Cashless Payments [Article 3] The Future of the Cashless Society as Seen through Advanced Use Cases in China―Individual Authentication for Payments Creates New Business Opportunities

China's Retail Industry Evolving from O2O to OMO

When cashless payments spread to brick-and-mortar stores, customers' purchasing behaviors can be predicted based on their brick-and-mortar purchase histories in the same manner as online e-commerce sales activities, and what customers want can be accurately understood and predicted. However, online and brick-and-mortar stores have different strengths and weaknesses; shoppers want to make the most of each.

Jack Ma, founder of leading EC conglomerate Alibaba Group, noticed this change worldwide; at the end of 2016, he announced the New Retail strategy. New Retail refers to a new retail business strategy that combines online and offline activities and aims to provide an attractive purchasing experience by making full use of IT based on data analysis of shoppers' purchases. This movement is not limited to Alibaba Group: JD.com, Alibaba Group's competitor, has launched a similar initiative. New Retail is a strategy to improve synergy between the Internet and the physical world. At first, this strategy was regarded as O2O (Online to Offline: attracting customers from online stores to brick-and-mortar stores), but these days, it is more often called OMO (Online Merges Offline: unification of online and brick-and-mortar stores).

Hema Xiansheng, GMS representative of Alibaba Group's New Retail strategy
This GMS is composed of a building that houses a supermarket and a restaurant, an online store, and a shipping service for items purchased at the store.
7FRESH, a New Retail GMS operated by JD.com, a company funded by Tencent

Payment Information Is Important Personal Information―Also Used for Credit Scores in China

The spread of cashless payments leads to the accumulation of individual payment histories. This data can be used as important evaluation information for credit management. In fact, Alibaba Group has been gathering payment information through Alipay and Tencent through WeChat Pay. Both companies have launched businesses to collect various types of personal information, including such payment information, and to calculate individuals' credit scores, or degrees of trust. Alibaba Group's service is named Sesame Credit (operated by Ant Financial, an affiliate company of the Alibaba Group) and Tencent's service is called Tencent Credit. The Chinese government started to operate the Social Credit System as a national policy in 2014 to improve credibility throughout society. Alibaba Group's and Tencent's credit score businesses are in line with this government policy, and they utilize various types of personal information disclosed by the government to calculate credit scores.

Various types of information affect credit scores. Sesame Credit lets users register various pieces of information to change their scores, including IDs, academic records, company addresses, work experience, driver's licenses, car information, real estate properties, insurance, and credit cards. As privileges, people with high credit scores do not have to pay deposits when reserving hotels or renting mobile batteries.

Example of a Sesame Credit score: Scores range from 350 to 950.

Plans to Launch Information Banks in Japan

This new credit score business may be unique to China, but in Japan, information banks, a new type of business that aims to manage and utilize personal information, will be launched in 2019. Information banks are a new kind of business whose main activities are collecting and managing personal data. The Ministry of Internal Affairs and Communications revealed that they will accept applications from companies that want to operate information banks in December 2018 and give authorization around March 2019. Since payment information is part of important personal information, it will be treated as data that information banks should collect and manage.

Companies that have never operated banks are expected to enter the information banking industry. For example, Fujitsu has participated in an information bank demonstration experiment in cooperation with AEON Financial Services, with Fujitsu as the information bank operator and AEON Financial Services as an operator that utilizes personal data.

Information bank users entrust their attributes (e.g., age, place of residence, and family structure) and personal data (e.g., hobbies, preferences, daily moods and physical conditions) to information banks voluntarily. In the demonstration experiment, users were paid with FUJITSU coins in accordance with the content and amount of entrusted information as well as the number of approved companies that information was disclosed to.

Use of Personal Information and Level of Security Being Tested

A cashless society offers various social advantages (e.g., a lower incidence of cash crimes) because of the difficulty of carrying out unauthorized transactions due to the elimination of highly anonymous cash purchases. However, it also has a disadvantage―a higher risk of privacy violations because transaction information, which is part of privacy information, remains at stores and payment service providers. From this perspective, it makes sense to leave the management and operation of personal information up to what are expected to be highly secure information banks.

Just as careful attention is paid to the management and operation of money in today's cash-based society, the management and operation of various types of personal information, including payment records, must be taken more seriously to ensure peaceful living in the future cashless society.

Author Information
Tetsushi Hayashi
Chief Research Officer
Cleantech Institute
NIKKEI BP Intelligence Group
Graduated from Tohoku University's Faculty of Engineering in 1985 and joined Nikkei Business Publications, Inc. in the same year. As a reporter and assistant editor for Nikkei Data Pro, Nikkei Communication and Nikkei Network, he wrote about advanced technologies related to communication/information processing as well as trends in standardization/commercialization. Chief Editor of Nikkei Byte in 2002, Chief Editor of Nikkei Network in 2005, and Chief Editor of Nikkei Communication in 2007. Publisher of ITpro, Nikkei Systems, Tech-On!, Nikkei Electronics, Nikkei Monozukuri, Nikkei Automotive, etc. before becoming Director of the Overseas Business Division in January 2014. Has been in his current post since September 2015. Writing the series Jido unten ga tsukuru mirai (A Future with Self-driving Cars) since August 2016 on Nikkei Online Edition. Issued Sekai jido unten kaihatsu project souran (An Overview of Global Self-driving Development Projects) in December 2016 and Sekai jido unten/connected car kaihatsu souran (An Overview of Global Self-driving/Connected Car Development) in December 2017. Has been serving on the CEATEC Award Review Panel since 2011.