The Journal The Authority on Global Business in Japan



Cash Vs. Cards

Winning the hearts and wallets of the Japanese

By Richard Jolley

We can thank Canadian philosopher Marshall McLuhan for introducing the idea of the global village— a term that is perhaps too readily applied to our world nowadays.

Someone who understands this well is Robert Luton, president of Japan, MasterCard. Luton, who has spent the past 15 years in the country, believes: “The most valuable part of living and working overseas is that you learn to check all your preconceived notions at the airport. You have to try to understand the local business culture from its own perspective—and then you realize it’s actually quite logical.”

The price of credit
TechThis seems sound advice, and anyone who has worked successfully in Japan will be nodding their heads at this point.

In an interview with the ACCJ Journal, Luton offered an explanation for the difference between his operations in Japan and those in other developed markets.

MasterCard as a brand connects issuers, acquirers, merchants, and consumers, he said. As such, it needs to understand the needs of different constituencies and balance the interests of all stakeholders.

But, each market is different. In the United States, card issuers make a significant portion of their revenues from the interest accrued on revolving monthly credit.

“But in Japan, the monthly revolve is a relatively small share of an issuer’s revenue. So starting from that, the realities and—hence—the business model, are going to be different,” he said.

MasterCard, as a payment-processing network, probably receives some unwarranted criticism. After all, its focus is on the technological end of payments, not on how much consumers pay for credit. “We are in the business of improving the payment experience,” Luton said.

“No one wakes up in the morning looking forward to paying for something. We make paying safer, easier, and more rewarding.”

2020 goal
Exciting innovations are emerging as the world moves toward cashless societies. But will these be enough to get Japan—notorious as a cash-based culture—moving in the same direction?

Figures show an enormous gap in the number of non-cash transactions between the United States and Japan. The World Payments Report 2014, produced by Capgemini and RBS, puts the number of cashless transactions in the United States at 118 billion for 2012, when in Japan it was just 11 billion.

However, the same report says such transactions rose 10.7 percent in Japan between 2011 and 2012, a rate of increase third only behind the rates for China and South Korea. In the United States, electronic transactions grew just 3.4 percent over the same period.

The upward trend for Japan is welcome news for the domestic credit-card industry, which is targeting major growth between now and the 2020 Tokyo Olympic and Paralympic Games. Mitsubishi UFJ Financial Group, Inc. has said it expects to double transactions by 2020.

“I believe that ‘doubling’ is possible for two reasons,” Luton said. “We are going to see continued growth in electronic payments, and I think we’ll see the average size of [cashless] payments come down, as people [use their cards more to buy daily items].”

The cash misconception
Luton admits there is still a long way to go before the likes of Mitsubishi hit their targets.

Research by MasterCard in Japan has highlighted just how ingrained cash-based purchases are and the reason Japanese people prefer to carry wallets stuffed with notes rather than plastic.

The company consulted a wide demographic in its poll, including executives, housewives, public officials, and office workers.

When asked about paying in retail stores, 60 percent of respondents said they preferred to pay in cash for items that cost less than ¥10,000. This figure shrank to 26 percent for purchases of more than ¥50,000.

When asked why cash was the best option, 80 percent of those polled said it felt safer, and when asked “why safer,” 74 percent said, “because the sale was completed faster.”

Just 3 percent said it was safer because cash transactions precluded the potential for fraud. What this implies is that people say safer when they mean easier, and this conclusion corresponds with Luton’s thoughts.

“When I arrived here, everyone paid in cash to get on the bus, but in the last few years everyone has adopted a piece of plastic [e.g., Pasmo or Suica card], which they [touch against the card reader to pay the bus or train fare]. Is it safer than cash? No, because if you lose your card, you’ve lost what was on it. But is it easier? Definitely, and that’s why it’s been such a success. People didn’t change their perceptions; they simply found something that was faster,” he said.

The similarities between Pasmo and the debit cards prevalent in Europe and America suddenly become obvious. Just as they may with debit cards, consumers often use their Pasmo for relatively small, frequent payments, such as for drinks in vending machines or convenience store purchases.

Still, as Luton points out, the differences in the technologies underpinning the two types of cards are huge; Pasmo, as it stands, has very limited applications.

Yet, the prepaid card model seems to be key to breaking the love affair between the Japanese and their cash.

To this end, MasterCard in Japan has partnered with mobile operator KDDI to launch its auWALLET card, which can be obtained without a credit evaluation and loaded with money at au shops or online.

The latest figures show that 6.6 million cards have been issued since the card’s launch in May.

“I believe that Japan’s move towards a cashless society will go in segments. A certain payment product will be introduced that groups respond to. Like with the transit cards, people will see that it offers a better way to pay,” Luton said.

The time has come
In addition, we must not overlook the impact of expanded tourism to Japan. “Last year, we had over 10 million visitors to Japan, and this year we are on target for 12 million. The government hopes for 20 million by 2020,” he said.

The vast majority of these visitors will want to buy things in the same way as they do back home—using payment cards. All Japan has to do is make sure it’s ready. Luton is convinced it will be.

Indeed, he says we are seeing a turning point in the payment history of this country. It is no longer a question of waiting for the technology to come along to enable the move from cash.

Rather, it is simply taking what’s already out there and molding it, so it resonates with the local market.

At this point I think about a Hello Kitty-shaped card but, alas, our conversation is over.


Richard Jolley is an IT and business writer living and working in Tokyo.