Although cash remains the dominant
payment method in Japan, debit and credit card use continues to
grow, driven by increasing acceptance and a competitive
marketplace. Coupled with new e-payment systems, the cards market
in this innovative country looks set for change. Sarah
Williams reports.

Although there are many credit cards in circulation in Japan, they
have typically been used as a convenient means of payment rather
than a source of credit. However, various new electronic payment
methods are being piloted, including mobile payments and a number
of contactless systems. If these are adopted with enthusiasm by
Japanese consumers, they offer huge scope for changing payment
patterns in the country.

Cash is the dominant payment method: transactions are worth an
estimated ¥160 trillion ($1.4 trillion) annually, compared with
around ¥38.86 trillion for credit cards and around ¥1 trillion for
debit cards. One reason for the continued high use of cash and the
correspondingly low use of credit cards is that there is a highly
advanced ATM/account transfer system.

Debit cards

Debit card use has been fairly low and the value of spending on
debit cards in Japan is significantly lower than that for credit
cards: total spending on debit was around ¥900 billion in fiscal
year 2006. Despite this, debit cards continue to grow in
popularity, albeit from a low base. (See Figure 1.)

According to the Japan Electronic Payment Promotion Organisation,
the number of stores accepting debit cards has increased,
surpassing 250,000 nationwide as of August 2006, up 150 percent
from six years previously. Cardholders can now use debit cards for
purchases at major department stores and home appliance retailers,
and to pay hospital expenses and taxi fares.

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Japanese retailers are offering better benefits to debit
cardholders. Some electronics chain stores, for instance, give
debit cardholders the same reward points as those who pay by cash,
a privilege denied to credit cardholders. This has prompted more
consumers to opt for debit cards when buying expensive products
such as digital cameras and flat-screen televisions.

Retailers pay commissions to the issuing institutions of 1 to 2
percent on each purchase made using a debit card; these rates are
lower than those for credit card purchases. Another advantage for
retailers is that they receive payments immediately. Financial
institutions, for their part, can secure a stable income from
account settlement services via the cards they issue.


Credit cards

According to Japan Consumer Credit Industry Association statistics,
by the end of 2006 there were around 273 million credit cards in
issue. This was made up of 122 million bank-issued cards, 57
million cards issued by shinpan (consumer finance) companies, 83
million cards issued by retailers and 11 million cards issued by

Although the issuance of credit cards is high, their use is lower
than in some other developed countries. Credit card payments as a
percentage of total expenditure is around 10 percent – this
compares with 20 percent in the US and 55 percent in South

The total value of retail transactions settled with a credit card
in fiscal year 2006 (ie, the 12-month period ending 31 March 2007)
was ¥38.86 trillion, marking a 12.5 percent rise on fiscal year
2005. (See Figure 2.) This is being driven by rising credit card
acceptance: for example, credit cards can now be used to pay public
utility fees and highway tolls. Also, e-money has become more
popular, with shoppers using credit cards to make low-value
transactions at convenience stores (in addition to using prepaid
cards in a similar way).



As a consequence of low card use 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. Earlier this year, Ridha Wirakusumah,
Asia-Pacific regional business head for consumer finance group AIG,
noted: “In my view, Japan is interesting on the credit card side…
There is still some growth – not so much on cards but the change in
behaviour from charge cards to credit cards.”

Issuers in Japan are looking for ways to boost profitability.
According to Koichi Niwa, an analyst with investment bank
Mitsubishi UFJ Securities: “Credit card shopping offers lower
margins than other consumer credit businesses. Also, the waiving of
annual membership fees is becoming more common.”

Moreover, in an attempt to expand their market share, some credit
card companies have started to discount affiliated store

So how profitable is credit card issuing in the country? Under a
new business plan announced in September 2007, card issuer
Mitsubishi UFJ Nicos aims to earn an operating profit margin of 10
percent for its credit card subsidiary of the same name, up from
4.8 percent for fiscal year 2006. This compares with the operating
profit margin of around 4 to 6 percent at the credit card units of
consumer credit companies such as Orient and Central Finance. By
contrast, the profit margin at card issuers Credit Saison and Aeon
Credit Service is more along the lines of 20 percent.

One way in which credit card companies are trying to boost
profitability is to remove inactive cardholders from their
membership ranks. Other steps include scaling down unprofitable
card operations with other firms and introducing annual fees.
Similarly, of its 11 million cardholders under review, Orient aims
to cut 2 million infrequent users from its ranks over the next
three years. As the company’s president, Yoshimasa Nishida, has
commented: “It is important to increase the number of cards in use,
and we don’t mind if the total number of issued cards falls as a

Credit Saison has reduced the number of companies with which it
jointly runs card operations to around 200 from 220 at the time of
its merger with card issuer UC Card last year. The company
continues to renegotiate business terms with 30 percent of the
companies with which it has joint operations. In a similar vein,
card issuer Sony Finance has started charging its cardholders a
¥2,100 annual fee. If customers have used their cards at least once
in the previous year, they do not have to pay the annual fee, and
Sony Finance is hoping to reduce the number of people who do not
use their cards while simultaneously boosting card use rates.


Loyalty schemes

One way in which credit card issuers in Japan have sought to
compete with each other is by making their loyalty schemes more
generous and convenient to cardholders. These loyalty schemes are
often part of wider schemes tied to bank accounts, mortgages and
other financial products.

In October 2007, for example, Japan NetBank announced that in
future points earned by customers from shopping and other
activities at Yahoo Japan websites would be converted into cash and
deposited into accounts at the online bank. Another example is that
of Mizuho Bank, which has recently relaxed rules governing points
earned from purchases made with its cash card, which also functions
as a credit card. From this fiscal year, customers can earn one
point for every ¥1,000 spent (up from one point per ¥2,000).
Customers who earn 100 points can have interest rates on time
deposits of ¥1 million increased by 0.1 point, or have rates on
mortgages trimmed by 0.1 point.

Future growth

In terms of future use of credit cards, further growth seems likely
as the Japanese government is actively encouraging credit card
payments for services. For example, credit cardholders can now pay
their utility bills, medical fees and even taxes in this way. By
2008, cardholders will also be able to pay their national pension
premiums through a credit card.

The Ministry of Health, Labour and Welfare believes that allowing
card-based payments for national pension premiums will improve the
payment rate as young workers seek reward points from increased
card use. Currently, one-third of the people required to contribute
to the national pension plan are not making any payments.


In the 12-month period ending 30 September 2007, the number of
people using electronic money rose 89 percent to reach 75.3
million. Two types of e-money are currently available in the
country. The first (and by far the most prevalent) is prepaid
services that require initial deposits; the second is credit
card-like services in which the purchase amounts are withdrawn
directly from users’ bank accounts.

One reason why use of e-money has grown so quickly is that
non-financial companies have been entering the market. The cash
settlement market in Japan is estimated at around ¥160 trillion and
there are many players keen to get a share. While credit card and
debit card transactions are controlled by the banks, in the case of
electronic money it is the industries that control social
infrastructure such as transit systems that are taking a lead. As
of March 2007, for example, customers have been able to
interchangeably use the Suica prepaid electronic money card of East
Japan Railway (JR East) and the Kanto regional Pasmo transit card
for private railways and buses. Cardholders can use their Pasmo
transit cards at stores that are partnered with Suica. As of early
2007, some 18.5 million Suica cards had been issued and it is
predicted predict that more than 30 million will be in use within
five years when combined with Pasmo. The number of Pasmo
cardholders rose to 5 million by October 2007.

Mobile payments are also growing rapidly in popularity as a direct
rival to credit cards. An increasing number of people are paying
for purchases by using mobile phones like credit cards. In the 12
months ending 30 June 2007, the number of subscribers using this
kind of electronic settlement service rose 12-fold to reach 5.9

Competitive environment

One reason for the strong level of competition in the credit card
market in Japan is that many domestic banks have been hit fairly
hard by problematic corporate loans. As a result, many of the
largest banks have been shifting their focus to retail banking in
general and credit cards in particular.

In the past few years there has been considerable M&A activity.
Mitsubishi UFJ Financial Group, for example, is in discussion to
acquire a 20 percent stake in consumer credit company Jaccs,
largely to expand its retail banking business. Jaccs is primarily a
credit card issuer, with 9 million credit cards issued. A few
months ago, Sumitomo Mitsui, a major rival to Mitsubishi, acquired
a stake in credit card issuer OMC Card, which has 9 million

At the end of August 2007, Japan Airlines (JAL) announced that it
was planning to sell a 49 percent stake in JALCard, its wholly
owned credit card division, to repay ¥1.7 trillion in
interest-bearing debt. JALCard is the sixth-largest credit card
company by transaction volume in Japan. Major players such as
Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and
Credit Saison are participating in the sale through tender offer.
JAL intends to keep majority control.

Post Bank rattles status quo

Another development that is shaking up the credit market has been
the recent establishment of Japan Post Bank, which intends to issue
its own credit cards. This means other card companies that have
been previously allied to the Japanese post office will be winding
down their involvement. Japan Post Bank is in talks with Sumitomo
Mitsui Card and JCB to manage the risk management and customer
service functions for its new cards. More than 9 million postal
savings cash cards with credit functions have been issued. The
credit card companies earn interest on cashing services and fees
from stores accepting the joint cards. But Japan Post Bank,
launched in October as part of the postal privatisation process,
intends to issue its own cards, targeting fee and interest


Japanese news service Nikkei estimates that in fiscal year 2006,
Sumitomo Mitsui Card passed JCB to become the largest credit card
issuer in terms of transaction value. In addition to the top five
players indicated in Figure 3, other major card issuers include
Aeon Card Service, JALCard, Orient, Toyota Finance and Jaccs.

Store cards are taking market share from financial services card
issuers. Credit cards are most likely to be used in department
stores and supermarkets, and these venues account for more than 27
percent of total credit card payments.

Some foreign players are trying to win a share of the market. In
August 2007, for example, Bank of America announced that it intends
to expand its credit card business in Asia and that its first
project will be a credit card joint venture in Japan in 2008.

Global consumer finance company GE Money is also planning an
expansion of its current Japanese operations. GE already offers
credit cards, housing loans, consumer finance and insurance
services through its Tokyo-based GE Money Japan unit. However, in
May 2007 GE acquired a 97 percent stake in Sanyo Electric Credit
for $1.05 billion and plans to turn the Sanyo acquisition into a
subsidiary to expand its consumer finance and credit card


Sumitomo Mitsui Card

Nikkei estimates Sumitomo Mitsui Card’s market share to be 11.7
percent by transaction value, putting it on equal footing with JCB
on this basis. Its transaction volume has grown across a range of
areas, including at major department stores (Sumitomo has formed a
number of tie-ups) and the processing of public utility payments.
The growing popularity of its iD credit payment system via mobile
phone handsets, offered in co-operation with NTT DoCoMo, is also
contributing to increased transaction volume. In July 2007,
consumer finance company Central Finance became an affiliate of the
group, and Quoq, another consumer finance company, became a
consolidated subsidiary.

Sumitomo Mitsui Financial Group is buying a 31 percent stake in
credit card issuer OMC Card for ¥80 billion from retailer Daiei.
(Daiei is selling a part of its stake in OMC to reduce its debt
levels, but will still own 20 percent of OMC.) This is scheduled to
be formalised in February 2008. OMC has 9 million cardholders. When
all of Sumitomo Mitsui Financial Group’s credit card operations are
combined, it will have a total of 43 million cardholders.


The main card scheme in Japan is offered by JCB. Nikkei estimated
that in fiscal year 2006, JCB had an 11.7 percent market share in
terms of value of transactions handled via the credit cards issued
by JCB independently as well as in co-operation with tie-up
retailers. JCB has 58 million cardholders in Japan, making it the
largest issuer on this basis.

JCB recently indicated that it is intent on achieving growth in
international markets. Its new areas of focus will be Asian
countries, particularly China, and expansion into the Middle East
through a new joint venture.

Mitsubishi UFJ Nicos

UFJ Nicos was established in October 2005 through a merger of
Nippon Shinpan and UFJ Card. In April 2007, UFJ Nicos merged with
fifth-ranked DC Card to become Mitsubishi UFJ Nicos. Mitsubishi UFJ
Nicos has a 10.1 percent market share while DC Card has a 5.6
percent market share (giving total group market share of 15.7
percent). Jaccs is scheduled to become an affiliate in future. UFJ
Nicos managed to increase the handling value of transactions in
fiscal year 2006, due to increases in transactions made at
supermarkets, petrol stations and medical institutions.

In the spring of 2007, Central Finance ended its alliance with
Mitsubishi UFJ Financial Group and joined Sumitomo Mitsui Financial

Credit Saison

Consumer finance group Credit Saison has entered into a number of
business alliances and issues affinity cards with about 200
companies. The company views its sales network one of its greatest
strengths, centred on 12 branches and 174 Credit Saison counters
across the country.

In January 2006, the company merged its card operations with UC
Card’s (Mizuho – see below) credit card issuance business,
expanding its scale by becoming a credit card issuer with two major
brands: Saison and UC. As a result, the total number of cards
issued reached 24.91 million at fiscal year 2006 year-end. In
October 2007, Credit Saison, Mizuho Bank and UC Card established
Qubitous, a joint credit card processing company. Qubitous is owned
51 percent by Credit Saison and 49 percent by Mizuho Bank.

Mizuho Financial Group

Mizuho Financial Group is a major player through its UC Card
business, which has a strategic alliance with Credit Saison. 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.