Sumitomo Mitsui Financial Group Inc.’s credit card unit is zeroing in on investments in the U.S. financial-technology sector, as Japan plays catchup to other developed economies in electronic payments.
Over the past two years, Sumitomo Mitsui Card Co. met with more than 500 U.S. so-called fintech companies and narrowed the list of potential targets for acquisitions or tie-ups to around 10, President Ken Kubo said in an interview. The unit, which bought a $10 million stake in Jack Dorsey’s mobile payments company Square Inc. in 2012, could spend up to ¥100 million ($830,000) on each deal, according to Kubo.
Kubo’s effort coincides with a push by Prime Minister Shinzo Abe to accelerate a shift toward cashless transactions — a big change for a society that still prefers traditional payments. As the population ages and the number of foreign visitors rises, providing access to alternative payment options is key to turning around the Japanese economy, Kubo said.
“The fintech innovation centered around the Internet and mobile apps is happening in the U.S. and Europe,” said Kubo, 61. “And yet Japanese society is still unfamiliar with those services. Credit card companies like us need to make creative suggestions for using new technologies.”
Sumitomo Mitsui Card is interested in card-device makers and companies that have skills including cloud computing, he said, without naming any potential targets.
Consumers in Japan used cash for about 54 percent of their ¥289 trillion ($2.39 trillion) of purchases in the year ended March 2014, and credit cards for just 14 percent, according to Credit Saison Co. That compares with 17 percent in cash and 28 percent by card for the $8.9 trillion U.S. consumers spent in 2013, the data show.
The Japanese government will seek to improve the convenience and efficiency of payments by making cashless options more prevalent in the lead up to the Tokyo Olympics, according to Abe’s economic revitalization strategy.
Sumitomo Mitsui Card contributed ¥194 billion, or 6.5 percent, to the financial group’s ¥2.98 trillion in gross profit in the year ended March, according to an earnings presentation from Japan’s second-biggest bank by market value.
The rising number of inbound tourists, largely from China, to Japan helped to boost the value of credit card transactions processed by Sumitomo Mitsui Card to ¥10 trillion in the year ended March, according to Kubo, who became president in June. He wants to increase the volume by 10 percent every year until the Olympics.
“Chinese tourists are supporting consumption in Japan and most of the purchases are made with China UnionPay Co. cards,” which Sumitomo Mitsui Card processes transactions for, said Kubo. His company expects transactions from visitors will double to about ¥1 trillion this fiscal year.