Paying online purchases with cash money

As Asian Ambassador for Board of Innovation, Jonas Elslander publicizes a monthly series about innovative business models in Japan and, by extension, other countries surrounding the Sea of Japan.

The online sales of both real and virtual goods and services is big business around the globe and continues to expand yearly. It already accounts for the majority of transactions in certain markets (such as travel, music and software) and predictions are that the quantity of these markets is going to grow vastly in the coming years. Just like ‘real life’ sales, the abstracted core is a money-for-product transaction. Because of the bi-directional nature of this transaction we can define two underlying problems the exchange solves: bringing the desired products to the costumer and getting the monetary compensation to the merchant. In this post I would like to focus on the latter in the online environment.

Living in Belgium, or another Western European country for that matter, paying an online service or goods supplier usually comes down to one of the following three scenarios: paying with a debit card through a specific website module such as Ogone, paying with your credit card without or through a website module, paying with Paypal or similar services.

The first scenario requires the costumer to have a debit card and an online banking device or login. Thus, almost every adult can – given sufficient technological knowledge – perform such a transaction without any additional steps. Unfortunately, this system is very nationally oriented and can only be used if the website on which the transaction occurs understands the required module. Alternatively, the seller can ask the costumer to manually enter all the necessary information in a bank transfer form in his online banking account. Then the streamlined process disappears and the door is left open for errors of all kinds. Also typical for debit cards are the relatively low daily limits which makes them an inadequate solution for expensive goods such as airline tickets. The second and third scenario both require the costumer’s ownership of a credit card and are often the only available options for transactions of both international and – although less frequently – national kind.

The sum of these three categories of solutions for getting a monetary compensation to a merchant in the online environment regrettably leaves some holes in the usability. First and foremost, costumers without a credit card, such as minors, have great difficulty to pay for products online without having to rely on others. Secondly, it’s very hard to make a separation between the person who places the order and the actual costumer. For example, a grandmother who has little knowledge about the internet will have great difficulty to directly pay for a product one of her children buys in her name. Thirdly, as mentioned earlier debit cards but also credit cards have limitations which may be insufficient for a certain transaction, even though the costumer possesses enough money.

A new approach to online payments
To address these problems, in Japan it’s possible to pay with cash money for online goods and services. Upon checking out, Japanese costumers in general get to choose between a payment with a credit card or a cash payment in a conbini store. Conbinis are nationwide chains of small supermarkets – found in literally every busy street of every city – who also handle other tasks such as the aforementioned cash payments. Upon selecting the latter option, the costumer receives a code, which he has to take to a conbini in printed out or written down form. Because of this another person or even multiple persons can deposit a portion of or the full amount of invoiced money in a conbini nearby.

In exchange for the service the conbinis provide towards the online sellers as well as online buyers, they charge a small commission (smaller than Visa or Paypal would) and a opportunity to sell other goods to a costumer who entered one of their shops to make a money deposit. Thus all three parties involved make a winning out of this business model (a necessary condition for its sustainability): the merchant has to pay less commission, the costumer doesn’t need to posses a credit card and the conbini receives a commission as well as extra foot traffic.

This business model can for example – be it in a modified form – prove very helpful to Western European online businesses with a costumer base that generally doesn’t own a credit card, such as minors, and who are struggling with finding a more performant way of getting monetary compensation for their products.

Jonas Elslander graduated in June 2010 as a Master in Product Development at the Artesis University College of Antwerp and is now pursuing his years long dream of reshaping (read: redesigning) the way we use internet in the mobile environment at Kyoto University, Japan. As a research student at the renowned Tanaka Laboratory, he works on the frontier of technological and economical innovations in the Japanese society, often including the ever growing influence of the (mobile) internet on traditional business models.

Jonas