CEO Comments

Kaoru Hayashi

Representative Director,
President Executive Officer and Group CEO,
Digital Garage, Inc.

CEO Comment “Partnering with Three Credit Card Companies for a Global Expansion of Payment Business”

 With the approval at today’s Board meeting, econtext ASIA Ltd. in Hong Kong, which leads the DG group’s online payment business, has signed the basic agreement on capital and business alliance with JCB. Following our announcement of our capital and business alliance with SMCC in February and with Credit Saison in March, DG Group has teamed up with the three major credit card companies in Japan for settlement business. Here I would like to give an update on the background information that led to this series of alliances.

 There are three aspects to the purpose of the series of partnerships with the three companies.

 The first reason is to secure a leading position in the market by deploying our know-how of online payment solutions that we have cultivated in Japan with the credit card companies to the rapidly growing Asian countries. In order to achieve this it was necessary to partner with the major Japanese credit card companies, allowing a smooth integration of the existing businesses that each of these three companies operates in the Asian market.

 The current climate of the Internet business in the emerging Asian countries is similar to that of Japan about 10 years ago. For example, the Indonesian e-Commerce (EC) market, said to be a promising segment, is only 1/85 of Japan today. However, it is said that with the new technologies and services represented by smartphones and social networks, the Internet business in these emerging Asian countries will grow rapidly and catch up with what took Japan ten years to accomplish in a few years. Here, there is a huge business opportunity.
*The size of the Indonesian EC market was 1 billion dollars (approximately 100 billion yen) in 2011 (Source: Frost & Sullivan) compared to the size of the Japanese EC market which was 8.5 trillion yen (Source: METI)

 The two subsidiaries responsible for the settlement business of the DG Group – VeriTrans that has led the online payment industry from the dawn of the Japanese Internet business and ECONTEXT which pioneered the Japan-original convenience store payment service for EC operators – have accumulated high-level technologies and know-hows through over 10 years of experience providing online payment solutions to the Japanese users said to be one of the most demanding in the world. For econtext ASIA to establish these know-hows and apply them to the business expansion in the fast-growing Asian market, it was necessary to form a Japan consortium-style structure of online payment providers by partnering with each of the credit card companies that has together cultivated the online payment solutions here in Japan. We hope to take the lead in accelerating the growth of each EC markets in Asia by deploying payment businesses that consider local cultures instead of bringing in the payment solutions for the Japanese market as is while utilizing the technologies and know-hows accumulated here in Japan.

 The second purpose of the partnership is to spread cutting edge payment solutions and technologies developed by the promising startups that DG has discovered through its North America-based global network centered to Japan and other Asian countries by working with the three credit card companies.

 Triggered by the rapid penetration of smartphones, the payment service industry faces a major turning point today. Until recently, EC represented a small portion of consumer spending and not many players saw the market opportunity there compared to the offline commerce. However, with the rapid expansion of EC in today’s market, we are now making a full transition into the “Settlement Age of Discovery” where companies of various backgrounds from the global platformers such as Google and Apple to semiconductor giants like Intel to enter the payment service market in addition to the payment service operators, credit card companies, and mobile network operators. The fragmentation of Square-like payment service providers that lets users connect credit card readers to their smartphones to process credit card payments symbolizes the beginning of such era.

In such an environment, it seemed important to form a strategic partnership with the three credit card companies that compliment each other and that were beginning to expand out of Japan together with VeriTrans and ECONTEXT in order to lead the industry as the pioneer of payment service in Japan and Asian countries. It is our aim to develop settlement solutions that can compete with other global scale players through these partnerships.

The third purpose is to apply this to our digital marketing business. We announced the capital and business alliance with Dentsu at the end of last year, and its purpose was to expand the digital marketing business that utilizes the massive amount of business intelligence held by Dentsu and the payment and media that the DG Group owns. Adding the payment data that the DG Group owns and the shopping data that its group company,, possesses to the business intelligence that Dentsu has collected through its advertising business gives the DG Group to access prominent big data in Japan. We also look into collaborating with the three credit card companies that we just signed the capital and business alliance with in various countries and regions. With this structured partnership in place we will first begin business that utilizes these data in Japan to gain know-hows and then apply this to the EC shopping data that econtext ASIA will accumulate in each country. If we can build a platform where we can analyze the popular items, consumption trends, and consumer preference in a specific country or region, it will become a powerful foothold for the existing Japanese EC operators to expand to Asia.

In the future DG intends to look beyond the capital and business alliance with the three companies and further continue to promote alliances with other major Japanese companies that look into expanding towards Asia to join our settlement consortium. We believe utilizing the know-hows that each company has cultivated in Japan will greatly contribute to the growth of the EC markets in Asia and to the global-scale expansion of the DG Group and its strategic partners.

To our shareholders and investors we look forward to your continued guidance and support.

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