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Wednesday, Aug. 1, 2007
E-MONEY IN JAPAN
E-cash silencing the jingle of change
Since major electronic money services emerged in 2001, it has become common in Tokyo for people to go through ticket gates by just touching a smart card to electronic readers at train stations and to make small purchases without pulling out their wallets at convenience stores. Japan's cash-based tradition is changing. Following are some basic facts about e-money:
What is e-money?
Integrated circuit chips are embedded in smart cards as well as in mobile phones that have the e-wallet ("osaihu keitai") function, allowing customers to pay electronically.
There are two forms of e-money services. One is through prepaid cards such as the Suica issued by East Japan Railway Co. and Edy by Sony Corp.'s affiliate bitWallet Inc. The other form is postpaid, linked to a credit card like QUICPay from JCB Co. or iD by NTT DoCoMo Inc. and Sumitomo Mitsui Card Co.
Newcomers have entered the market and competition has been heating up as more and more convenience stores and other retailers accept e-money cards.
In March, Pasmo, an IC fare card for trains and buses in the Tokyo metropolitan area, was issued by Pasmo Co., which is a consortium of 23 railways and 32 bus operators in the Kanto region. The card saves people from having to buy tickets. Instead, people can put up to ¥20,000 on their Pasmo card and go through ticket gates by simply touching electronic readers at the gates.
The popularity of Pasmo cards surpassed all expectations and they sold out the following month. Although the consortium said in April it would resume issuing the cards in August, a spokesman said this may be delayed.
New entrant Seven & I Holdings Co.'s nanaco, launched in April, became the most popular form of e-money at the end of June. It was used for more than 30 million shopping transactions in June alone.
What is the market size of e-cash?
The value of e-cash transactions are estimated to have reached ¥180 billion in 2006 and will probably hit ¥2.8 trillion by 2011, according to Nomura Research Institute, because more consumers are finding it convenient to pay with e-cash, simply by waving a smart card or e-wallet against a reader. More companies are also offering e-money services, and restaurants, convenience stores and other retailers are increasingly accepting such cards.
A unique newcomer is taspo. The Tobacco Institute of Japan, an association of tobacco retailers, plans to debut the card by the end of 2008. The association plans to install the system in more than 600,000 cigarette machines nationwide, and users will have to flash the taspo card against a reader to buy cigarettes. It will only be available to people aged 20 and older.
E-cash-friendly locations are continuing to increase. For example, McDonald's Holdings Co. plans to begin installing NTT DoCoMo's iD credit card payment terminals in all its outlets in October.
Why is e-money becoming very popular?
Cell phones have played a big role in spreading e-money as their e-wallet function gains popularity, especially with young people.
E-money service providers also offer incentives to spend e-cash, for example by providing discounts, airline miles and bonus points exchangeable for e-money. Users of nanaco, for example, will get one point for every ¥100 they spend, with each point exchangeable for ¥1 in e-money.
What are the benefits and obstacles for e-money service providers?
Through the introduction of e-money, service providers and retailers can keep track of purchasing habits and can use e-mail to conduct promotional campaigns that meet users' tastes.
The market is expected to grow, but the commission that e-money service providers charge per purchase is reportedly small.
Although the fee differs from company to company, Nomura Research Institute estimates it to be about 1 percent or less for most cases.
The average transaction is only about ¥700, so experts say e-money providers have a hard time turning a profit, especially when considering their huge investments in e-money terminals.
"They need to expand the network where the system can be used, so the number of transactions will increase," said Shigeru Takamura, senior consultant at Japan Research Institute, an economic research group in Tokyo.
Is e-money common overseas?
Although e-money has been introduced in other countries, including VisaCash in the United States, Octopus in Hong Kong and Moneo in France, Takamura said e-money in other countries is not used as commonly as Japan because credit and debit cards have long been in widespread use in those countries. Such cards are usually issued by financial institutions.
How does the spread of e-money affect the economy? Will it boost private consumption?
If e-money becomes the common tool when making purchases, circulation of coins will probably decline. Recent data by the Bank of Japan showed that the number of coins in circulation dropped 0.25 percent to ¥91.45 billion in June, the largest year-on-year decline ever, due largely to the spread of e-money.
Some experts say e-money will encourage consumers to increase shopping as consumers take e-money as money already spent, which makes it psychologically easier to purchase extra items.