Payment methods and practices in Japan

According to HSBC, hard cash is still the order of the day in the Land of the Rising Sun. While innovative in almost all areas of technology, Japanese have been reluctant to give up the use of liquid currency. Compared to the French, who have dematerialised 59% of their purchases, the Japanese are only at 14%. Like the Germans, Italians or Austrians, the Japanese consider cash as a source of security and anonymity, experts at HSBC attributing this to an older population who is slower in adopting new technologies.

This is not to say that the Japanese are not anxious to try out new technologies. Japan has come up with a multitude of creative payment methods; this is the country that brought us bitcoin, after all. In September 2017, Japan once again became the biggest bitcoin marketplace, with the famous cryptocurrency gaining a market share of 50.75%. The Japanese government has been driving innovation and pushing for the growth of virtual currencies.

Ranking fourth in worldwide ecommerce

Ecommerce in Japan has become all the rage, as it happens almost everywhere in the world. With 2015 sales at EUR 1.462 billion worldwide, ecommerce in Japan reached EUR 102 billion. As a result, among the main online consumer countries, Japan is just ahead of Germany, occupying fourth place after China, the US, and the UK.

Today, the preferred online payment method in Japan is still credit or debit card, followed by post-purchase payment, carrier billing (charging payments to a phone bill), e-wallets and prepaid cards (e.g., Line Pay, Suica, Nanaco, Edy).

Visa and JCB are popular, but they’re not alone

The bank (debit and/or credit) card is the country’s leading payment method handling 64.8% of all purchases. All the Japanese carry a “cash card”, which can include a debit function (J-Debit). Credit cards in Japan are not free of charge, card companies providing complementary services: cash back with partner brands, loyalty programmes, and a credit line (of course). The leader, JCB, boasts more than 82 million card carriers throughout 190 countries and territories .

It may come as a surprise that Rakuten, Japan’s leading ecommerce and Internet Company, rated in the top 10 largest companies worldwide, has become a bank and credit card company. The “Rakuten Bank” has added payment cards to its services, based in part on its digital currency, the “Rakuten Super Point”. To be sure, the Japanese have become loyal customers. The Rakuten card plays on this fidelity by rewarding its customers with cash back on their purchases. On Labour Thanksgiving Day, customers get 5 or 6 times as much cash back if they use the Rakuten card to pay for purchases.

The “Konbinis” and Netbanking make up 37.2% of purchases

“Konbinis”, the post-purchase proximity payments, is highly popular in Japan. Customers make final payments via bank transfer, the post office, by ATM, and through Konbinis after shopping. It is mostly older consumers who use these alternative options to direct payment by card.

At a Konbini, customers can purchase normal consumer products, pick up parcels, buy tickets for public transportation, shows and concerts, pay bills, etc. Online purchases can be paid in cash. Payment is made using an ID that the customer must present to the Konbini employee or to a payment terminal within six days of a transaction. In 2015, Japan boasted over 55,000 Konbinis.

8.4% of Japanese use carrier billing

The Japanese have popularised the practice of handling payments through their phone bills. Twenty years ago, Japan invented the I-mode service to compete with the WAP standard for mobile phones, but lost out to smartphone and 3G/4G technology. Customers simply had to validate their order using their phone number to pay for both their monthly subscription and all purchases made during that billing period.

The mobile wallet – “contactless” and prepaid – the least favourite?

Telecom service providers (lead by NTT DOCOMO) have popularised the smart card using contactless payment. Adopted only recently in Western Europe with the introduction of the first NFC terminals (for instance, in Spain in 2014), contactless payment has been used in Japan for over 20 years. As in the West, small payments can be made through a mobile phone or payment terminal. Nevertheless, not all contactless cards are accepted – not even some well-established brands (witness Visa or Mastercard, who had to create an application for geolocating sales outlets that are NFC-compatible).

The SUICA (Super Urban Intelligent CArd), mainstay of the prepaid e-wallet, was initially created by Japanese Railways for use as a public transport ticket. Now accepted in all the Konbinis, 30 million SUICA cards are in circulation. Another prepaid card that has had major success in Japan is Nanaco. 7-eleven Konbinis have issued 45 million Nanaco cards, which are accepted in 215,000 stores.

Prepaid payment methods and e-wallets represent 4.2 % of the total payments. This figure is surprising considering that Japan was a precursor when it comes to prepaid cards. But why the low figure? An ageing population could be one explanation, experts pointing to the effect of age distribution. While 45-and older consumers resist changing their payment habits, the young Japanese are keen on technology.

What about payment through social media?

Though not yet widely available in Europe, payment through social media was introduced to Japan through Linepay. Line, a messaging app, is similar to China’s WeChat. It allows 320 million users to make payments to shops and individuals. Linepay enables peer-to-peer payments; more powerful loyalty mechanisms can be created through a group effect, because users always have the Line messaging app at their fingertips. Partners can also send customised promotions thanks to the phone’s geolocation system, users being then able to share information with their online community.

The upcoming 2020 Olympic Games in Japan are expected to influence payment practices even more and continue to erode cash economy, already under threat by the growing number of digital players. As a matter of fact, the Japanese government would like to end the use of currency by issuing electronic money tied to the yen: the J-Coin. Stay tuned!

About Jordan Graison

As a specialist in the Asian market, Jordan is responsible for the development of Limonetik’s international sales strategy in the B2B online marketplaces. He started his career as a sales representative at AVIAREPS, after completing a degree in Korean studies at the Seoul National University in conjunction with the French National Institute for Oriental Languages and Civilizations (Institut National des Langues et Civilisations Orientales) in Paris. Before joining Limonetik, Jordan worked for MoneyGram International, first as Operations Executive and then as Business Development Executive, Strategic Accounts.

About Limonetik

Limonetik is an online enriched payment platform (PaaS) which provides a unique ‘one stop’ shopping payment solution that connects international payment methods to marketplaces and merchants directly or through its PSPs. It delivers advanced services from collection and settlement management to reconciliation. Limonetik is the guarantee of regulation compliance.