Paidy, a fintech company that makes it easier to buy online in Japan, has closed a $15 million Series B to grow its userbase and invest in new financial products.
Eight Roads, the investment arm of Fidelity, SBI Holdings and SBI’s FinTech Business Innovation LPS led the round, which included participation from Itochu Corporation and returning investors Arbor Ventures and SIG Asia.
The round is a sizable amount for a Japan-based startup, and it could just be the largest raised by non-Japanese founders. (Gengo raised $12 million back in 2013.) Paidy CEO and co-founder Russell Cummer (left in the image above) is a Canadian who came to Japan by way of Goldman Sachs.
Cummer couldn’t help but notice that some 40 percent of e-commerce in Japan is settled by cash-on-delivery or convenience store counter payments despite the high rate of credit card penetration in the country. Paidy is co-founder and CTO Lee Smith (right in the image above) and his effort to change that.
Why is change necessary?
Ask any retailer or merchant who sells online and they’ll tell you that cash-on-delivery is their number one pain. Not only does it requires the buyer to be home when their delivery arrives — you can hardly expect your neighbor to look after your new product and pick up the tab for it — but managing cash floats, and the added expense of redeliveries is both painful and costly, not to mention impractical.
Cummer told me in an interview that unlike other ‘cash economies’ in Asia, such as Southeast Asia where a minority possess credit cards, Japanese e-commerce buyers favor cash transactions because it is the easiest way to check out at an online store.
“It isn’t because people don’t have a credit card,” he explained. “People just don’t use them when shopping online. That’s because the majority of purchases are made on a mobile device, that form factor plus the fact they are probably on the go, means paying without a credit card is easier.”
Paidy removes the inconvenience of having to whip out your credit card and key in your digits while on the train or bus by instead giving you an account that is tied to your phone number and email address. In that respect, the service operates much like a virtual credit card facility. You pay your bills using Paidy — enter your number and email address then verify via a PIN code — and then clear the debit at the end of the month or via installments if you prefer.
Cummer said that, beyond simplicity, Paidy is also more secure.
“People worry about security,” he said. “We are just using an email address and phone number which isn’t inherently risky.”
He explained that “the majority” of customers opt to settle their bill each month and the structure is very organized, in true Japanese fashion. You’ll be sent an SMS with your Paidy bill on the first of each month, and then have until the 10th to clear it. Merchants are paid on the 20th of each month. Thanks to Japan’s highly organized credit data system — which has proportionally more information per population than even the U.S. — Paidy can assess every user for credit when they sign up, meaning that it also offer longer term payback options for larger ticket purchases or larger debts accrued.
Interestingly, the company said it hasn’t spent a dime on user acquisition, since it sits at the checkout for its partners. It is closing on one million registered users, and has grown its presence by working with large retailers, integrate with shop platforms that power smaller merchant stores, and aligning itself with payment providers.
More than just payments
Beyond being a user-friendly funnel for online purchases, Paidy houses a credit underwriting business and Cummer hinted that it could move into loans and other financial products in the future. That makes a lot of sense given the spending history and other personal details that it holds on its users, and the level of trust that its users have in its services.
For now though, the company is focused on growing its core business and adding logical features such as subscription billing for online services and auto-payment to cover a Paidy debt by default each month.
The company claims over 600,000 merchants but that vanity number includes the long-tail of smaller, independent stores. Some of its larger customers, which drive most of its transaction volume and revenue — both of which are not disclosed at this point — include Adidas, Reebok and Dean & Deluca.
We’ve seen a number of fintech companies pop up across Asia offering personal financing products — e.g. My Wish Marketplaces in India — or virtual credit card style services — e.g. FinAccel in Indonesia — so the market is certainly gaining momentum. Paidy has been going at this problem longer and with more money, but Cummer doesn’t anticipate that it will expand overseas just yet.
“For sure we will” expand overseas over time, he said, “but you have to win at home first.”
While there’s no immediate plan to venture abroad, Cummer hinted that markets with similar economics to Japan — like Korea or Taiwan — could be on the radar when the time comes, but he did also suggest that smaller but growing regions like Southeast Asia could be of interest, too.