Even though there were nearly 800 million credit and debit cards in circulation in Japan at the end of 2007, making it one of the top countries in payment card penetration, usage of these cards is quite low. A new report from Maynard, Mass.-based Mercator Advisory Group shows that Japan is still a cash-centric society, making it an untapped market for electronic payments. However, contactless could change all that.
While Japanese residents on average have 6.2 credit or debit cards per person, higher than their peers in most card markets around the world including the U.S. with 3.6 cards, an average Japanese resident spent just $30 on their credit and debit cards in 2007 while the number was close to $180 in the U.S.
The Mercator report attributes this low card usage to several factors, including culture, industry infrastructure, card acceptance and regulatory environment. For Japanese consumers, however, the reason could be as simple as this: it doesn’t provide enough value in terms of service quality, convenience and flexibility for consumers to change their cash preference.
As a result, despite the credit card’s relatively healthy growth in the past five years, it still has a long way to go in terms of becoming Japanese consumer’s preferred payment method at POS, says the report. As for debit cards, the market struggled in the past three years after the initial high-speed growth in the first several years after it was officially introduced in 2000.
The emergence of electronic money, namely payment cards and devices powered by a contactless chip, could change all this, the report notes. Backed by prepaid card accounts as well as credit card accounts, e-money services, have become the most popular payment method at the point of sales, besides cash.
“The e-money services will be key to tomorrow’s Japan payment card market,” said Terry Xie, director of Mercator’s International Advisory Service and principal analyst on the report. “For the first time in the history of Japan’s payment card market, electronic payment methods have become a really viable alternative to cash for payment at the POS with its unprecedented level of convenience and flexibility. It is the critical market for not just prepaid cards but also credit and debit card industries in Japan, especially for debit cards. Unless the debit card industry figures out a way to get a piece of the fast growing e-money market, their current struggles will continue.”
This most recent report from Mercator provides an update of the Japan credit card market since 2002, the last year such a study was done. Issues discussed in the latest report include market growth, profitability, changes in regulation, competitive landscape, recent restructuring, and consolidation activities, plus increasingly active international players.