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July 11, 2007

JCB aims to grow beyond Japan

Regarded as one of the most technologically innovative card players in the world, Japanese giant JCB has stepped outside its domestic market in order to expand abroad, but it faces renewed competition at home JCB, Japans home-grown international credit card brand, is facing strong competition in its domestic market as Japanese mega-banks shift their focus to retail banking and credit cards after trying to shake off their legacy of problematic corporate loans.

By Verdict Staff

Regarded as one of the most technologically innovative card players in the world, Japanese giant JCB has stepped outside its domestic market in order to expand abroad, but it faces renewed competition at home. Titien Ahmad reports.

JCB, Japan’s home-grown international credit card brand, is facing strong competition in its domestic market as Japanese mega-banks shift their focus to retail banking and credit cards after trying to shake off their legacy of problematic corporate loans.

Japanese bank Mitsubishi UFJ Financial Group 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. Sumitomo Mitsui, Mitsubishi’s banking rival, acquired a stake in credit card issuer OMC Card (which has 9 million cardholders) a few months ago.

Although there have been no signs of interest in domestic acquisitions from the JCB management, the company has been actively investing in international expansion through issuing deals with local banks in major markets. JCB was established in 1961 as the Japan Credit Bureau and started its internationalisation programme in 1981. Since its launch outside Japan in 1985, in Hong Kong, JCB now has over 59 million cardholders and is accepted in 190 countries and territories.

Growing numbers

JCB increased its merchant acceptance network to 14.1 million merchant locations  in 2006 from 12.4 million locations in 2005. It also increased its cardholder base to 59.1 million in 2006 from 55.1 million in 2005.

Initially, JCB focused on top US destinations for Japanese travellers such as Hawaii, the West Coast, New York City and Florida. In 2006, JCB launched a Discover Aloha Hawaii campaign to boost Japanese tourism to the island. Although the number of tourists declined during the promotion period, there was a 6 percent increase in sales and a 13 percent increase in transaction volume for JCB cards charged in Hawaii during the promotion period from April 2006 to January 2007.

The company is expanding beyond these traditional markets into emerging geographies such as the Middle East and China. The internationalisation strategy has also moved beyond servicing Japanese cardholders venturing abroad to target local cardholders with local partners.

The company will start issuing credit cards in the United Arab Emirates through a joint venture with financial services group Orix and Majid Al Futtaim (MAF) Group, a Dubai-based developer of shopping and entertainment outlets. JCB has a 10 percent stake in the venture and is aiming to issue 150,000 cards in five years. Based in Dubai, the venture will target cardholders from MAF Group’s 100 million customers at its shopping centres, hotels and movie theatres.

Since the beginning of this year, JCB has also stepped up its expansion in China. It has already launched cards together with Bank of China, Bank of Shanghai, Shanghai Pudong Development Bank, China Merchants Bank and China Everbright Bank.

According to JCB: “While in the past, the purpose of expanding the JCB brand network in China was mainly to enhance acceptance for JCB cardmembers travelling from Japan and other Asian countries, the rapid growth in the Chinese economy has driven demand for international credit card issuing, making the country one of the most important markets for JCB issuing. In recent years, JCB has been forming a number of new issuing partnerships to meet the needs of Chinese consumers.”

In December 2006, Bank of China launched a co-branded JCB card with a major household appliance retail chain in China. In February 2007, China Everbright Bank began offering co-branded JCB cards tied to a major fashion magazine publisher in the region.

The organisation has already expressed its intention to partner with an additional three to four local Chinese companies by the end of 2007 and is aiming for a 15 percent share of the market by 2010.

Contactless technology goes abroad

With Japan leading the world in technology innovations, JCB has also been able to leverage domestic cards and payments technology innovations in its expansion overseas.

In February, Visa and JCB announced a deal to share contactless terminals in the Asia-Pacific region: the first location to be announced was Taiwan. This will be JCB’s first overseas launch for contactless payment and the company believes that there is interest from card issuers in its J/Speedy payment application.

According to Tac Watanabe, senior vice-president of global infrastructure and technologies at JCB: “The agreement will provide new opportunities for the two payment systems to expand contactless merchant acceptance further and to increase the number of outlets where cardholders can use both Visa and JCB contactless cards.”

Cost and terminal interoperability have been touted as the key advantages of this agreement. Rahul Khosla, general manager products for Visa Asia-Pacific, said: “Merchants accepting Visa and JCB contactless cards will soon be able to minimise their investment in terminals. Vendors will be able to lower their production costs, speed up time to market and thus accelerate the pace at which the industry can implement interoperable contactless payment programmes.”

Visa’s Wave and JCB’s J/Speedy contactless payment solutions will be accepted by the same POS terminals in merchants such as Watsons, Blockbuster, RT-Mart, Taipei 101 and Breeze. Watanabe has made it clear that contactless will be the key factor to staying competitive and JCB does not want to compete with Visa on acceptance points.

Not so contactless at home

The co-operative stance might be due to the lesson that JCB has learned from its home market – there are eight competing contactless schemes in Japan and each safeguards its acceptance points. Even though one out of 2.2 people is estimated to be using a contactless payment application, none of the contactless cards or mobile wallets in Japan is run outside the country and a merchant would need to have different acceptance terminals to cater for the competing schemes.

NTT Docomo, the largest mobile telecommunications company, has 55,000 acceptance points and has been the most aggressive in signing up merchants such as McDonald’s. Not to be outdone, JCB signed a deal with 7-Eleven Japan, which has 12,000 outlets – the largest convenience store network in Japan.

This will boost its merchant network as JCB has not been as proactive in signing up merchants. NTT’s rival is also preloading JCB’s Quick  Pay contactless application on its wallet phones, which will help create a larger user base.

The multiple schemes and differing standards for each scheme has affected the adoption rate of smart cards among consumers who are wary of carrying a thick wallet of cards, or are confused as to whether they should be paying with their mobile phone or their contactless cards.

Not just serious technology

Beyond contactless, the company is also currently developing a number of new payment methods such as watches and mobile phones. Innovations have not been limited to serious technology.

JCB teamed up with Asian lingerie retailer Wacoal and Taiwan’s E.Sun Bank in 2004 to launch a card equipped with an ultraviolet sensor that measures the strength of ultraviolet exposure. They are targeting young Asian women who are particular about sun protection. In 2005, it launched the JCB Linda Sweet scented credit card which allows the creation of different fragrances for its issuers.

The track record of success of these card innovations has been patchy, but one JCB marketing initiative has had enormous success due to the popularity of a pair of cartoon cats. Hello Kitty and Dear Daniel, two mouthless cartoon cats first popularised in Japan, have also been marketed by JCB in its overseas deals.

Hello Kitty merchandise launches in Asia typically whip up a collecting frenzy. In Taiwan’s Makoto Bank, three in four of its Hello Kitty cardholders are women – acknowledged as more loyal bank customers than men. When it splashed the kitty on its credit cards and account books, more than 150,000 customers willingly forked out around $25 in annual fees in a market in which bank fees are non-existent in the market, and contributed to an increase of 5 percent in overall deposits. Queues outside the bank on the day of the launch prompted fears of a bank run.

Recently, JCB teamed up with China Merchants Bank (CMB) the mainland’s largest credit card issuer, to launch the JCB CMB Hello Kitty Fan credit card. The card is available in two designs – one appealing to traditional Chinese tastes and one featuring a more European look.

According to Kunio Yoshizawa, president and chief operating officer at JCB International: “We have been actively focusing on forming alliances to expand JCB card issuing in China, and are pleased and honoured to be launching business with China Merchants Bank, holder of the largest share of the credit card numbers issued in China in this vast potential market. We anticipate the launch of JCB CMB Hello Kitty Fan’s credit card will significantly increase the awareness of the JCB brand by Chinese consumers.”

Global rebranding

To support its global expansion, JCB announced its new brand slogan, ‘Good times start here’, in June 2007. The logo had been previously redesigned with redefined S shapes to promote a new brand personality focusing on softer values of ‘support, strength and sharing’ as opposed to the ‘sign, smart and safety’ used previously.

“Our new brand slogan and emblem are an important initiative for JCB as a global payment brand,” said Yo Imanishi, senior vice-president of marketing planning department and head of the new branding project at JCB. “With ongoing efforts to stay ahead of diversifying consumer needs and a rapidly changing market, JCB is committed to providing new products, services and solutions that will become the standards of the future, enhancing the value of the JCB brand even further.”

Focus on international expansion

JCB has earlier stated that it aims to expand its market share in Asia to at least 10 percent by 2010. Its recent senior appointments highlight those recruits with international banking experience, albeit with local Japanese banks, such as Sumitomo Mitsui Banking and Sanwa Bank.

As these institutions are not well known for their overseas expansion strategy, it will be interesting to see how the new management plans to bring JCB to the world beyond Japan.

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