This is an excerpt from a story delivered exclusively to Business Insider Intelligence Fintech Briefing subscribers. To receive the full story plus other insights each morning, click here.
Line, the Japanese software company that operates the country’s dominant messaging platform, has unveiled a new credit scoring service, reports Bloomberg.
Dubbed Line Score, the service will rate customers based on the information they provide as well as by analyzing their interactions with other services on the platform. This information will then be used to determine interest rates and credit limits for a loan service that’ll be available beginning this summer.
In addition to Line Score, the company will roll out Line Securities, a trading app developed in collaboration with Nomura Holdings, in the fall to allow users to trade 100 Japanese stocks, with investments starting as small as 150 yen ($1.4).
Here’s what it means: Line joins a growing list of platform-based companies entering financial services.
- Line Score and Line Securities are part of the company’s aggressive push into financial services. In 2018 alone, the company inked an agreement to launch a digital bank in partnership with Mizuho Financial Group, launched a crypto dubbed Link, and struck a deal to acquire a 20% stake in lender Bank KEB Hana Indonesia. The firm also operates Line Pay, a mobile payments service. To support this financial services push, the company raised $1.3 billion in September 2018. This move into financial services is aimed at broadening Line’s revenue streams amid stagnant user base growth and a heavy reliance on advertising revenue.
- Platform operators like Line, Facebook, and Grab are increasingly looking to unlock more value from their vast user bases.For instance, Line has over 160 million monthly active users across Japan, Taiwan, Thailand, and Indonesia, perBloomberg. By integrating financial services into its platform, Line stands to generate greater value for its users, reducing the need for them to leave the platform. Tencent’s WeChat is a prime example of how successful this strategy is — one that Facebook is looking to tap into with the launch of its own crypto.
The bigger picture: Platform operators are increasingly integrating with typically siloed industries to great effect — but regulators are likely to slow them down.
- Integrating financial services within platforms like messaging apps threatens to disintermediate incumbent financial institutions (FIs). The likes of Line and Facebook tend to have a much more active interaction with their consumers compared with FIs. This gives them vast swaths of data that can enable them to assess things like credit risks for loans better than their incumbent counterparts. And these firms are increasingly leveraging technology to bring typically disparate industries within a single portal. For instance, Southeast Asian ride-hailing giant Grab’s platform provides users with access to transport, food delivery, payments options, and insurance.
- However, authorities are becoming concerned about this financial services foray — a boon for incumbent FIs.The head of the International Monetary Fund (IMF) noted that the increasing entry of big tech firms into financial services could result in major disruptions for the global system last month, for instance. This view is shared by a number of regulators and authorities, including the Bank of International Settlements. As these warnings materialize into more concrete regulatory obligations on big tech firms’ finance plays, we anticipate these players will lean on incumbent FIs’ deep regulatory know-how. Citi’s partnership with Grab to launch cobranded credit cards last month is a prime example of this trend, which we expect will intensify.
Interested in getting the full story? Here are two ways to get access:
1. Sign up for the Fintech Briefing to get it delivered to your inbox 6x a week. >> Get Started
2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Fintech Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
- Visa is piloting financing APIs to enable payment installment solutions
- Facebook’s Libra is facing mounting regulatory scrutiny — and that’s likely to delay liftoff
- Banks are cutting costs with tech – but the real benefit is yet to come