Make a $2,000 purchase using only your name and email address with this Japanese startup

Co-founders Lee Smith (l) and Russell Cummer (r)

There is a hard side and a (relatively) easy side to online payments. Most payment related solutions – Coiney, MergePay, or even WeChat’s money transfers, to name a few – focus on making it easier for customers to use the cash or credit they already have. Stepping into the other side of the industry, underwriting user payments like credit card companies is a far thornier proposition.

Vouching for a user’s future payment typically means fronting the money to pay the retailer first and then waiting to receive the user’s payment directly in a monthly payment. That requires deep pockets and/or a high tolerance for credit risk. If a user splurges on a US$2,000 television set using your credit, you must assume the risk that he or she might be unable to pay in the end.

Paidy, the latest product offering from Tokyo-based financial tech firm Exchange Corporation, is not afraid to enter the underwriting side of the business. Russell Cummer, President of Exchange Corporation, describes Paidy as an ecommerce-focused credit card service without the cards.

The service works as follows. On the checkout page, a shopper selects Paidy as their preferred payment option and concludes the purchase, confirming their name and email address. Paidy guarantees the payment to the merchant and then bills the shopper roughly two weeks later. For shoppers, as with a credit card purchase, they can temporarily delay payment while the product is shipped. Depending on the size of the purchase, payments can be made in installments from month to month.

From there merchant’s perspective, once the shopper clicks “confirm,” the purchase is settled and there’s no risk of chargebacks. “We take all of the non-settlement risk. That is the economic value that we add,” says Cummer.

Paidy’s service sounds well and good but it’s distinction from a typical credit card is blurry. When challenged on this point, Cummer acknowledged that some similarities are there but still maintained the importance of Paidy’s simplicity.

Cummer argues that Paidy’s lack of a card reduces the steps needed for a shopper to check out. When shopping via a computer or a phone, checking and inputting your credit card number is the most cumbersome action. Paidy is betting on customers being attracted by the option of eliminating this step but keeping all the other benefits of using credit.

Borrowing a page from Sweden

This startup’s gamble has been done before. Klarna, a similarly designed buy-now-pay-later system from Sweden that was founded in 2005, has become a major player in European online payments. That is in part because EU merchants experience a 30 percent bump in conversion rates by offering the Klarna option.

At the very least, non-credit card payments are plentiful in Japan. WorldPay, the international payment processing firm, shows that cards are used for 56 percent of the country’s ecommerce transactions. Bank transfer, direct debit, ewallets, and mobile payments collectively make up a further 11.3 percent. According to WorldPay, that means “other” methods process the remaining 32.7 percent (US$50.68 billion) worth of transactions.

See: Tencent’s and Baidu’s $814M joint venture with Wanda signals the coming tide of in-store WeChat paymentsThat number is in line with Swedish figures. Non-traditional forms of payment make up 31.5 percent of transactions in Klarna’s home country.

Paidy does not release user numbers or transaction statistics, making its traction difficult to judge. Even so, the significant success of Klarna, and Cummer’s years of experience, does suggest that Paidy might have a shot.

Investors like Arbor Ventures, CyberAgent Ventures, and 500 Startups agree. In July, Paidy secured a US$3.3 million series A round.

Make a $2,000 purchase using only your name and email address with this Japanese startup