[Dave Birch] I’ve been reading a report on “Recent Developments in Electronic Money in Japan” from the Payment & Settlement Systems Department of the Bank of Japan. (The report, from last October, says essentially that electronic money in Japan is small but growing quickly.) The reason I’d picked it up again though was because wanted to check on something I’d told one of our clients about the fall in coins in circulation in Japan because of e-money. I’d remembered correctly: the volume of small coins in circulation has been falling in absolute terms since 2003 and the fall has been accelerating in the last two years, the volume of all coins started falling in 2005, then grew slightly in 2006 but has been falling since. The fall is still only at the rate of 0.5% per annum, but it is a real and noticeable effect. E-money in circulation is Japan accounts for only 0.1% the total value of the notes and coins in circulation but it is already 2% of the value of coins in circulation, in an economy that is less plastic-oriented than, for instance, the UK.

Statistics from Nomura Research Institute show that the amount of electronic money transactions in fiscal 2007 reached 844.4 billion yen, about five times the previous year’s figure. In fiscal 2012, that amount is expected to balloon to 3.3 trillion yen. Most of the transactions are handled by railways, supermarkets and convenience stores, but e-money functionality is also starting to be added to student and company ID cards. As a result, the number of users looks likely to increase.

But in spite of the major growth of electronic money, the service is predominantly used for small transactions, with the total transaction amount reaching only about 2 percent of the figure for credit-card transactions.

[From E-money use growing rapidly in Japan – Mainichi Daily News]

Small, but growing. And not driven by, or under the control of, retail banks.

The Japanese market has many special characteristics that mean that it simply cannot be seen as a template for Western e-payment marketplaces, but nevertheless I think this presents clear evidence that there is something about the combination of contactless interfaces (for speed and convenience) and mobile phones (for functionality) that provides energy for a number of dynamic changes at the retail POS. One dynamic is the steady move toward interoperability and acceptance. A significant issue in the early days of Japanese e-money was consumer confusion in the face of proliferating schemes, brands and terminals. Over time, this problem has been addressed and retailers have begun to accept each other’s e-money.

Aeon and FamilyMart, Japan’s third-biggest convenience store chain, said on Wednesday that shoppers would be able to use Aeon’s smart money cards at FamilyMart stores in Japan from autumn of this year… Still a fraction of overall transactions, Japan’s smart money market has been expanding rapidly, as a growing number of stores and restaurants have been accepting cards of issuers such as East Japan Railway… [Nomura Research] said the market is likely to triple over the next five years.

[From Japan’s Aeon teams with FamilyMart in smart money | Industries | Consumer Goods & Retail | Reuters]

While this kind of deal may seem slightly odd in the UK, is it really so far fetched that retailers may begin to issue their own e-money and then begin to strike deals to cross-accept? I happened to be in a meeting recently discussing the decision by a retail group (not in Europe) to begin issuing their own contactless cards (combining prepaid and loyalty) because they didn’t want to use bank products — which, I am sorry to report, they considered expensive and inflexible for their purposes — and I did begin to think again about the potential for major chains to not only issue their own payments card or device, but their own currency.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. Calculating money by measuring the face value on issuance is like comparing a sports car and a truck by its mass, it misses the point. Money works, so it is necessary to calculate the sum of transactions, not the face. As in newtonian physics, multiply the velocity by the face.
    Unfortunately we don’t have good velocity figures. The numbers I know of are from e-gold, which sustained a velocity of around 5 to 10 days. This is around 5 to 10 times faster than central money which is generally around 40-50 days from memory. e-gold punched far above its weight, in its heyday of 2000.

  2. I think the notion of retailers issuing electronic money has always been on the table, but more as a threat than a reality. Back in the early 1990s, in the Netherlands, it was an implicit threat of ah, the major retailer, to say that if the banks don’t do a scheme, they will.
    For the most part, the European banks believed that all money is their business. They successfully got national laws and directives to keep others out for at least a decade, probably two. As I predicted in my (1996) paper _Critique on the 1994 EU Report on Prepaid Cards_, the European government(s) blocked the industry from digital cash, and nothing happened. For obvious reasons: banks don’t want it, at all, even if they are the only ones who are allowed.
    Now the European Union has seen the results of its error, and is trying to roll back things. See recent e-money directive, and earlier payments directive. However, government(s) are still trying to be “prudential” and to force a “single European market.” Neither of these things are appropriate, and the resulting prescriptions will slow down all entrants.
    It may be that retailers are big enough to overcome these barriers. But, and to take on the devil’s advocacy, why would retailers choose to enter this difficult, barrier-ridden area when the government(s) are not sending a clear signal of “open for business” ? It’s too risky, if the government(s) change their vague minds to back the banks, then the expensive experiment goes down the tubes.
    In my opinion, the European scene is left with crazy underfunded startups and foreign successful entrants (like Paypal, WebMoney, etc). If I was advising a retailer, I’d advise them to buy a successful one, not start their own. Much cheaper, much less risky.

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