FinTech is one of the hottest startup sectors right now, but if you’ve been in the industry for a while, you know that FinTech is always one of the hottest startup sectors. And yet FinTech companies seem strangely local. Very few succeed outside their home markets. A complex web of regulations and local sensibilities almost always results in these firms struggling in overseas markets.

PayPal wanted to make sure that did not happen to them in Japan.

In this podcast, Jonathan Epstein explains how he brought PayPal into Japan. He talks in detail about how he got the Japanese regulators to sign-off on PayPal’s innovative products, and also how he and his team had to throw out the US playbook and cooperate with other overseas divisions to build new retail and online markets from scratch here in Japan.

Jonathan and I also talk about the exacting demands of Japanese consumers, and how those sensibilities convinced him to decide to start a project that drastically increased short-term costs, but might have saved the business in the long run.

It’s a fascinating discussion, and I think you’ll enjoy it.

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Partial Transcript

If you read the news, you know that Fintech is one of the hottest start-up sectors right now and if you’ve got a long memory, you’ll also know that Fintech is always one of the hottest start-up sectors. Yet, Fintech companies seem to be strangely local. Very few succeed outside of their home markets. A complex web of regulations and local market sensibilities almost always ensures their failure.

PayPal wanted to make sure that did not happen to them in Japan and today, Jonathan Epstein explains how he brought PayPal into Japan. He explains not only how he got the Japanese regulators to sign off on PayPal, but how he and his team had to throw out the U.S. playbook and build a new retail and online market from scratch in Japan. Jonathan also explains how the exacting demands of Japanese consumers forced him and PayPal to make a decision that dramatically increased costs in the short run, but saved the business in the long run. But Jonathan tells that story much better than I can, so let’s get right to the interview.

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Tim: So I’m sitting here with Jonathan Epstein, who led PayPal’s market entry into Japan. And you’ve done a lot since then but today we’re going to talk about PayPal and how all that came together. So thanks for sitting down with us.

Jonathan: Thanks for having me.

Tim: Delighted. Well, let’s get right into it. When PayPal was looking at the Japanese market, what was headquarters’ main motivation for coming into Japan? What did they see here?

Jonathan: PayPal has actually been in Japan for several years and what they wanted to do was to expand their presence dramatically. Basically, the entire focus of their mission in Japan has just been on their existing internet based business. And that’s been driven by a lot of natural—people signing up for PayPal because they want to buy something at a shop that offers PayPal, they learn about it. Originally it’s been driven a lot by foreigners who came to Japan, and then it took off in Japan and reached a sort of critical mass, and has grown, has continued to grow. Actually grew quite well while I was at PayPal here, but not to the size or to the rate of some of the other—

Tim: Okay. But when headquarters was deciding to put a little muscle behind this, when they were deciding to really focus on Japan, at any multisided market, the challenge is you need customers on both sides. In the U.S., eBay was originally the killer app for PayPal, but eBay never really took off here in Japan so what was the Japan strategy to get these initial users?

Jonathan: eBay did not take off here, and really, the reason is because Yahoo Japan expanded so quickly as soon as it found the idea of what eBay could do. As a result, PayPal knew that it couldn’t rely on Yahoo Japan to achieve that same growth, and looked for other ways of doing it. PayPal has had a tough time in a lot of regions in developing beyond that original eBay franchise connection. It’s a great demand pull for a service like PayPal.

Tim: So what was the key strategy to do that? Was the timing such that you thought eBay was going to be successful in Japan or did you know that that ship had kind of sailed?

Jonathan: No, it was pretty clear that ship had sailed, and sunk. But at the same time, there were a number of different initiatives. First of all, it’s called the natural growth, which tended to be very unpredictable. That did very well and there were also technology-driven enhancements to the tools that we could offer merchants, that really didn’t exist in the market in Japan. The existence of those and the continual offering of those new products, like one-click and some of the latest best practices that teach retailers how to improve their flow through and decrease the number of people who drop off, that has done extremely well. The other piece of that was the PayPal Here device, which was basically a similar device to the square checkout device.

Tim: That’s sort of a retail solution, right?

Jonathan: That’s right. So they could do retail sales. So just as I was joining the organization, the thought was to launch that in Japan.

Tim: How did that do?

Jonathan: It didn’t do well. It launched to great fanfare but as it turned out, Rakuten beat us to the punch and also turned out that Rakuten had enormous sales resources that PayPal just didn’t have, unfortunately.

Tim: Right. I think Japan must be one of the most competitive markets in the world for electronic payments. Even when you’re talking about on-site, JR, Japan Railways, has their own on-site solution, the Suica. Rokuten has got into the game, so it’s an incredibly tough market.

Jonathan: It is. It is incredibly tough; that’s the right word. And very fragmented, so that makes it very difficult for a solution provider, or even for an individual merchant to decide what he should accept and what the best solution is. So price, inevitably, is one of the most important criteria, but price is only seen as—the whole added in price is not something people tend to look at.

Tim: Right. It’s the first thing everyone asks about though. But I guess even an on-site solution—you’ve got the same multisided market problem you have online, where you need enough people with PayPal wallets who will spend it at the supported stores and you need enough stores to support the device that people will actually think to use it.

Jonathan: Well, actually, with PayPal here or a square type device, you can use any credit card. It will accept absolutely any credit card, so you just stick it into the back of your phone and then swipe it. All you need is the software; it’s $20, and then a registration process to get going.

Tim: That makes sense. So why you? Why did they select you to lead the company at this point?

Jonathan: Well, I think you should ask them that.

Tim: I’m sure it didn’t come as a complete surprise.

Jonathan: I had come out of a heavily quantitative insurance background and had launched a very large, unique insurance product that’s cell phone insurance. It’s not the same market but there are fairly few people—at least who I can point a finger at—who have sort of the combination of Japanese language ability, plus strong enough English skills, and familiarity with how things work in the valley to be able to bridge that difference and sort of give some direction to a mixed team here.

Tim: Okay. Well, as well as, introducing any new kind of financial product or financial service in Japan is, shall we say, non-trivial.

Jonathan: Yeah, to say the least.

Tim: So was PayPal up against some regulatory hurdles as well?

Jonathan: The regularity situation was complicated and fascinating, and frankly, I learned a lot throughout the process. PayPal is, in many ways, more than just a product. It’s a toolkit; a variety of different services that you can offer to consumers and to businesses to help with transactions. It cut across legislation in almost every country that it works in, so depending on the regulatory structure of the country, that would be either a great thing for PayPal or a very difficult thing for PayPal.

Tim: So in Japan, who has some kind of regulatory authority over PayPal?

Jonathan: So in Japan, it was the FSA. And the word is—and I have no idea whether this is exactly true or not—the FSA actually designed this piece of legislation, the money transfer license, for PayPal. Not for it particularly, but as a result of the types of questions that PayPal was asking.

Tim: Okay, so they designed this legislation before you went through the process or after?

Jonathan: This legislation was designed. It had been rolled out with several other companies, but in very specific and limited ways, generally for transfer organizations like Western Union. So like a Western Union.

Tim: What were the services that kind of put you under the jurisdiction of different agencies?

Jonathan: So money transfer is one; the degree of information that we collected from individual consumers; the fact that we held credit card, and processed credit card, data; and then the fact that we took the risk of individual merchants not paying. So as you said, it’s a dual-sided market, so it takes the risk on both sides. So each of those different risk characteristics and tools basically falls under a different set of laws. And foreign exchange. Foreign exchange actually falls under a different ministry altogether.

Tim: Were you connecting to users’ bank accounts in Japan like you do in the States?

Jonathan: No. It was something that we pursued. It wasn’t something that we did at the time, no.

Tim: Okay. Let’s dig into this for a minute. The process of getting this approval, was that something you could do in parallel with all the different agencies or was it something you had to do kind of sequentially, one after the other.

Jonathan: As it turned out, it was clear that we had to get one in order to get our basic set of capabilities working. So the function was rather interesting. We had an ongoing business but the FSA effectively said, “You register by this date, or you must stop everything.”

Tim: How much time did they give you?

Jonathan: I don’t recall. I think it was at least a year.

Tim: Okay. So it was ample time. The enforcement of Japanese regulations is sort of—it’s a bit of a mystery. It sounds like you had relatively friendly regulators who were saying, “Look, you’re not complying now. You’ve got a year to comply.” Was it fairly clear what you needed to do or was it a case of where you had to just keep going back and saying, “Is this right yet?”

Jonathan: First let me answer the first question. From my perspective, yes, it was a fairly reasonable process and very sort of rational to work with. We did have to go back several times to adjust different aspects of the offering, but that’s because it’s a very complicated offering, and a big part of the challenge is explaining the complication. Transferring that across a language barrier, but then also into charts, and in a way that the bureaucrats are familiar with seeing. It’s a cost. It’s an incremental difficulty that foreign firms face, but it’s certainly one that’s separable given the right team.

Tim: One of the most common complaints I hear from companies who have either just come into Japan or are thinking about coming into Japan is the lack of transparency in regulations. From your experience, it sounds like it was relatively straightforward.

Jonathan: The process was straightforward. It was opaque as to when we would actually receive the license and when we would be okay to apply, and it was very clear that, whereas in the U.S. situation, there’s a very clear sort of adversarial relationship, but fair. But each side knows what he is able to do. In Japan, it’s different. The regulator is the parent.

Tim: That’s actually a great analogy in several ways. They almost see it as a paternalistic relationship.

Jonathan: Exactly. And frankly, they want to make sure when you’re submitting a business plan that it’s a business that can work.

Tim: So do you think—I’m going to ask you kind of speculate here—but do you think the complaints about lack of transparency are largely due to the fact that these companies aren’t yet in Japan? Would you have been able to get the information about these products, and about this company, if you did not have an operating concern in Japan and were not talking about concrete products.

Jonathan: There has been a lot of ink spilled on the topic of why this perception exists or why the problem exists. It probably depends on the personalities of the people involved, to a large degree. But I think that when people go into a new jurisdiction, expecting things to work exactly like they did back home, they run into a lot of trouble. So business plans have to include a fair amount of flexibility to take into account that extra time. But Japan is a massive market. The regulators have been at this game for a long time. They are very successful and very smart. They are the crème de la crème of Japanese society. They are not perfect by any degree.

Tim: Right. That’s a really good point. I think it surprises a lot of people from overseas. When you’re dealing with Japanese bureaucrats, a lot of these people are people who graduated from the top universities. It is a very respected position in society. On a personal level, of course every case is going to be different, but what’s the best advice you can give a new country manager or a new regional manager who’s thinking of coming into Japan with financial products? What’s the best way of thinking about the regulatory hurdles that they’re going to have to face?

Jonathan: First, know your own product and what you’re offering inside and out. Right, so know yourself. Sun Tzu, know yourself, know your enemy. If you know both, you’ll win a thousand wars. If you know the exact product you have and what the advantages are, that’s the first step. Then you have to figure out which of those advantages can actually be reflected into the Japanese market. That’s not an easy task. It takes time. You have to meet with a lot of people and effectively sell them the product without having the product right there, to find out whether it’s going to work. And then figure out who else is doing that same thing today in Japan, because there is definitely a competitor here. It’s a huge market, again, very competitive. There is somebody who is fulfilling, perhaps not that exact financial niche, but something related or something that the Japanese consumer or whoever you’re targeting, uses to fill that niche. So then understand the dynamics of those competitors and what they have to offer, and what their histories are like, and how deep their pockets are, and how much they control the customers. And then go into understanding what the regulatory framework looks like.

Tim: Now did they make requests that you change the product in any way? The regulators, I mean.

Jonathan: Yes.

Tim: So anyone coming in has got to be flexible on that matter as well.

Jonathan: Yeah. Request isn’t exactly the right word. It’s, “This is in, this is not,” so sometimes it came as a surprise. In that case, you’ve got to sort of figure out how you’re going to respond to that.

Tim: Okay. Let’s go back a second to the entry and the initial positioning. PayPal, when they came in, the organization was structured as a wholly owned subsidiary? It was not a JV. Was your go-to-market mainly based on outbound sales, or partnership sales, or inbound marketing? What was your basic go-to-market here in Japan?

Jonathan: There were basically three phases to it. Large company sales, small to medium company sales, and then going after individuals and people who wanted to sign up as users. The large company sales were direct sales. We had a dedicated, very talented direct sales force. The small company sales did some direct sales, but by nature of the size of the market and the profitability of each customer, was more reactive. And then the individual side was more just marketing and manning the phones.

Tim: So how different was the Japan strategy from headquarters? Was it kind of running the U.S. playbook or were you almost starting from scratch in a new marker?

Jonathan: Actually neither because the U.S. is playing with a very large eBay that pulls customers into eBay—or used to anyway. I’m not sure how it works now. But it wasn’t, at the same time, starting from scratch because there were similar markets in other parts of the world where there was no large eBay presence, so the countries sort of had to fend for themselves. So when we had regional meetings, it was very clear that we had a lot of the same issues and challenges.

Tim: Okay. So what sort of things were different in Japan than in the U.S.?

Jonathan: Well, size of the budget for one.

Tim: Well, that’s fair enough. But in terms of like, the basic strategy.

Jonathan: The major piece is communication. Outreach to Japanese consumers who didn’t have a lot of experience with PayPal. The key difference there, funnily enough, is that in the U.S., one of the major attractions of PayPal is fear of credit card fraud. Because with PayPal, you register your credit card information once, then you just refer to it using your password over and over again, and it’s perfectly safe. But in Japan, credit card fraud, while not non-exist ant, is extremely low. So one of the very basic attractions is sort of missing. So the structure of the market is really quite different, as well the individual retailers aggregated their services to a payment service provider, which is a provider that provides lots of different payment methods to individual retailers. The same structure exists in the U.S., but the role of the payment service provider, of the PSP in Japan, is much richer. The individual merchant doesn’t do a lot of the blocking and tackling, in terms of the payment process.

Tim: So the payment service provider would provide a, “These are our offerings. Choose whichever ones you want to support,” and the merchants themselves would not be as proactive in Japan, saying, “We want to use PayPal,” or “We want to use this service.”

Jonathan: Exactly. So that made it more important to work with the individual PSPs, with the individual payment service providers, and to convince them on the value. But at the same time, you’ve got to sell them to the merchants, who can be 20, 30, 40, 50,000 merchants under a single payment service provider, in order to convince the payment service provider that they have to offer PayPal. So that’s a different sort of bi-layer sale that we would have to—

Tim: It’s actually quite similar to the channel partners’ models in a lot of software market entries, where you’ve got to convince the systems integrators, who have tremendous client capture, and you’ve got to drum up the demand amongst the clients.

Jonathan: Exactly. I think it’s exactly the same dynamic. And interpreting that, the various layers of middlemen, and working through the efficiently, and convincing them that you’re worth retaining, is a major challenge—perhaps the major challenge.

Tim: And especially in Japan, where there are so many options right now. So that was a fundamental change in the basic go-to-market strategy. Were there any changes that you had to make to the product as well, in Japan?

Jonathan: The product is almost infinitely customizable. So the simple answer is yes, in terms of limits and how much collateral to withhold, and that sort of thing. Those are constantly adjustable areas. So those effectively are the product. The core technology itself, though, the core elements of the product don’t change.

Tim: Okay, so it was more customization of the market. It wasn’t something you had to go back to headquarters and say, “We need this new development. We need these new features in the next release,” to support Japan. It was customization of existing parameters.

Jonathan: That’s what it was. It was never even really an option to do anything else, for an organization that’s operating in 100-something countries. Okay, Japan is a large market, but the voice of Silicon Valley is louder.

Tim: Yeah. The communication with headquarters, and what you said about the voice of Silicon Valley being so much louder, how did you make sure that headquarters was paying enough attention to Japan’s need? Because this was probably something that is one of the top three concerns of every country manager in Japan.

Jonathan: So I was blessed, or cursed—I’m not sure which—with the opposite problem. It’s one of the two, right? You either have too much attention or not enough. In my case, when I was at PayPal, there was a surfeit of attention on the Japan business, particularly because with the launch of PayPal here, it was only launched in a couple of different countries.

Tim: Okay, so it was launched very early?

Jonathan: Mm-hmm. It was a major focal point of the relationship.

Okay. Excellent. Well, that’s actually a good problem to have. Looking back on it now, knowing everything you know now, what was the biggest mistake you made? What would you do differently if you had a chance to go back and do it again?

Jonathan: I think that if I had yelled it a little bit louder, about Japan’s needs—

Tim: What kind of things?

Jonathan: Partly, the number of things that we needed to get done at once, partly—one thing, again this was a success, but one of the things—we had a sales call center in China with Japanese-speaking Chinese receptionists. It was not well-received by the Japanese customers. We got a lot of complaints and made a lot of noise about it.

Tim: Outsourcing technology to China is extremely common. Outsourcing call centers has been tried a few times so the motivation, I assume, was cost savings.

Jonathan: Yes.

Tim: How did it roll out?

Jonathan: It had been in operation when I got there, and we did shut it down, and moved it to Japan. But a call center operation is a complicated thing.

Tim: And Japanese consumers are so incredibly demanding, in terms of support.

Jonathan: Yeah. And this call center had been set up with significant investment, and had found the appropriate Japanese-speaking talent, and quite frankly their Japanese was excellent. But it wasn’t good enough. Inevitably with a call center, there is an operator who doesn’t know some detail of a product, particularly when it’s a financial product and a service like PayPal, and people are expecting money. And then when people detect and accent difference, as well as a lack of knowledge, then it exacerbates the situation dramatically. So it was very unfortunate for the team in China but, at the same time, very necessary for the whole business, and for the Japanese customers, of course.

Tim: Interesting. It sounds that it wasn’t any lack of ability, it was just that one little kind of trigger that would push someone over the edge and kind of lead to complaining about you over social media. What was happening? Just increased frustration of the users or—

Jonathan: Yeah. Increased frustration. And the Japanese authorities are very sensitive to consumer feedback, far more than the counterparts in the U.S., so a large number of complaints—or even a few complaints actually—will trigger an inquiry. So it became a very—

Tim: Did it actually trigger inquiry or was that something that you just wanted to be proactive and shut it down before it occurred?

Jonathan: It didn’t. No, no, it did not. But it was clear that it wasn’t a tenable situation and it wasn’t a solution to the market need.

Tim: How long did it run?

Jonathan: I don’t know. Years.

Tim: Oh, so it wasn’t a short term thing?

Jonathan: No, no, no. No, you don’t get a call center of that quality overnight. It really took a long time.

Tim: Well that is a shame. It was great in everything except for that native fluency, then?

Jonathan: Look, it’s a matter of matching your customers’ needs to the, you know. And if what they’re demanding is fluency and native intonation, you can’t really argue with that.

Tim: No. But it’s a natural— but what a lot of American companies would view as extreme—reaction. I don’t know how many companies I have talked to who have decided that they can just run support out of the U.S., where they have two people at headquarters who speak Japanese and they’ll handle support. So the reality on the ground is not only is that a ridiculous assumption, but you need to go all the way. You need a proper type of native support for any type of consumer facing product.

Jonathan: That would certainly be my recommendation. I wouldn’t play around with that one.

Tim: Okay, yeah, so that was looking back on a mistake you made. Was there the opposite of that? Was there any decision you made either by strategy or dumb luck that really helped move things forward?

Jonathan: I suppose, yes. But mostly in terms of structuring the sales team and going out on numerous sales calls with each unit of the sales group, as well as listening in on customer calls. These are pretty basic things but just getting as close to the customer is critical too.

Tim: Was sales quotas and compensation structured the same way in Japan as it was at headquarters?

Jonathan: Actually, I’m not sure. I don’t know what it was at headquarters but I have to assume that it was pretty different. Sales quotas tend to be far more aggressive in the U.S. I believe that they’re moderated for Japan but not as flat as what you would expect from most Japanese corporations.

Tim: Yeah, a lot of the traditional Japanese corporations still don’t even use commission, which is crazy to the mind of most of the rest of the world, quite frankly. Looking at more personal and soft issues, you had the advantage of having a really close relationship with headquarters for the Japan launch because it was so strategically important. Even within that, were there times where there was misunderstandings between the Japan team and the U.S. team? And how did you get over that?

Jonathan: There are plenty of misunderstandings in terms of failing to listen. Generally, it would take the form of one side or the other believing that he had a more perfect view of the needs of the situation than the other, and failing to understand what the customer, or the facts on the ground, were really like.

Tim: How do you bridge that?

Jonathan: By bringing the words of the customer and the facts straight to the decision maker and trying to make it as real as possible. And to speak as humbly, but realistically, as possible about the situation. But at the same time, you have to recognize that there are cases in which it’s just not possible. One’s powers of persuasion fail, or somebody else’s mind is set, or whatever it is.

Tim: To me, that is the hardest, and in many cases, the most important part of the job. Inevitably, you’re going to be between headquarters, who say, “Look, we’ve got a model that works, it’s proven,” and on the other side, you’re going to have maybe a Japanese sales leader, or a marketing lead who’s like, “No. They don’t understand Japan. I need to do that.” And kind of the default seems to be a lack of trust on day zero. So you mention actually bringing customer feedback to headquarters, which sounds like a really powerful way of building trust in the organization. Were there any other ways you helped build that trust?

Jonathan: I think one of the best ways is to bring multiple—not to be the only provider of information. I don’t want to be the only person from Japan saying, “You’ve got to do this or you can’t do this.” I would much rather have it coming from everybody on my team, and if headquarters perceives that as weakness on my part, fine. So be it. But at least let’s get to the right conclusion.

Tim: Okay, so having the marketing people in Japan, connecting directly with marketing at headquarters. And sales connecting I guess, somewhat unofficially?

Jonathan: Both. Every possible way. Both sides have to suffer through the lack of understanding, and the difficulty of reaching common ground—the more that happens, the better, because the more that happens, the better the understand is of how nuanced and difficult the cross border information is. Maybe it’s the sadist in me who wants to inflict pain on both sides but I think it’s the—

Tim: It makes sense. People are more likely to trust people they know and have spent time with. Was there a lot of travel? So senior people from Japan going to San Francisco and vice-versa?

Jonathan: In this case, the main point was Singapore, so it was closer and there was more understanding of the local situation. But it was both Singapore and San Francisco. The answer is yes, there is a fair bit of transfer, but inevitably, a trip would be a couple of days, or 3 days, which one is going to be spent eating out and being shuffled around from one thing, “Oh, look at the shrines, how people drive on the other side of the road,” you know, that kind of thing. It has limits. It’s important but the impact has limits. I like to leverage technology as much as possible. I would love to have people in on a regular conference call, you know, video conference calls. Everybody can do it from his desk, you get to see the person in his own work environment, and understand more about their daily vibe, so I think that works.

Tim: Conference calls are wonderful but there are things I’ve found only get done when you’re sort of sitting across the table with someone.

Jonathan: Absolutely. There’s no magic bullet.

Tim: Before we wrap up, I want to ask you what would be the most important piece of advice that you would give to a country manager, about being in that position, having that responsibility?

Jonathan: I think it’s one of the most basic fundamentals of managing, but it’s just listening very carefully. Listening to both employees, and customers, and finding out what they really want, sort of behind what they’re saying, and then also listening to managers, and then also if you have peers in other countries, listening to those peers as well, to find out what works and what they need to get things done.

Tim: Let me push you on that because in Japan, it can be rather difficult to listen. A lot of times subordinates will not tell you exactly what they’re thinking. A lot of times, it’s hard to get honest feedback. So how do you get that out of the people you’re working with? How do you get them to really tell you what they think and get valuable, honest feedback?

Jonathan: That’s the trick. That’s why you’ve got the medium box. One of the ways is by outwaiting them. You ask a question, you go in one-on-one, you ask a question and let the uncomfortable silence just flow for a while, and if you’re not getting an answer, gently prod with different questions. Take people out to lunch and dinner. Again, I don’t think there’s a magic bullet, but I do think I’ve seen the wrong way to do it, which is to come in and bang fists on tables, and tell people what they think. In a very frustrating role, that’s sort of a natural response.

Tim: Well it sounds like you need to let your staff know that they have permission to give you that feedback.

Jonathan: Well that’s absolutely right. Absolutely. For me, it was admitting that you’re wrong, and saying every once in a while—or in my case, on a daily basis—“Oh, I really screwed up that one. I should have done this.”

Tim: But that’s powerful in Japan. If the boss is willing to admit he’s made a mistake, he’s going to forgive subordinates for making mistakes. Yeah, I think that has a really big impact.

Jonathan: Right. Yeah, I think it’s very important.

Tim: Is there anything you want to talk about or that I haven’t asked you that I should have asked you?

Jonathan: One of the things is just the market opportunities and the market direction. There is a tremendous amount of negativity in the press. There is frustration at the Bank of Japan and the government for their inability to see straight or to put together a relevant policy.

Tim: Every day, we’re seeing negative macro stories about Japan: flat growth, or the growth of the debt, or something.

Jonathan: Yeah and there’s real reason to be concerned, don’t let me—

Tim: Well, it’s true, but—

Jonathan: I don’t want to gloss that over. But at the same time, there are a number of skills and strengths that exist in the Japanese market and that working with Japanese consumers forces you as a business man to do, and to realize which are world beating. This discipline of listening to customers and responding rapidly is something that is special to this place.

Tim: Well that’s true. If your customer support and your customer satisfaction is high in Japan, you’re pretty much covered anywhere in the world in that regard.

Jonathan: And even to the financial world, which in many ways, is decades behind the U.S., certainly in terms of IT infrastructure. Even in that area, it’s possible to see how many really interesting opportunities there are for disintermediation, but also for creating something new and valuable that’s different from what we see in the U.S.

Tim: It is amazing to me as well in that so many people ignore Japan and I have no idea why. China seems to get all the Asia attention these days.

Jonathan: It goes in waves.

Tim: Yeah. But in terms of market opportunity, it’s still the third-largest economy on the planet. And regulation has to be gone through but it’s nowhere near what it was like 20 years ago.

Jonathan: And it’s rational. It’s actually thought through.

Tim: And from your experience, it sounds like it’s collaborative and a relatively friendly process.

Jonathan: Yeah. That’s how I would characterize it.

Tim: Excellent. Okay, Jonathan, thanks so much for sitting down with me.

Jonathan: Thank you.

I thought it was interesting that perhaps the biggest challenge PayPal faced entering the Japanese market was not something that was in the market, but something what was missing from it, eBay. Yahoo Auctions got to market first in Japan and eBay never managed to catch up, or to gain any traction at all here, really. In the U.S., eBay was the main driver for early user adoption of PayPal, so without eBay here in Japan, PayPal had to throw out the U.S. blueprint and build a market from scratch. Different partners, different users, different landscape. It’s often hard for successful start-ups to start thinking like a start-up again, but a lot of times that’s what you need if you want to build your business up here in Japan.

I also think that Jonathan’s experience working with the Japanese regulators is something all foreign companies can learn from, particularly those involved in a highly regulated industry like Fintech. The process may be lengthy and somewhat opaque, but it’s not adversarial. I really like Jonathan’s observation that the regulators seemed almost paternalistic in their attitudes towards the companies they regulate. PayPal may not have been able to achieve the level of success in Japan that they have in America, but the story of their market entry contains invaluable lessons for any company trying to break into Japan in a highly regulate industry.

If you’ve got questions about PayPal’s market entry, or want to share some thoughts on Fintech and Japan, Jonathan and I would love to hear from you, so come by and let’s talk about it. When you drop by, you’ll find all the links and sites that Jonathan and I talked about and much, much more in the resources section of the post. And I know it’s been on the back of your mind for a while now, but if you get the chance, please leave us an honest review on iTunes. It’s really the best way you can support the show and help us get the word out.

But most of all, thanks for listening and thank you for letting people interested in Japanese start-ups and innovation know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.