Japan, in the last several years, has been something of a puzzle among mobile payments watchers around the world. It’s the market that should ignite but stubbornly refuses to.
Its population is internationally renowned for being enthusiastic early tech adopters. They are eager participants in modern eCommerce, and Japanese firms were literally on the ground floor of the development of mobile payments since Japanese firms invented the two key cashless payments technologies that power the vast majority of mobile payments done today. Near field communication (NFC) technology was developed by Sony and NXP Semiconductors in 2002 and QR Codes were developed the Denso Wave company in 1994. And the first mobile wallet in history launched in Japan — created by I Mode and DOCOMO 20 years ago in 1999.
It would seem if any group of consumers was ever primed for mobile payments ignition — it would be Japanese consumers.
But reality has not lived up to expectation in this regard — a fact that analysts have been commenting on for the last several years. A pair of late 2016 studies indicated that Japanese consumers, despite being digitally enthused, vastly preferred to make their payments in cash, with 70 percent of consumers across demographic groups reflecting that preference. And insofar as they shopped online, cards (credit and debit) were preferred by nearly three-quarters of respondents. Mobile wallets register — with a little over 3 percent of consumers reporting use, decisively beaten out by cash-on-delivery ordering (12.5 percent) and paying for orders with cash in convenience stores (17.5 percent).
In the intervening several years, several forces, most notably the Japanese government, have actively pushed to get the nation off its cash addiction — and into digital payments. Included in Japan’s cashless by 2027 plan is doubling the ratio of card and e-money transactions from there within the next eight years in the eventual hopes of building what Prime Minister Shinzo Abe has called a “$1tn-plus cashless market.”
But will Japan get over the cashless finish line on time? That is a somewhat more complicated question. There have been some great leaps forward in the last few weeks and signs all year that mobile payments is beginning to finally pick up steam in the market that invented the technology that enables it. However, there have also been some significant steps back — particularly when it comes to securing a trillion-dollar switchover to cashless.
PayPay And Signs Of Mobile Acceleration
Mobile payments in Japan recent captured headlines with the announcement by Indian mobile payment firm Paytm that its Japanese extension PayPay has managed to capture about 10 million consumers in the market a little more than six months after the service was first offered last October. Vijay Shekhar Sharma, founder and CEO of Paytm also confirmed that PayPay has support from around 1 million Japanese merchants and has clocked over 100 million transactions to date in the nation.
To get users on to the platform, it has adopted a points-based rewards system, as well as cash incentives to users who download the app and authenticate a Japanese phone number. People using PayPay get a 20 percent rebate for payments using a bank account, 19 percent with a Yahoo! credit card and 10 percent with other types of credit cards.
To bring merchants onboard, the app is also waiving fees for sellers and establishments until the end of September 2021.
PayPay’s recent milestone indicates that it is adding users quickly — earlier in July, the mobile service reported 8 million registered users, so it’s added about 2 million users in six weeks.
In a statement, PayPay noted of the milestone that it was an impetus to continue to drive forward “to create a society where people can buy anything through cashless payments in every corner of the country with a safe and secure service.”
And while PayPay has dominated the mobile payments headlines this week — the news is of a pattern with roughly the last years’ worth of reports out of Japan — and players from around the world have been pushing into the market trying to claim still mostly green field. While Paytm entered the mobile payments fray loudly last October — Amazon Pay slid in more quietly and has been slowly but surely gaining ground in the market, particularly in eCommerce transactions.
"There are so many payment services in Japan, and we really didn't know which one to use," said an owner of a central Tokyo cafe that has introduced the Amazon Pay service told Nikkei Asian Review. "Amazon is a world-renowned company, and our customers will feel comfortable using the service."
In late May, China-based Alipay also reported a massive upsurge in Japanese business — a combination of local downloads and use by Chinese consumers traveling to Japan.
Alipay reports its recent expansion into the Japanese market has seen a six-fold surge in retail adoption with more than 300,000 merchants there now accepting the mobile payment app. That is up from about 50,000 merchants in spring of 2018.
“Alipay has been driving technology support to our nine e-wallet partners to enhance their cross-border payment capabilities, and hopefully to bring more Asian customers to Japan to continue to revitalize the local economy," Eric Jing, chairman and chief executive officer of Ant Financial, said in the release.
There is also local mobile payments force — Line — and instant messaging app with a payments platform designed to imitate the WeChat model of offering increasingly sophisticated mobile and digital payments capabilities. Line to date has about 80 million users of its chat services, and about 32 million of its payments services, though it has spent much of 2019 aggressively spending to boost that proposition Earlier this year, it announced a ¥30 billion ($282 million) reward campaign to boost usage — incorporating richer rewards and points offering a la PayPay.
There is a host of players entering — and some are even showing signs of growth.
But a problem remains in Japan — and one that is proving incredibly difficult to surmount, despite a tremendous amount of government and private industry support to do so.
And that problem is cash.
Cash’s Stubborn Reign As King
When studied three years ago, the biggest problem mobile and digital payments expansion faced in Japan was cash. Flash forward three years — and the problem remains remarkably unmoved. Nearly seven in 10 transactions in Japan remain in cash.
And mobile wallet penetration remains notably low. Of the seven leading smartphone-based payment systems (Rakuten Pay, PayPal, Apple Pay, Line Pay, Google Pay, Amazon Pay and Origami Pay) none have a market penetration of more than about 5 percent — though Rakuten Pay is approaching that point.
“We’re not really at the stage of worrying about our competitors,” says Shigenobu Kobayashi, executive officer at Rakuten Payment told the Financial Times. “Our biggest enemy is cash. Despite the plethora of other payment options out there, cash remains dominant and that’s an endless challenge for us.
Cash is king for consumers — somewhat by choice but by circumstance since places where one might expect at least some digital payment options like supermarkets and medical clinics are more often than not cash only.
Moreover, for all the steps forward mobile payments as made in 2019 there have also been some pretty notable steps back. Earlier this summer 7Pay attempted to launch as a cashless payment system to connect Japan’s roughly 21,000 stores to its network of 1.5 million app users. The launch was highly anticipated — which made that fact that it was brought down in flames by hackers a few hours after launch particularly disappointing.
Moreover, Line Pay CEO Youngsu Ko note, mobile payments that merely work as well as cash and can only claim to be just as secure as cash don’t offer enough to consumers who already prefer it strongly.
“Line Pay needs to ensure the security, reliability and familiarity that cash offers, but we also need to offer something [more],” Ko says. “If we want to change the user experience that’s based on cash, we have to continue offering benefits until people feel Line Pay is better than cash.”
Today consumers aren’t there — though more are coming on board — they still prefer cash. But the competition to woo them — and reward them for being wooed — is getting more crowded than it has ever been, particularly as more global players are rushing to enter the fray.
It remains to be seen if it will be enough to bear out the Japanese government’s fervent hope that the population of one of the most cash-loving nations will be ready to leave it behind nearly entirely in the next 8 years.