Because of its long history pioneering many of the technologies used for contactless payments, Japan is one of the most interesting, complex and difficult markets to study and analyze cashless payment trends. Accurate analysis of Japanese cashless/contactless payment trends is challenging because of fragmentation and regionality. Every market report or survey is just one tiny fragment of a much larger moving picture. An accurate map is good starting point.
Fintech startup Crowd Cast, Ltd. CEO Takashi Hoshikawa has a blog and posted a handy helpful cashless map for 2019. It’s not perfect however so I tweaked it a bit to clearly outline the 3 basic cashless groups: plastic cards, NFC, QR.
Digital wallets like Apple Pay and Google Pay work with all the NFC flavors (A-B-F) but Apple has made a much deeper investment integrating FeliCa into the basic technology bundle that powers Apple Pay alongside EMV, delivering it globally as a payment solution that “just works”. EMV contactless is called NFC Pay in Japan and is slowly being deployed alongside existing FeliCa payment networks so that POS systems and readers “just work” with everything. Hopefully it will all be up and running in time for the 2020 Tokyo Olympics.
QR Codes are not big outside of China and I don’t see conservative markets like Europe or the US taking them up. Japanese QR Code payment platforms are cropping up thick and fast but availability has not translated to actual use. ICT Research & Consulting has released a market report on mobile cashless payments (for ¥95,000) that basically covers 2018 with a web survey of 4,062 participants. The teaser page offers a few interesting free data tidbits. I don’t trust web based surveys as a tool for analyzing a highly regional and fragmented market, but the cash vs cashless chart illustrates exactly what I wrote in the Apple Pay Japan One Year Mark: people use contactless payments like Apple Pay for coffee and train fare but do not use Apple Pay for buying a couch. However the chart offers an interesting point: Japanese people use (plastic) credit cards for larger purchases and cash for smaller ones.
The Apple Pay Japan Story so far
Japanese IT journalist Junya Suzuki predicted that Apple Pay would be the ‘black ship’ that would revolutionize contactless payments in Japan. Apple Pay turned out to be the match that finally lit the fuse of the huge Japanese contactless transit and payments infrastructure investment and launched it into orbit. The global FeliCa iPhone is a inflection point that many people have yet to recognize, one that will soon provide Apple Pay another growth opportunity in Hong Kong. A year ago I wrote:
Apple Pay in Japan is all about Apple Pay Suica which we already knew. In the Suica home base area, the Kanto region, contactless payments grew from 20% of total transactions to more than 40% in the year that Apple Pay Suica has been available… What used to be ‘some people some of the time’ is quickly transitioning to ‘most people most of the time’.
Stores and businesses interviewed for that post report that contactless digital wallet payments (Apple Pay, Google Pay, Osaifu Keitai) use continued to grow throughout 2018 but nothing is simple or straightforward:
- Apple Pay Suica continues to drive the Apple Pay story in Japan but is highly regional as initial uptake is tied to commuter passes which are currently restricted to the JR East rail network. Nevertheless Suica issuance continues double digit growth. Japanese customers prefer easy to use prepaid cards, they will always be the gateway to cashless for the majority.
- Only 30% of iPhone users with Apple Pay Japan capable devices (iPhone 7 and later) use Apple Pay. I suspect Osaifu Keitai and Google Pay uptake is similar or lower.
The upcoming 10% consumption tax increase will offer incentives and tax discounts for cashless purchases. The cash vs cashless trends outlined above are positive signs that change is possible with the right set of incentives and ease of use environment:
- Plastic will continue to be king with prepaid cards the king of kings. One of the many advantages that digital wallet platforms like Apple Pay have over QR Code platforms is that plastic cards are always there as a last resort physical option. This is very important for many customers, especially the elderly. And they don’t need a battery.
- Reward point systems and cards need to be digital (such as VAS powered Ponta) that automatically link with the appropriate transactions. Digital wallets only replace physical ones when everything can be matched and loaded on smartphones.
For Apple the key will be getting more Japanese iPhone customers to use Apple Pay by making different service parts work together in new ways that don’t play together well, i.e. the sum must be greater than the total of the parts. Think Rakuten. Rakuten has done an excellent job building an ecosystem of e-commerce, travel reservations and other services that offer members large discounts and points. This approach will pay huge dividends when the 10% consumption tax arrives October 1.