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Electronic Money: Contactless Payment in Japan

Contactless payments in Japan are steadily increasing, with over 98.4 million payment devices currently in distribution. Although usage remains limited when compared with the overall size of the cash payment market, device growth should reach nearly 180 million in 2010, according to a new report, "Electronic Money: Contactless Payment in Japan" from Celent, a Boston-based financial research and consulting firm.

Key findings of the report include:

• Drivers for the increased usage of electronic money include: Japan’s usage of a train pass with RFID technology (especially in Tokyo), the relatively high number of mobile phone holders, the increasing usage of online shops, and large retailers issuing their own electronic money.

• For a long time, cash had been the major method of payment in Japan, particularly since Japan does not allow consumers to use checks for payments. However, this has begun to change. The emergence of electronic money has impacted cash payment areas. Expensive purchases are now dominated by credit cards, while cash continues to be used for smaller payments. Debit cards have been left behind.

• As of March 2007, there were 28.9 million credit cards issued in Japan, an increase of 29.6% in a decade. Yet the total payment volume is ¥39.7 trillion (US$345.2 billion). This indicates that credit card usage is not that popular in Japan despite the number of issued credit cards. Each credit card will only have 137,000 yen (US$1,195) purchased on average, which is relatively low compared to other countries in Asia such as Hong Kong (US$3,027 per credit card), Singapore (US$2,329), and South Korea (US$7,866).

• The total value of payments via debit cards was approximately 785 billion yen (US$6.8 billion) in 2006. Both transactions and payment amount have decreased 3%. Debit card usage per year remains small compared to credit cards: only 0.03 transactions/card, and only 2,013 yen per card purchase. Debit card volume adds up to just under 2% of credit card volume.

• The number of distributed contactless payment devices is expected to grow, and consumers in large cities are expected to hold two to three cards on average, resulting in a situation similar to credit cards. Users will utilize different types of electronic money depending on their lifestyle, but mobile phone application-based contactless payment will still be limited. The percentage of active devices will be limited to approximately 20% to 30% of the total distribution number.