Best practices and insights into Japan's and South Korea's ecommerce markets

Could you please depict the key payment methods and practices in Japan and South Korea? 

The payment methods options in these two countries are very similar in nature. In Japan, consumers are used to paying with credit cards issued by local entities, as well as paying via Konbini, which means ‘convenience store’ in Japanese. These establishments are very common in Asia, serving as the equivalent of tobacco stores and gas stations in Europe, yet they represent a core support system of societies’ infrastructure in Japan and Korea, as well as in Taiwan. 7-Eleven, Family Mart, Lawson, and other convenience stores operate 24/7, can be found on every corner, and serve as a one-stop-shop where you can buy food and drinks, pay bills, use ATM and printing machines – and pay for your online purchases. You can even have your order delivered there instead of your home.

Digital wallets are on the rise in Asia. In Japan, PayPay is one of the most dominant, which works on a prepaid basis, and it can be linked to a bank account. There is also Line Pay, which is essentially part of Line - the most popular instant message app in Japan, and like WeChat, for instance, it has integrated an e-wallet as part of its services. Merpay is another good example. Run by the auction service Mercari, it enables consumers to store the money they earn from selling their used goods (clothes, gears etc.) on the platform. 

All these e-wallets support QR code-based payments and can be used in stores, both offline and online. In Korea, there are four digital wallets winning the market: Toss, PAYCO, Naver Pay, and Kakao Pay. At KOMOJU, we offer support for all these digital wallets as they are complementary to local card processing. 

For businesses interested in selling in these markets, what country-specific requirements should they consider to secure payment acceptance through localisation? 

Offering payment via Konbini, which requires no legal entity in Japan to set up, represents a real advantage in this respect, because there is a high level of recognition and trust among consumers when it comes to these channels.

In terms of taxes, it’s important to know that the Japanese government requires businesses operating in the country and earning more than USD 100,000 (YEN 10 million) to submit their sales declarations in Japan for tax collection. 

Other regulatory requirements vary based on the industry, but overall, we can advise on all the necessary information, since we initially started as a merchant (in gaming) before developing ourselves as a payment solution provider, so we can easily put ourselves in the merchants’ shoes to understand their compliance needs as well. 

What are the main fraud challenges that merchants struggle to overcome, and how can you help them tackle these issues? Do you offer support for chargebacks as well? 

Compared to other regions around the globe, like the US or Europe, the fraud rate in Japan is much lower. Looking at the total transaction volume processed by Degica, the chargeback rate is less than 0.1%. We also recommend our merchants to sign up for 3-D Secure 2.0 for enhanced protection and then credit card companies can guarantee no chargebacks. 

In our fraud prevention program, we do a few different checks and balances, but in general, most of the fraud is committed systematically. For example, people buy items and then sell them via a third-party grey market. But since we don’t cover crypto and foreign exchange areas yet, this could be a reason why we don’t encounter too many fraudulent activities among the merchants we serve. 

What is your company’s strategy for improving authorisation rates with local processing? 

First of all, we monitor the capture rate very carefully. Then, for card-based payments, we have a multi-acquiring strategy implemented, so if one transaction doesn’t go through one acquirer, instead of automatically turning it down, we reroute it to another. For other payment methods such as Konbini, we send the transaction request along with payment instructions at the store level and provide a certain timeframe (that can be customised by the merchant) when the store should expect the payment to arrive - and merchants can set a time frame to send payment reminders. 

Considering that language is a difficult barrier to cross when it comes to ecommerce payments, we have developed a product, which is an AI interface that allows merchants (or any other type of business) to get a fully automated accurate translation. So with this tool, we enable merchants to display the content on their website in any language their customers want, at no cost, as well as to provide multilingual customer support. 

Our strategy and approach go even beyond payments, because for a business to succeed in a global market, it needs more than looking at how people pay; before landing at the checkout, the customer must clearly understand what products and services a merchant has to offer, and a website and customer support in their native language can obviously help here. 

Looking into 2022, what are the next payment trends to watch? 

Europe and LATAM will closely follow the developments in APAC, especially when it comes to mobile wallets and QR codes. On the other side, a trend highly developed in Europe that is yet to take off in APAC is Open Banking payments. Currently, there are very strict banking regulations in Japan and Korea, and financial institutions are not that open towards these standards, being reluctant to experiment with new technologies with people’s bank accounts. However, in the next two or three years, Open Banking and Account-to-Account payments will likely arrive in these markets too. Certainly, these are the biggest trends to watch.

This interview was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.

About Jack Momose

Jack Momose is the President and Founder at Degica Co, Ltd. based in Japan. In 2016, he created together with Degica the payments platform KOMOJU, which has been rapidly growing ever since. Prior to this, Jack held senior roles in the software and banking sectors in Asia–Pacific and studied Economics and Computer Science. He now uses this expertise to help companies succeed in Japan, the fourth largest ecommerce market in the world.

About Komoju by Degica

KOMOJU by Degica, headquartered in Tokyo, Japan, is the payment platform of choice for many of the world’s leading companies looking to expand into Japan and the Asia–Pacific region. It was rolled out with a single mission: to make Japan simple. Today, KOMOJU has grown to become one of the best payment solutions for Japan and has expanded to South Korea, China, and Europe to help solve the complexities of cross-border payments.