Payment Related

Isn’t a bank necessary if “pseudo-deposit” can be made by smartphone payment?

Even if you deposit in a bank, if the interest rate is so low, you will not earn much interest and you will not be grateful. However, I am worried about crime prevention if I keep a large amount of money at home.

Therefore, what is attracting attention is the “pseudo deposit” that saves money on smartphones.

Pseudo deposit means that the function of smartphone payment functions as if it were a deposit. Pseudo deposits are attracting attention as a smart way to store money, but there are some things to be aware of.

What is a deposit in the first place?

To understand pseudo-deposits, it is better to know about the original deposits.

Deposit money with a financial institution and earn interest

Depositing is the economic act of depositing money in a financial institution such as a bank or credit union. There are two benefits to deposit users: safe cash management and the benefit of interest.

Banks can pay interest to users who make deposits because they use the deposits to lend to companies and get interest from the lenders.

Only depository financial institutions licensed by the government can carry out the business of deposits. I will explain about depository financial institutions later.

Deposits also have an investment side

Users who make deposits in banks lend money to banks to earn interest, so deposits also have an investment aspect. Deposits are similar to stock investments where you buy stocks and get dividends, or real estate investments where you get rent.

However, deposits have the property of having almost no risk and extremely low yields (almost no interest), which is a big difference from stock investment and real estate investment.

Pseudo deposit is a function like a deposit provided in smartphone payments.

Pseudo deposit refers to a function like a deposit provided in smartphone payments. However, it does not exactly match the deposit.

What is smartphone payment?

Smartphone payment is one of cashless payments, and is a means of exchanging money without using cash. If you install a payment-only app on your smartphone, you can make “prepayment,” “immediate payment,” and “postpayment.”

Prepaid smartphone payments are called prepaid types, and you can make payments by charging the smartphone app in advance. If you run out of charged cash, you will not be able to settle, but if you charge it again, you will be able to settle again.

Immediate payment smartphone payment is called real-time payment type, and the amount of money will be deducted from the user’s account as soon as the smartphone payment is executed (payment).

Post-payment smartphone payment is called post-pay type, and when you execute smartphone payment, the amount of money will be deducted from the user’s account later. Post-pay smartphone payments have almost the same payment procedure as credit cards.

Points have the same effect as deposits

Why is smartphone payment similar to deposits? That’s because the smartphone payment system is like depositing money.

In smartphone payments, users’ cash is converted into “payable amount data”. This has the same effect as when the user still has the cash, even though the cash is physically out of the user’s hands. In other words, you can shop.

Deposits have the same effect as when the user’s cash is transferred from the user’s hand to the account, but the user still has cash.

And companies that provide smartphone payment services frequently give users the privilege of points. Some people may be using smartphone payments for point purposes.

The point of smartphone payment is almost the same as cash because it has the property of being able to shop with it. If you get points using smartphone payment, you will get the same benefits as depositing money in smartphone payment and receiving interest.

This is the mechanism of pseudo-deposits, and that is why it is called “pseudo”.

About “deposit-handling financial institutions” and “fund transfer companies”

Banks and other institutions are called depository institution. A smartphone payment service company is called a fund transfer company. If you know the nature of both, you can understand the difference between deposits and pseudo deposits.

The country is protecting deposits by tightening regulations on deposit-taking financial institutions

Only financial institutions that handle deposits that have obtained a license from the government can carry out the business of deposits. The government allows only deposit-taking financial institutions such as banks to do deposit business because if an accident such as the disappearance of deposits occurs, people’s lives will be disrupted.

To become a depository institution, the amount of capital must be increased to 2 billion yen or more and the equity ratio must be increased. Therefore, only strong companies, large companies, and solid companies can become depository financial institutions.

The government protects users’ deposits by tightening regulations on deposit-taking financial institutions and making them less likely to go bankrupt. And even if a bank goes bankrupt, the deposit will be returned to the user.

Therefore, smartphone payment service companies cannot do deposit business.

Money transfer companies are loosely regulated and “easy to become”

A fund transfer company is a company other than a financial institution that operates a fund transfer business of 1 million yen or less. The smartphone payment service corresponds to the fund transfer business. In order for a company to operate a money transfer business, it must be registered with the country as a money transfer business.

Depository institution is licensed, but fund transfer companies are registered. In general, the registration system is looser than the license system, so it is easier to “become”.

To register with a fund transfer company, you need to deposit a performance deposit of at least 10 million yen. Depositing means submitting money to a depository, which is a national institution.

Since the performance deposit of 10 million yen is much smaller than the capital of 2 billion yen or more required to become a depository institution, it can be said that a fund transfer company is “easier to become”. “Easy to become” means that national regulations are not strict.

Is the pseudo deposit for smartphone payment controversial?

It was found that banks (deposit-handling financial institutions) that operate deposit businesses are strongly regulated, and smartphone settlement service companies (fund transfer companies) that are engaged in pseudo-deposit business are weakly regulated.

A business model was born that took advantage of this, and it was controversial(※1).

In 2020, smartphone payment service company A decided to give 1{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} points per year to the balance charged to the app. For example, if a user using company A’s smartphone payment charges 100,000 yen to the app, 1,000 yen worth of points will be added and 101,000 yen worth of shopping will be possible.

However, points worth 1,000 yen cannot be returned to cash and can only be used for shopping with smartphone payments. Therefore, it is still a “pseudo-deposit” rather than a “deposit”.

However, this method was confusing because it was as close to a deposit as possible, and Company A immediately suspended the annual interest rate of 1 percentage point service.


There was a risk of violating the investment law

It is believed that Company A’s smartphone settlement annual interest rate 1{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} point service was forced to be canceled because there was a risk of violating the law called the Investment Law (* 1). The Investment Law prohibits anyone other than financial institutions from “making deposits as a business.” In other words, smartphone payment service companies are prohibited from doing deposit business.

The Financial Services Agency recognizes a “deposit” business when it has the ability to accept cash, serve an unspecified number of people, promise repayment of principal, and store cash.

Company A’s smartphone payment annual interest rate 1{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} point service meets these four conditions.

Government boosts smartphone payments with digital payroll

Company A was forced to abandon the smartphone payment annual interest rate 1{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7} point service, but the pseudo deposit function of smartphone payment will be further strengthened. This is because the salary of workers can be charged to smartphone payments(※2).


Can be charged directly with salary

The government has set out a policy to enable “digital payment” of salaries. If digital payments are possible, companies will be able to deposit employee salaries into employee smartphone payments. In other words, the company at work charges the worker’s smartphone payment application with salary.

Currently, the flow is as follows.

●Work → Salary is transferred to the bank account → Charge the smartphone payment with the money → Shop with the smartphone payment

When digital payroll is possible, it looks like this:

●Work → Salary is charged to smartphone payment → Shop with smartphone payment

The number of actions when shopping with smartphone payments will be reduced by one, and the convenience of smartphone payments will increase accordingly. The government is in a position to promote cashless society, so we have set out such a policy.

Summary-Issues are points and safety

It will be inevitable to expand the use of smartphone payments and strengthen the pseudo-deposit function accordingly. And it enhances consumer convenience.

However, what really separates “deposits” from “pseudo-deposits” is safety. It can be considered that the interest on bank deposits is cheaper than the points for smartphone settlement because banks pay a large amount of money to ensure security.

And, no matter how much the points are profitable, consumers will not be happy to let go if safety is sacrificed.

The future challenge for smartphone payments will be to ensure the appropriate amount of points and security.