Japan: Cash vs Credit – A country's shifting position

Although Japan remains a cash-based economy, where the majority of transactions are still performed in cash, recent years has seen an increasing number of consumers adopting credit cards as a means to make every day payments. Although credit card payment in Japan is not yet as popular as it is in other developed countries, according to the Ministry of Economy, Trade and Industry, credit card spending grew 10% in 2014 reaching approximately 42 trillion yen (359 Billion USD).

Throughout various research sources and as reported in numerous well regarded publications, over the foreseeable future, Asia does seem set for strong growth in cashless payments. RFi Group has recently seen not only an increase in the number of consumers turning from using cash to credit cards, but also fundamental changed in customers payment patterns. To date, consumers have tended to use credit cards for their high-value purchases, reserving their cash for smaller value purchases. As we see it, this presents a clear opportunity for banks that already gold the primary banking relationship and strong digital engagement with their customer, as those standing in prime position to acquire their customers’ credit card and personal loan related business. Japan however is faced with some unique challenges when it comes digital payments, with credit card usage remaining quite low when compared to other markets in Asia (according to RFi, credit card penetration in Hong Kong (82%), S. Korea (79%), Singapore (76%) and China (63%) in 2015 H1). So, with these factors in mind, how does Japan differ and how can banks seek to grow their credit card business in this market?

Typically, Japanese consumers use credit cards differently to other similarly developed countries. Japanese customers tend to use credit cards as charge cards (transactors), unlike in North America and Australia in particular, where credit cards are used as an alternative borrowing method. Interestingly, Japan is also facing the long-term challenge of an aging population where the elderly population of the country is increasingly focused on saving, rather than spending.

In terms of online payments, many Japanese consumers prefer to pay for online goods with cash at convenience stores - generically “konbini”. When online shoppers place an order, they receive a reference number allowing them to pay for the item at a kiosk or at the cash register of their local “konbini”. Given that Japan has an extensive network of convenience stores, this payment method is very accessible to online shoppers. In fact, in Japan, these “konbini” payments are the second most common channel after credit cards. Online shoppers also have the ability to pay cash-on-delivery or via an extensive ATM network.

Given Japan’s quite unique payment landscape, in order to reach new customers and for their business to thrive, it is clear banks must be responsive to customer preferences and be prepared to develop features uniquely valuable to the Japanese consumer. Comparing the trends of Japanese consumers to their neighbours in South Korea, although Korean consumers may not have as much income as those in their neighbouring countries, they are in fact more likely to own and use a credit card. RFi Group data shows that 75% of Koreans own a credit card and 70% have used one in the last 12 months. Moreover, RFi Group data shows that the top 3 drivers influencing a customer’s likelihood to recommend their most frequently used credit card to friends and family are ‘reputation of this product’, ‘shopping/ retail discount’ and ‘ease of making card repayments’. Perceived security is also critical for success.

Viewed as a whole, despite being one of the most technologically advanced countries in the world, Japan still has a long way to go when it comes to digital payments and services.

Fortunately, Japan’s government is determined in improving credit card payment infrastructure as well as promoting cashless payments in more rural areas and tourist locations - not only in preparation for the Tokyo Olympics in 2020, but also recognising the importance of the country moving away from cash payments and into the 21st century. With Japan’s economic growth expected only to continue, income increases and e-commerce purchases will continue to rise accordingly, which in turn drives more retail and e-commerce transactions. Without a doubt, if banks can maximize their primary relationships and refine the digital engagement experience with their customers, they will be in a far more superior position to influence their customers front-of-wallet card choice.