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I was in a meeting earlier in the week where someone said that even with ApplePay, the US is far behind Japan in mobile payments, so I thought I’d do a quick update on Japan which, as for the US, we label a “special case” in our analysis of the market: we can learn from it, but it doesn’t tell us anything about how other markets might develop. As it happens, the Japanese market has just taken an odd turn.

Yeah, so ApplePay. As more than one person has observed, it’s been around for a while in Japan (it’s also been around for a while in the US, but no-one used it). Now, as I’ve written before, one of the difference between Japan (and Korea) and Europe was that mobile contactless was driven by operators who have market power that it is quite different to the European operators. They had their own contactless standard (the Sony “Type C”) and their own products (such as EDY). But things have been changing there and it’s not all about the operators any more. Banks have been active as well.

Banking group Sumitomo Mitsui is to introduce an NFC payments service this month that will be available through all three Japanese mobile network operators — NTT Docomo, Softbank and KDDI — and will work with a total of 31 NFC phones available from the three carriers.

[From Sumitomo Mitsui to launch NFC payments in Japan • NFC World]

The schemes have also been keen to see Japan move away from its proprietary contactless products and into NFC-based interoperable products.

MasterCard Inc. ( MA ) will soon introduce a contemporary mobile wallet service in Japan, which is based on near-field communication (NFC). The company will launch this service by integrating its next generation digital service – PayPass – with DNP’s mobile wallet and C-SAM’s secure turnkey mobile transaction software technology services.

[From MasterCard Intros NFC Mobile Wallet in Japan – Analyst Blog – NASDAQ.com]

Not that this will be easy. For one thing, in many environments it is mass transit that drives the use of contactless and it will take a lot of time and money to convert the mass transit systems.

“We think this is the beginning of NFC in Japan, but we feel it is difficult to establish the standard of NFC payment service in Japan,” the bank added.

[From Sumitomo Mitsui to launch NFC payments in Japan • NFC World]

When it comes to payments, it is fair to observe that the use of mobile contactless has been limited and the reality of the Japanese mass market (as I wrote three years ago) isn’t quite what you might imagine from the technology press. Many consumers who have mobile contactless don’t use it, preferring to use their contactless cards because the cards are connected with loyalty schemes. Points mean prizes, as we all know.

Overall, though, Japan remains a society oddly dominated by cash and the use of electronic money isn’t what you might think. However, this situation has been changing and not because of the migration to NFC. In fact, it’s an interesting case study of how the factors around e-money adoption are so much wider than technology. This spring, something rather unusual happened to tilt the balance away from cash.

With sales tax going up from 5% to 8% in April, although currently all train tickets are rounded to the nearest 10 yen, some transport operators are planning on increasing fares by exactly 3% (actually by 2.857%, but you know what I mean!) then rounded to the nearest yen, but only for electronic cash users. As most of the ticket vending machines cannot handle one and five yen coins, for cash users the tax increase will be rounded up to the nearest ten yen.

[From Sales tax increase, electronic cash and railway fares | 世論 What Japan Thinks]

Bizarrely, the rise in the sales tax also meant an increased demand for the smallest denomination coins that are the biggest waste of money.

As Japan’s coins come in ¥1, ¥5, ¥10, ¥50, ¥100 and ¥500 denominations, economics professor from Seijo University in Tokyo Masao Nakata said, manufacturing more coins is the solution for a possible shortage that comes with an increased tax

[From More ¥1 coins minted for first time in 4 years for Japan’s sales tax hike – The Japan Daily Press]

However, it looks as if consumers got fed up with these small denomination coins quite quickly and this dislike, combined with the increasingly sophisticated loyalty schemes and couponing, has led to a fairly sharp rise in e-money use.

Electronic money is being used more and more often since the consumption tax hike in April, as consumers seek to reduce the amount of small coins in their wallets and take advantage of point services.

[From Convenience, points fuel spread of e-money in Japan, AsiaOne Asia News]

The main e-money schemes have all seen big increases and Nanaco, in particular, has seen substantial growth by building on the consumer desire to get rid of coins by incentivising contactless use directly. Their consumers get points for using the contactless prepaid cards at Seven-Eleven and other stores in the group.

Nanaco, an e-money system operated by Seven & i Holdings Co., was used about 347 million times from April to June this year, an enormous 48.9 per cent increase from the same period in 2013..

[From Convenience, points fuel spread of e-money in Japan, AsiaOne Asia News]

These are big rises, not the odd few percent here and there.

The Aeon group saw the number of times its WAON e-money system was used rise 26 per cent in the April-June quarter

[From Convenience, points fuel spread of e-money in Japan, AsiaOne Asia News]

What NFC may do is move the Japanese market beyond mass transit and convenience stores and some of the banks and mobile operators may be able to exploit wholly new markets, new markets that might well be different from the markets that similar organisations are looking at in, for example, Europe. Games maybe?

Nintendo’s Wii U video game console, which has a Near Field Communication reader built into its controller, is finally putting that technology to use to accept payment cards

[From Nintendo Enables Contactless Card Payments on Wii U in Japan|PaymentsSource]

This is hardly new. Seven years ago I wrote that “you can now tap your contactless prepaid Suica on your console in order to pay for content” and thought it was an interesting opportunity for consumer electronics people in the UK to take advantage of, what with the banks planning to roll out gazillions of contactless cards and all that. We went off to speak to some set-top box companies, some contents companies and some specialist acquirers (in gaming, I think, but my memory is hazy)..

Sony is rolling out a USB contactless interface for the Playstation 3 so that Japanese consumers can pay for online games with their EDY cards and, of course, their Felica-equipped mobile phones.

[From It’s the PayStation 3! – Tomorrow’s Transactions]

Safe to say we couldn’t get arrested going on about NFC payments for online content. Japan may not have got the content guys attention, but I’m pretty sure ApplePay will do. More on this anon.

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