Past, Present and Future of Points Business
July 27, 2016
Mr. Masahiko Kasuga
President, Japan Green Stamp Co., Ltd.
The total annual value of points issued in Japan has reached 900 billion yen today. The points business originated in the U.S.A. in 1896 when customers received “trading stamps” as they made purchases which were redeemable for products in the rewards catalog. While consumers enjoyed receiving rewards, retail outlets succeeded in securing a loyal base of customers. As consumption expanded, the points service system flourished and peaked in the 1960s to be introduced in more than 70% of major supermarkets, attracted over 80% households across the U.S.A. with its business scale well exceeding 200 billion yen nearly 60 years ago.
The 1970s witnessed, however, a downturn in the stamp business, due to the rise of discount stores that triggered price competition as well as chronic inflation that made consumers price conscious. They thought stamp services weighed on costs.
Membership-based mileage service introduced by airline companies in the early 1980s was a new initiative to reward repeat customers and drive brand loyalty. It evolved into diversified services including rental cars, hotels, restaurants, shops and affiliated credit cards. It is called the FFP (frequent flyer program) today.
Trading stamp business was launched in the early 1960s in Japan and expanded mainly in the supermarket industry. After shifting smoothly from paper-based stamps to point cards in the late 1980s, different industries such as airlines and credit card companies joined to form a mega market based on alliance partner point services.
Today, an overwhelming number of loyalty services are available in Japan, including the so-called common point cards and electronic money. While such market growth is welcoming, I am afraid we have failed to achieve the intended objectives of building a solid base of customers, differentiating our business from our competitors and providing special service to our members. Today majority of retailers and companies provide point services which are exchangeable with our competitors’ services. Also consumers possess multiple cards with different IDs, which make data analysis of purchasing behavior and patterns more complicated and less accurate.
As we look at the future, I must say the number of point cards issued will keep increasing and services provided will become even more diversified. Consumers will find it troublesome to keep track of multiple points they possess with different expiration dates. I think all the point cards will come to be stored in our smartphone in the foreseeable future to be managed and operated by various applications. Artificial intelligence may one day come to automatically select the best card and service for us, by analyzing our purchase history in big data.
Despite this the market may shrink if consumers become cautious about additional costs caused by excessive point service offerings, as seen in the U.S.A. back in the 1970s. It may cast a dark shadow over points businesses if consumers come to demand price discounts in exchange for point services.
Past, Present and Future of Financial Services
July 27, 2016
Mr. Takashi Tsukamoto
Senior Advisor, Mizuho Financial Group
Today let me focus on technological progress in the financial services industry and its role. You find the term “FinTech” in various media these days. It refers to new financial services which combine “Finance” and “Technology.” In Kenya, for example, a mobile-phone based money transfer and financing service M-PESA has been launched, contributing to enhance financial inclusion of those who do not have a bank account. In developed countries, FinTech enhances start-up businesses access to funding for growth. By analyzing various big data using artificial intelligence, lenders can quickly respond to the funding needs of applicants based on rigorous screening of their credentials. Supported by the rapid spread of mobile phones and the Internet technologies, FinTech is generating dramatic changes in the financial services industry.
Banks in Japan currently strive to revitalize the economy by promoting innovation to improve productivity, cultivating new growth sectors and nurturing start-up businesses. The financial industry plays an instrumental role in providing risk capital to stimulate business growth based on medium- and long-term perspectives. We provide financing to fields with high future growth potential, including the “sixth industrialization” of the agricultural sector, health and nursing care businesses as well as renewable energy industries.
I must say the Lehman Brothers bankruptcy and the consequent global financial crisis in 2008 occurred against the backdrop of escalating “financialization of the economy,” which refers to the disproportionate growing scale and profitability of the finance sector where individual investors feel an urge to increase financial profit. In the 1990s, new types of financial businesses like the hedge funds applied advanced financial engineering and rose to prominence in the Western financial market. Traditional financial institutions also sought to increase profits through vigorous trading and investments. Such excessive competition undermined their financial strength and thus, they were hard hit when the Lehman Brothers went bankrupt. Fortunately, Japanese financial institutions suffered less damage thanks to the expected roles and values of our banking industry developed over the course of nearly 150 years.
As we look back, the first commercial bank “Daiichi National Bank” was established in 1873 by Eiichi Shibusawa who was known as the “father of Japanese capitalism” and was associated with approximately 500 business enterprises and 600 social projects. Shibusawa advocated promoting industrial and commercial activities for the development of a nation. He believed that financial institutions were essential for the encouragement of new industry and they had to contribute to boost the real economy and enrich the nation.
I think FinTech will generate new services and come to play a greater role in the future. As countries around the world take quantitative easing measures, I must say the financial industry should strive to prevent the reincarnation of financial bubbles and facilitate sound development of the real economy. While the financial industry has long contributed to economic and social development, it has come to make a significant impact on the real economy. It is thus imperative that financial institutions look back on history and identify the role they are expected to play.