Despite a high level of card
penetration, and sophisticated technological innovation, Japan’s
consumers are notoriously reticent when it comes to actual card
usage and spending. However, e-money usage is growing strongly, and
mobile payment launches have acted as a template for the rest of
the world, as John Hill

Japan is an enigma in the card world.
It has a high level of card penetration yet at the same time is
still a predominantly cash-based society. Despite fairly infrequent
usage of cards by consumers, most have around five or six different
credit cards in their wallet.

As well as the large number of cards per
person, there is also a high level of adoption for some of the new
payment methods, including mobile and mobile contactless
propositions, especially among the youth market.

As mentioned, cash is the dominant payment
method, with cash usage as a percentage of GDP in Japan being far
in excess of similar developed countries. Looking at the figures
from 2002-2006, Japan had around 16 percent cash to GDP ratio,
compared to a eurozone and US average of around 6 percent.

To give some idea of the disparity between
cash in circulation and electronic payments, at the end of March
2009 the value of electronic money outstanding was 2.02 percent of
the total value of coins in circulation, 0.12 percent of the total
value of bank notes in circulation, and 0.11 percent of the total
value of cash (coins and bank notes) in circulation.

This was also about 0.009 percent of the total
value of money stock outstanding, which includes deposit money at
private banks. These figures show the amount of e-money compared to
actual cash is still very small, as you would expect, and while it
is certainly growing at a healthy rate, its overall impact on the
payment system remains fairly moderate.

The penetration of credit cards within the
country is one of the highest in the world. According to payment
consultants Mercator Advisory Group, during the past five years
Japanese issuers have continued to put more cards into the hands of
consumers. In 2007, a Japanese resident had more than six credit or
debit cards on average, up from four cards five years earlier. This
makes Japan the world leader in terms of credit card and debit card
penetration, even more than the 3.6 cards in the US in 2007.

Actual usage on these cards for payments has
been relatively low, with less than 30 transactions a year on
credit/debit cards in 2007.

Even though this represents a 60 percent
growth from five years earlier, compared to 179 card transactions
made by a US resident in 2007 on average, it is still relatively
miniscule. Japan also lags far behind the US in terms of the
average value of card transactions made by a consumer in 2007.

Low average spending

Mercator also notes that in 2007,
Japanese consumers used payment cards (including credit, debit,
prepaid, and charge) to pay for ¥42.5 trillion ($472 billion) worth
of goods and services, up 60 percent from ¥26.3 trillion in 2002.
According to Mercator, an average Japanese resident spent only
around $30 on their credit and debit cards in 2007, while in the US
the number was closer to $180.

Officially launched in 2000, Japan’s debit
scheme J-Debit is still in its relative infancy. According to
Mercator, at the end of 2007 there were only 300,000 POS terminals
in Japan that accepted J-Debit cards, while credit cards were
accepted by more than 1.3 million POS terminals.

What this may mean is that while the J-Debit
scheme is adopted at larger merchants, and is used mainly for large
ticket items, it will eventually trickle down to large scale usage
as consumers and retailers see the possibilities for further
adoption of the technology.

During 2008, the total number of cards and
mobile phones with electronic money functionality continued to
increase. After reaching 100 million cards in January 2009, the
market recorded 105.03 million at the end of March 2009 (a
year-on-year increase of 30.3 percent). Of this total, the number
of mobile phones with electronic money functionality, after
reaching 10 million in June 2008, was 12.05 million at the end of
March 2009.

The role of e-money

The number of e-money terminals
installed at retail stores and other similar locations grew and
exceeded 480,000 at the end of March 2009.

One of the stand-out features of 2008 was that
retailer companies, which initially focused on the use of their
proprietary electronic money services within their group companies,
started to promote their use outside their group. Another factor
came in October 2008, when the vending machine industry started to
install vending machines that accept multiple brands of electronic

In 2008, the total volume and value of
transactions settled using electronic money recorded 1.116 billion
transactions and ¥817.2 billion, respectively, both increasing by
about 40 percent (37.8 percent in volume and 45 percent in value)
from the previous fiscal year.

In 2008, the annual total transaction value of
electronic money exceeded that of debit cards for the first time.
This reflected a much faster rate of growth in the transaction
volume of electronic money compared with that of debit cards.

The average value per transaction was ¥732 in
2008, somewhat larger than in the previous year (an annual increase
of 5.2 percent). Two major factors affected the average value
during the year. The first was that from July 2008, many electronic
money service providers ceased providing services for bill payment
at convenience stores, the average value of which was relatively
large, and the second factor was a growing number of merchant
outlets accepting electronic money, notably those of mass

As a result of these, the pace of increase in
the average value per transaction temporarily slowed markedly in
July, but then started to accelerate again, with the effects of the
second factor more than offsetting those of the first one.

As a consequence of low card usage rates,
issuers tend to see scale as necessary to generate a decent profit
in the cards business. Moreover, around 90 percent of Japanese
credit card accounts are non-revolving, paid in full every month
via automatic debit from bank accounts. For this reason, it has
been suggested that the potential in Japan is not so much in the
number of cards but in the ways cards are used, with issuers
placing more emphasis on card activation initiatives and better
consumer education.

Regulation and innovation

In December 2006, the National Diet
of Japan enacted legislation revising the Money Lending Business
(MLB) Law. The revisions to the law have had a major impact on
Japan’s consumer finance business by reducing profits and
triggering consolidation. The main provision of the MLB Law lowers
the allowable interest rate on uncollaterised consumer loans to a
maximum of 20 percent. The bill also sets a limit on the total
amount of outstanding debt a consumer can carry, raises market
entry requirements for financial institutions, and establishes a
designated credit bureau for consumer lenders.

Prior to the passage of the legislation, Japan
had two laws restricting consumer loan interest rates: the Interest
Rate Restriction Law of 1954 set lending rates based on the size of
the loan, with a maximum rate of 20 percent. The Investment Deposit
Interest Rate Law, last amended in 2000, capped interest rates on
consumer loans at 29.2 percent on the condition that any rate
exceeding 20 percent requires the written consent of the borrower.
Most Japanese consumer finance companies have been operating in
this “grey zone” of interest rates, charging rates between 20 and
29.2 percent.

As for credit cards, a new type of service
using contactless chip cards, which does not require authorisation
by signature or PIN and thus enables users to make payments
quickly, has become widely available in recent years. The total
number of users of contactless credit cards, or the number of such
cards issued, is estimated, using data published by credit card
providers, to be more than 15 million.

The number of terminals that accept this type
of payment instrument is estimated to be 600,000, exceeding the
number of terminals that accept electronic money. It has been
suggested contactless credit cards are increasingly used for a
broader range of payments, including for smaller-value payments.
However, detailed data on actual usage are not made available, and
it is unclear to what extent these cards have penetrated the retail
payment market.

ATM numbers in the country have grown steadily
for the last few years, with numbers rising from 136,280 in 2005 to
138,360 in 2007. ATMs are also used slightly differently in Japan
to how you would expect. Many ATMs will not accept foreign cards,
although the Post Office network ATMs will accept major schemes
like Visa and MasterCard to withdraw cash.

In terms of mobile payments, Japan has been a
long way ahead of most other countries for some time now. The
reasons for this are three-fold; firstly some of the largest
electronics and telecoms companies in Japan are actively promoting
the technology at all levels, with the likes of Sony and Japanese
mobile operator DoCoMo having invested tens of million of dollars
to make sure that retailers and points of sale had the technology
to read the chip sets embedded in mobile devices.

Secondly, the loosening of Japan’s financial
regulations allowing non-banks to become financial services players
has opened up the market drastically, while also increasing
competition. Finally the mobile providers themselves instituting
the technology across their handsets has driven adoption of mobile

As with its broader mobile phone industry,
Japan has to some degree fielded a proprietary, closed standard
mobile payments model. While Sony’s FeliCa contactless integrated
circuit chip technology underpins the buyer and seller devices, the
different electronic money (digital cash) systems such as Suica,
Edy, and Nanaco are not interoperable, requiring merchants to
deploy proprietary POS reader terminals to accept the different
electronic money systems. Some convenience stores and retail
merchants have as many as four reader terminals at check-outs to
support the various types of electronic money customers may


Sumitomo Mitsui

Sumitomo Mitsui Financial Group
(SMFG) is the second-largest card issuer by number of cardholders
in Japan.

It established a two-company system by merging
Central Finance, OMC Card, and QUOQ in April 2009 to form Cedyna
Financial to operate along with Sumitomo Mitsui Card. Along with
Sumitomo Mitsui Card, the new company is one of Japan’s largest
credit card companies. With the establishment of this two-company
system, SMFG said it would concentrate its credit card business on
Cedyna Financial and Sumitomo Mitsui Card.

As well as this, in May 2009, Sumitomo Mitsui
Banking Corporation (SMBC) and ORIX Corporation reached an
agreement concerning the joint business development of ORIX Credit
Corporation, which became a consolidated subsidiary of SMBC in
July. According to SMBC the alliance will enable them to capture a
larger share of the Japanese consumer finance market, making their
consumer finance operations more efficient and responsive to the
financing needs of creditworthy consumers. At the end of 2009,
Sumitomo had ¥490 billion of unsecured card loans compared to ¥440
billion the previous year

SMBC expanded services available on the SMBC
settlement platform by issuing SMBC CARD Suica starting in October
2008 under its business alliance with East Japan Railway Company
(JR East). The new card incorporates the JR East Suica electronic
money and automatic charging services.

In addition, the iD* credit service, which is
based on a strategic alliance between SMFG and NTT DoCoMo,
continues to grow. As of 31 March 2009, about 11.2 million
individuals had subscribed and there were about 410,000 terminals
installed on the premises of affiliated merchants.


JCB is the fourth-largest payment
network in the world after Visa, MasterCard and American express.
Based in Tokyo, JCB was founded in 1961, and established dominance
over the Japanese credit card market when it purchased Osaka Credit
Bureau in 1968. JCB cards are now accepted by 11 million merchants
in 189 countries, and are commonly accepted at hotels and upscale
shopping outlets in major cities around the world.

JCB also operates a network of membership
lounges targeting Japanese, Chinese, and Korean travellers in
Europe, Asia, and North America.

In addition, in 2006, JCB announced a
partnership with Discover Network. The two companies signed a
long-term agreement for the acceptance of Discover Network cards at
JCB payment terminals in Japan and JCB cards at Discover Network in
the US. This association became fully operational in 2008.

Mitsubishi UFJ

Mitsubishi UFJ Nicos issues credit
cards under the MUFG, NICOS, UFJ and DC brands, and provides a
broad range of credit card and other related services for its card
members in Japan.

Mitsubishi UFJ NICOS is a consolidated
subsidiary of MUFG. Mitsubishi UFJ NICOS was formed through the
merger, in April 2007, of UFJ NICOS and DC Card. As the surviving
entity, UFJ NICOS was renamed Mitsubishi UFJ NICOS.

In October 2004, BTMU (Bank of
Tokyo-Mitsubishi UFJ, a subsidiary of MUFG) began to issue
multi-functional IC cards, which combine ATM card, credit card and
electronic money functions.

BTMU has been offering an alliance credit card
which is an integrated IC commuter pass compatible with the
ticketing systems of Japanese railway companies, including JR East
since February 2007; Kintetsu Corporation since February 2008; and
Tokyu Corporation since April 2009.

In July 2008, BTMU acquired 49.37 percent of
the issued shares of JALCARD, a wholly owned subsidiary of Japan
Airlines International.

As a result, JALCARD became an equity method
affiliate of MUFG and BTMU. According to BTMU they aim to improve
their profitability and customer services by capitalising on the
broader customer base, jointly developed products and services, and
the brands of MUFG and the Japan Airlines group.

They have also said they are currently
planning to introduce a jointly developed programme through which
their customers who apply for a JALCARD, a frequent flyer programme
membership card with the functionality of a credit card, will be
entitled to preferential terms and services.

Credit Saison

Credit Saison, or Saison, is Japan’s
fourth-largest card issuer by number of cards, with around 80
percent of Credit Saison’s operating revenues derived from its
credit service business.

The credit service segment consists of the
credit card-related and servicing (loan collection agency)
businesses. It has two brands, SAISON and UC, and a combined
customer base, including processing agency service customers, of 34
million as of March 2009. The number of active cardholders during
the year was 18 million.

Despite a downturn in consumer spending,
especially purchases of big-ticket items in department stores,
Saison’s core credit service business benefited from the expanding
use of cards for regular payments, such as public utility bills and
mobile telephone charges. Meanwhile, use of cash advance services
slowed because of deteriorating economic conditions and the impact
of the amended Money Lending Business Law.

As of March 2009, Credit Saison had 27.57
million cardholders, a year-on-year increase of 6 percent. The card
shopping transaction volume was 3.5 percent higher year on year at
¥3.8 trillion, but the cash advance transaction volume declined to
¥765.3 billion, or 91.5 percent of the level a year earlier.

In 2008, it issued 2.52 million new cards.
Cards that showed substantial increases in cardholder numbers
included the Mizuho Mileage Club Card and the Yamada LABI Card,
which are issued in partnership with the Mizuho Bank and Yamada
Denki, respectively.

To improve efficiency, Saison spun off its
card-related administrative processing operations and merged them
with Qubitous. It also provides services to cardholders through the
Eikyu website which now generates a transaction volume
of ¥20 billion and income of ¥1 billion annually.


In January 2006, Mizuho Bank merged
its credit card operations with those of Credit Saison to jointly
establish a third-party credit card processing company.

Mizuho’s UC Card focuses on the acquiring
business; Credit Saison targets the card issuance side while
leveraging Mizuho’s card marketing and distribution network. In
October 2006, UC Card transferred part of its business to Credit

Mizuho has also linked with retailing giant
Aeon and railway company JR East for credit card processing. Also,
in all ATM installations, Mizuho has added ATMs with biometric
identification IC card features, bringing the total number to about
2,500 units.

According to Mizuho through its strategic
tie-up with Credit Saison, UC Card has built the strongest business
structure in the credit card sector by becoming the first company
in Japan to specialise in both the management business of
affiliated merchants and the processing business, offering highly
convenient and innovative services.