Tencent (NASDAQOTH: TCEHY) is partnering with Line (NYSE: LN) to provide mobile payment services to Japanese retailers according to a recent Nikkei report. Line will lease out terminals that are compatible with Tencent’s WeChat Pay platform to small to mid-sized restaurants and retailers that haven’t adopted its Line Pay service yet.

Those terminals, which will start to be installed this month, will let shoppers use both Line Pay and WeChat Pay to make payments. Line will also waive its processing fees through 2021 to nurture faster adoption rates.

A woman makes a mobile payment on her smartphone.

A woman makes a mobile payment on her smartphone.

A brewing payments war in Japan

The move clearly targets Chinese tourists, since WeChat Pay and Alibaba (NYSE: BABA)-affiliated Alipay are the two most popular payment platforms in China. 7.35 million Chinese tourists visited Japan last year, representing a three-fold increase from three years earlier. The move could also help Japanese retailers pivot away from cash-only transactions ahead of the 2020 Summer Olympics in Tokyo.

Tencent and Line’s team up counters a similar partnership between Alipay, Yahoo Japan(NASDAQOTH: YAHOY), Japanese telco SoftBank (NASDAQOTH: SFTBY), and Indian e-commerce services company Paytm. Through that partnership, shoppers could use PayPay — a mobile wallet service created by Paytm, Yahoo Japan, and Softbank — at participating retailers’ terminals. Some of those PayPay terminals were also compatible with Alipay.

But that’s not all: Sumitomo Mitsui Financial Group, one of the biggest banks in Japan, also plans to launch a single terminal for cashless payments (including cards and smartphones) next year. SoftBank’s rival NTT Docomo also launched a QR code payments service in April, Apple Pay is also gaining ground with retailers that use NFC terminals, and e-commerce giants Amazon and Rakuten are also rolling out their own smartphone payment services.

Simply put, the Japanese mobile payments market remains a fragmented one without a clear leader. However, Tencent and Alibaba — which already hold a duopoly on mobile payments in China — could lift some payment platforms to the top.

Making a payment via a QR code.

Making a payment via a QR code.

Will this deal help Line?

Line struggled with two major issues in recent quarters. First, its monthly active user (MAU) growth across its four key markets — Japan, Taiwan, Thailand, and Indonesia — hit a brick wall. It finished the third quarter with 165 million MAUs in those countries, representing a sequential gain of just one million MAUs and a decline of three million MAUs from a year earlier.

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Anthony S Casey Singapore