Can Japan’s crypto companies take a page from PayPal’s playbook?
Even though Japan has some of the most progressive cryptocurrency regulations in Asia Pacific, the vast majority of Japanese are still buying digital currencies to hold (or “hodl” in the language of speculators) as an investment rather than use to transact. The question thus remains: What will it take for cryptocurrencies to see wider usage as an actual currency in the country?
If we wish to see more cryptocurrencies used as an actual currency in Japan, we ought to borrow lessons from how people have used traditional fiat for the past several hundred years. The nascent field of behavioral finance provides us plenty of insight in this regard - it turns out most people practice a form of slipshod mental accounting.
Let’s say we receive an inheritance from a distant relative of 100,000 yen. This inheritance would have the same exact value as 100,000 yen in our savings account, but we would treat it differently. Because we would file the inheritance as “found money” in our mental accounting - or money that came to us via an accidental windfall - we would spend it more loosely than we would the equivalent amount of our own savings. This psychological quirk is bad for the financial well-being of consumers, but it may be beneficial for fin-tech adoption.
We can see this principle at work in the earliest days of financial-technology. According to then COO David O Sacks, PayPal spent tens of millions in signup and referral bonuses in their first year, helping it grow to 1 million users by March 2000. While it would be easy to chalk up the success of this strategy to the appeal of free money, there was actually more to it than just that. When an existing customer referred a new user on PayPal, each got $10.
What made PayPal’s system so effective is that both recipients were likely to treat the referral and sign-up bonus as found money, spending it quickly on the available ecommerce sites and marketplaces at the time. For many consumers, their PayPal cash would represent the first time transacting online, which would enable them to see the value of the fin-tech platform for future purchases. Contrary to what even the PayPal executives believed, the referral and sign-up bonus was not only a growth hack - it was also a form of market education.
Japan’s crypto community can take a page out of PayPal’s playbook. By giving small amounts of cryptocurrency away, companies will encourage people to spend it - as they will treat the free digital currency as “found money” - and are thus more likely to see the value of this technology as a means of transaction. Though some crypto projects and companies engage in this practice through airdrops and simple bounty campaigns in their early days, it’s even more important for mature companies to leverage this tactic for well-established coins, which will naturally have more outlets and channels to spend them at.
Cryptocurrency exchange CoinBase, for example, has a referral program that’s a direct descent of PayPal’s, gifting you and the person you refer each $10 worth of bitcoin if they initiate a buy or sell of $100 or more within their first six months on the platform. You can bet that both users will be tempted to spend all or some of the bonus crypto as soon as they see it credited to their account. Our fuzzy mental accounting extends to all currency, even cryptocurrency, which will go a long way in helping crypto enthusiasts realize its value as a means of transaction.
Some companies are tying these giveaways to their programming. Indonesia’s Pundi X, which is currently deploying 100,000 of their Pundi XPOS devices across the world to as diverse locales as the United Kingdom, Switzerland, Brazil, Singapore and South Korea. At the RISE conference earlier this year in Hong Kong, the Pundi X team gave away XPASS cards topped up with crypto that they could then spend at FAMA Group restaurants.
Do you think these recipients of Pundi XPASS cards would hold the crypto in the hope it would one day appreciate? Of course not. Many of them headed straight to a FAMA Group restaurant to spend their “found money” on a delicious meal, as is evident from the buzz on social media and from local news outlets. As in the case of PayPal’s program, for many of these consumers the Pundi X transaction would represent a milestone: their first time purchasing anything with crypto. Users were able to see how fast, efficient and convenient it was to use a crypto POS like Pundi X in the real world. The recipient thus gets more than free crypto - they get a glimpse of what may very well be everyone’s future.
The Coinbase and Pundi X promotions were both marketing and market education: By tapping into the human tendency to spend more generously with found money, we are able to see the value of their solutions in particular and cryptocurrency in general. Exchanges in Japan and other countries involved in the cryptocurrency space should explore similar strategies. While giving away crypto is expensive, there is a tremendous return in the form of new users and more digital currency in active circulation. There’s also the public relations value in the crypto community evolving from only evangelizing: As the saying goes, we must put our money where our mouths are.
The author is a Manila-based manager at an insurance company and a cryptocurrency enthusiast who advocates for digital currency adoption across Asia Pacific.
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