Regulations on P2P Payment Services in Japan

JAPAN FINTECH LAW
Regulations on P2P Payment
Services in Japan
Keitaro KUSUNOKI Yoji SATO
Feb10, 2018 (updated on Feb 18, 2018)
©2018Kusunoki&IwasakiAllRightsReserved.

Purpose of this Presentation
For operators of applications and web
services, we illustrate the Japanese
regulations on p2p payment services with
examples of existing services in Japan

P2P Payment Services
App User “B”App User “A”
(i) Payment instruction via App
(ii) Payment
Operator of Apps/Web Services
B’s AccountA’s Account
App / Web Service
Fees
(iii) Cashing / Shopping

I. via OR outside Apps?
 Pay outside Apps (e.g., Internet Banking, COD)
Adv.: Less regulations on apps operators
Disadv.: Users leave apps for payment/settlement
Operators charges NO fees re payment/settlement
 Pay via Apps (subject of this presentation)
Adv.: Users stay in apps for payment/settlement
Operators can charges fees re payment/settlement
Disadv.: Stricter regulations on apps operators

II. Types of P2P Payment
A) Users pay by e-money → See III.
B) Fund transfer services → See IV.
C) Collect. agency services → See V.
D) Bank transfer via Apps → See VI.

III. Users Pay by E-money

III. 1. Payment by E-Money
Users of apps pay/settle by transferring fungible
e-money issued by the app operator or a third
party business
Example)
(since Dec 2016) → See III. 3.

III. 2. Legal Nature & Disadv.
E-money exchangeable with products or services
is deemed “Prepaid Payment Instrument” * under
the Payment Services Act
* PPI is something purchased by customers in advance, and “points” of
loyalty cards or reward cards, which are provided as reward, are not
included here.
Disadvantage: In general, e-money
cannot be converted back into cash

III. 3. Structure of
Payment / Settlement
User of Kyash User of Kyash
Virtual Card Virtual Card
Actual Credit Card of the User
Used for Shipping
linked
Registered Credit Card
for 3rd Party Services
Used for Shopping
Kyash Inc. (Operator of Kyash)

III. 4. Analysis of
 Pay or Settle by E-Money named “Kyash”
 Users convert credit into “Kyash” through the
registered credit card, and pay/settle by “Kyash”
 Users can recharge their “mobile Suica” with
“Kyash” and use them for shopping
Avoid the disadvantage of e-money (i.e.,
irrealizable) by making it available
widely for shopping

III. 5. Regulations on E-money Issuer
Regulations under the Payment Services Act
 Deposit money of 50% value of outstanding e-money (or
have a bank do so)
 Filing or registration with the local finance bureau, etc.
Filing: Issuer of e-money used for purchase from the issuer only
Registration: Issuer of e-money used for purchase from a variety of
businesses
No above regulation is applicable if e-money expires
within 6 months upon issuance (though e-money with
expiration date is prohibited at AppStore)

IV. Fund Transfer Service
(Fund Transfer Transaction)

IV. 1. Fund Transfer Transaction
An app operator transfer a user’s fund to another
user, which falls under the definition of “Fund
Transfer Transaction”
Fund Transfer Transaction (kawase torihiki)
To undertake the task of transferring funds requested by customers
utilizing the system of fund transfer without transporting cash
between distant parties, and/or to carry out such task (Supreme Court)
By Fund Transfer Transaction, money can be sent to
anyone in any form (e.g., cash, deposit with bank, credit)

IV. 2. Fund Transfer Business
Traditionally, only licensed banks were permitted
to engage in Fund Transfer Transactions
 Banks are operated under strict regulations of Banking Act
Deregulations in 2010 enabled non-banks to
engage in Fund Transfer Transactions of lower
amount (< JPY1M per remittance)
→ Fund Transfer Business
（Payment Services Act）

IV. 3. Regulations on Fund Transfer Business
Still regulated (though not as strict as Banking Act)
Payment Services Act
 Deposit money of 100% value of funds under transfer
 Registration with the local finance bureau, etc.
Act on Prevention of Transfer of Criminal Proceeds
Strict and intrusive identification procedures are required (though only
name, birthday, and bank account information are required if funds are
transferred only through bank accounts)

IV. 4. Transfer of Crypto-currencies
Payment / Settlement by Crypto-currencies
Not regulated as crypto-currencies are not “Fund”
and it is not deemed Fund Transfer Transaction
← It could possibly be deemed “Fund Transfer” depending
upon the structure and purpose of such activities
App Operator
App User App User

V. Collection Agency Service

V. 1. Collection Agency Service
App operator receives credit card payment
from a user on behalf of another user
(since Jan 2017) (since Aug 2017)
Advantages
 Less regulations
 Services available for a wide range of settlements

V. 2. Structure of CA Service
Provider of Products / Services
Convenience Store (CA Service Business)
Purchaser of Products/Services
➊ Give authority to
receive payment
➌ Products / Services
Q： Isn’t the C-store engaged in Fund Transfer Transaction?
➋ Payment

V. 3. Legal Analysis
➊ The provider of products/services authorizes the C-store to
receive payment from purchasers of products/services
➌ The purchaser has the obligation to pay, and the provider has
the obligation to provide products/services
➋ The purchaser’s obligation to pay is fulfilled upon its payment
to the C-store
 The C-store will transfer the payment to the provider
afterwards
This is not a Fund Transfer Transaction because C-store
only receives payment as an agent, instead of transferring
fund for customers. → See V. 4.

V. 4. Collect Agent or Fund Transfer?
Law does not provide for a clear distinction btw CA and FT
Practically, if the following 3 conditions are met, NO Fund
Transfer Transaction is deemed to exist:
➊ Agent is authorized to receive payment beforehand
➋ Payment obligation of payer is fulfilled upon agent’s
receipt of payment
➌ There is a relationship of rights and obligations between
payer and payee
Q. Do meet these 3 conditions?

V. 5. Structure of
4. Pay amount received from A
AnyPay Inc. (Operator of paymo)
B’s paymo Account A’s paymo Account
paymo User A who
hasn’t paid the bill
paymo User B who
paid the bill for A
3. Payment5. Withdraw cash, or use
for payment to another
2. Request for reimbursement of split bill
(send a photo of the receipt, and amount
payable, via paymo)
1. Give authority to
receive payment
by consenting to
T&Cs of paymo
“app for splitting bill”

V. 6. Analysis of
See if meets the 3 conditions of V. 4.
➊ Is AnyPay Inc. authorized to receive payment?
➋ Is payment obligation fulfilled upon AnyPay’s receipt?
➌ Is there a relationship of rights and obligations?
Sec. 29.2 of T&Cs provides that User B entrusts AnyPay to receive payment from User
A on behalf of User B, and AnyPay accepts such entrustment.
Though this is not clearly provided under T&Cs, from the legal acpect, User A’s
obligation will be fulfilled once User A make a payment to AnyPay.
YES
YES
Controversial. See V. 10. below.

V. 7. Structure of
Sponsor (polca User)Proposer (polca User)
2. Formulate a proposal*, and share it with friends (potential sponsors)
4. Pay amount
received from
Sponsor
5. Implement the proposal, and return the compliment
* Proposal is established if
Proposer shares:
1) Target Amount
2) “Return” for Sponsors
CAMPFIRE Inc. (Operator of polca)
3. Payment of sponsorship fee
receive payment
by consenting to
T&Cs of polca
“app for friend funding”

V. 8. Analysis of
➊ Is CAMPFIRE Inc. authorized to receive payment?
➋ Is payment obligation fulfilled upon CAMPFIRE’s receipt?
Sec. 13.3 of T&Cs (above) set forth clearly.
Sec. 13.3 of T&Cs provides that Proposer agrees to authorize CAMPFIRE (or any
agent designated by CAMPFIRE) to receive payment of sponsorship fee on behalf
of Proposer, and payment obligation of sponsorship fee shall be deemed fulfilled
upon CAMPFIRE’s (or agent’s) receipt of such fee from Sponsor.
YES
YES
Controversial. See V. 11. below.

V. 9. Analysis of Condition ➌
What is “relationship of rights & obligations between
payer and payee”?
 Is it required to be a relationship of credit and debt which
arose out of a commercial trade such as the relationship
in V. 2. above?
 Is it required to have existed before payment by payer?
 Is it required to be a relationship with mutual obligations?
→ A variety of discussions (See below)

V. 10. Relationship under
The relationship between payer and payee under
 is not required to be that with credit and debt which arose
out of a commercial trade (instead, under Sec. 23 of
T&Cs, credit of statutory subrogation under Art. 500 of the
Civil Code is supposed to be the typical case)
 is not required to be bilateral
 is, however, required to have existed before payment via
the application (payee is required to attach a photo of the
receipt evidencing its payment)

V. 11. Relationship under
The relationship between payer and payee under
 is not required to be that with credit and debt which arose out
of a commercial trade (payer can send money to a friend by
simply clicking “Support” button for the shared proposal)
 is not required to have existed before payment via the app
 is required to be bilateral (Proposer is required to return the
compliment to Sponsor); provided, however, that just
appreciative remark is sufficient, and return of same value is
not required

Isn’t there any risk that the relationship of sponsorship
fails to be established before payment?
 Relationships of sponsorship are established via
→ Agreement is established upon Sponsor’s fund transfer
(after Proposer’s proposal)
 Proposals can be shared only with “friends”, and there
is limited risk of mistaken fact or identity
V. 11. Relationship under (Continued)

V. 12. Structure of
Payer (Osushi User)
Payee (Osushi User)
4. Pay amount
received from Payer
3. Send “Osushi”
(JPY 100 per piece)
2. Create a link, to which
“Osushi” can be sent
Service launched on
Feb 1, 2018 (and
suspended in a day)
“app for throwing coins”
receive payment by
consenting to T&Cs
WANTA Corp. (Operator of Osushi)

➊ Is WANTA Corp. authorized to receive payment?
➋ Is payment obligation fulfilled upon WANTA’s receipt?
V. 13. Analysis of
No payment obligation is seen (Otherwise, is gift obligation established and fulfilled
at the same time?)
No relationship of rights and obligation is seen (Fund Transfer Transaction can
be implemented via this App)
Sec. 5.3 of T&Cs provides that users agree to authorize WANTA to receive
“Osushi” from senders of “Osushi” on their behalf.
YES
NO
Not Clear

V. 14. Collect by Credit Card
In order for collection to be completed via apps, apps
typically require payment to be made by credit card
→ App operators can be required to contract with credit card
acquirers as “Payment Facilitators” or “Payment Service Providers”
 There is no direct regulation on such businesses under the
current Installment Sales Act of Japan
 Under the revised Act to be effective on June 1, 2018,
such businesses can be regulated

V. 15. Payment Facilitator
App User
Collection Agent
App User
Credit Card Companies
Payment Facilitator
Agreement
Credit Card Agreement
Payment
Payment
Authority to
receive payment
Relationship of Rights
and Obligations
Payment

V. 16. New Regulations
Payment Facilitators / Payment Service Providers, depending
upon their roles, will be required to be registered, and be
subject to certain regulations, including obligations to
investigate merchants, to appropriately manage card numbers,
and to develop necessary systems, under the revised
Installment Sales Act
Advantage of Registration
Credit card acquirers will be motivated to contract with
registered operators that can assume some of their obligations

V. 17. Act on Specified Commercial Transactions
Under the Act, providers of products or services through Mail
Order Sales (e.g., online sale) are required to present certain
matters, including timing and manner of payment.
→ In , CAMPFIRE Inc. (operator) presents required
matters on behalf of all Proposers (as well as itself)
 Users of polca are required to show such matters only if they
provide products/services in business (not so many users are
required to present such matters)
 Even if proposers use polca in business, they are provided
via the same platform (i.e., polca), and the presented matters
naturally should be almost identical

V. 18. Summary (CA Service)
Payment Services Act
Not applicable if the 3 conditions of V. 4. are met (It is not a
Fund Transfer Transaction)
Installment Sales Act (if collected by credit card)
Possibly applicable after revised Act becomes effective
(e.g., registration)
Act on Specified Commercial Transactions
Applicable (obligation to present certain matters)

VI. Bank Transfer by open API

VI. 1. Bank Transfer via Apps
Payment/Settlement by Users with NO Credit Card
 Users of apps can make bank transfers via apps if
operators of such apps are allowed to access info re
users and their bank accounts, which are possessed by
banks, under certain specifications (i.e., API)
Examples of Bank Transfer Services through bank API
 and
 と and

VI. 2. Bank API Services
2 types of Bank API Services
 PISP (payment initiation service provider): App operator
relays users’ instruction of bank transfer to banks
 AISP (account information service provider): App shows
users’ bank account info by accessing bank account info
of users possessed by banks
The revised Banking Act, which is to be effective in
spring 2018, makes clear the legal position of
providers of bank API services, and impose certain
regulations on such service providers

VI. 3. Regulations on API Services
Current Banking Act
No regulation on API services (though regulations re Bank Agency
Services could be applicable if fees are paid by banks in exchange for
customer acquisition services)
Revised Banking Act (to be effective in spring 2018)
Registration will be required, and service providers will have
obligations to users (e.g., accountability, proper management of info)
and obligations to contract with banks (and disclose it)
←Banks will also be obligated to show a policy re affiliation with API
services, and prohibited from discriminating any API service providers

KUSUNOKI & IWASAKI
Holland Hills Mori Tower 11F
5-11-1 Toranomon Minato-ku
Tokyo 105-0001 Japan
Tel: +81-3-6402-4575
Fax: +81-3-6402-4570
Email: kusunoki@k-i.jp
www.k-i.jp
Disclaimer: This presentation does not provide any legal advice of any kind, nor do we guarantee its accuracy,
completeness, or recency.

Regulations on P2P Payment Services in Japan

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