The case of cashless payments in Japan
Jack Ma’s advice to aspiring millennials was that they didn’t have to be the best at what they did. They needed to be the first. While this heuristic theory may apply within the context that it was originally given in, can it also be applied to the world of Fintech and payments? A superficial look at the payments landscape in Japan shows otherwise, however, everything is not always as it seems.
The advantage of being in the world of technology and payments is not enough to push a new technology towards national, let alone global, adoption. Japan has always been a global frontrunner in terms of developing new technologies, from the creation of the first digital wallet, the first online capable mobile phone and the first online video game console. However, there seems to be a gap between being the first in developing technology and creating technology that is successful. Take, for example, the first mobile wallet “Osaifu-Keitai”. This was created by NTT Docomo in 2004 based on Sony’s FeliCa technology. At the time it was released it failed to gain international traction. Similarly, it struggled to gain traction in Japan, where it would have been expected to help increase the use of contactless payments. However, 13 years later, Japan still does not operate on the same scale as India or China when it comes to contactless payments.
The Japanese Consumer Credit Association released recent data which shows that mobile payments accounted for 19% of overall retail payments. The Japanese government plans to increase use by at least double to 40% within the next 10 years. While this is an ambitious goal, it may be harder than the government thinks, primarily due to the heavy reliance on cash. The heavy preference for bank notes stems from myriad reasons, with some claiming the security and low crime rates of the country, others stating the mistrust of credit cards and debt by consumers and merchants alike. Or even the 0% interest rates set by Japanese banks in the 90s, causing little to no cost of keeping large amounts of cash on hand.
Although there is a clear preference to use of cash, there is potential for mobile and contactless payments to increase in Japan. RFi Group data shows that Japanese consumers are most likely to use mobile wallets to make purchases as small retailers. This suggests if banks could encourage more people to use mobile wallets for those types of payments contactless mobile payments have the potential to increase. Moreover, Japan offers a host of mobile and contactless payment systems. Local banks offer their own e-wallets like Rakuten’s Edy or JCB’s QUICPay. However, much of these contactless payments are made at small retailers and convenience stores through transport related contactless cards. E-wallets issued by Japanese banks and transportation cards like Suica or PASMO have one thing in common, which is that they are built on the same technology that “Osaifu-Keitai” operates on i.e. Sony’s FeliCa technology. This is where the advantage of being first can be seen given that FeliCa is the principal technology used for contactless payments in Japan and with that commands a measure of bargaining power by e-wallet providers.
For one, Apple has integrated “Global FeliCa” into all its new ApplyPay capable products. The addition of FeliCa compatible iPhones and watches set a new global standard for contactless payments. Incoming visitors to Japan and outgoing Japanese visitors would be able to add FeliCa cards to their Apple Pay.
Having a new global standard in contactless payments might finally be the spark that ignites contactless payment in Japan. The Japanese government’s aim of doubling mobile payments is aimed at increasing foreigner spending in the country, which is greatly helped by the seamless experience provided by ApplePay. Much of the planned policies revolve around helping merchants afford contactless terminals, like ones found on transportation systems increasing the penetration of FeliCa technology.
A change in consumer perception of contactless payments is needed for mass adoption by the Japanese public. This could come organically from the adoption of Suica onto ApplePay, as Suica has widespread usage and the barriers of ownership are considerably lower than a conventional credit card. If the current initiatives planned still do not shift consumer perception, more directed government initiatives like India’s demonetization or the Malaysian government’s move towards contactless payments could be utilized. As it seems, Japan’s mobile payment landscape is headed in the right direction.
So while it is good to be the first and even better to also be the incumbent that the government backs as the preferred local payment system.
The case of cashless payments in Japan