launching in 2019, Line Pocket Money had received over 1 million applications and lent over ¥50 billion as of March.
The biggest players in mobile payments are in Japan’s tech sector, not retail, and they are leading Japan’s belated shift to cashless transactions. SoftBank-backed PayPay has more than 50 million registered users. Consumers have shown a trend of picking stores based on whether their preferred mobile payment option is available.
Top convenience store chain Seven-Eleven Japan operates an electronic payment service called Nanaco, but it is a prepaid system and cannot offer loans. Lawson, another chain, does not have any payment system of its own.
As one of Japan’s three largest convenience store chains, the FamilyMart brand could help the company as it expands into the new field. But “some people have negative feelings toward the lending industry”, Nakano said. Any missteps in smartphone loans could hurt the chain’s brick-and-mortar operations as well.
The company says it is taking steps to prevent customers from taking on too much debt.
“We have set a cap of ¥3 million in order to meet diverse and immediate needs, including for medical treatments, weddings, funerals and disaster response, but we expect most loans to be relatively small,” a FamilyMart spokesperson said.