Japan

「郷に入っては郷に従え」
Gou ni itte wa, gou ni shitagae

There’s an old but popular saying in Japan: “Gou ni itte wa, gou ni shitagae”. It means “When entering the village, obey the village”. If you learn and respect local ways, you’ll get along fine. And this especially applies to those looking to thrive in the Japanese market.
Japan is entering a new era. Quite literally (The Reiwa Era is upon us, with Emperor Naruhito taking The Throne in 2019). But as it ushers in a new Prime Minister, gears up for the Tokyo Olympics in 2021, and recovers from COVID-19, it’s going to be a time that truly challenges Japan’s fundamental duality; the endless tug-of-war between the traditional and the modern that touches everything from local culture and business to consumer behaviors and retail trends.

In this guide we’re going to look at Japan through the lens of the locals and explore how payments work in Japan, what consumers want in Japan, and why you should look to expand your business to the region.

 

Highway in Yokohama. Japan has one of the world's largest automotive industries.

世界一複雑な経済
Sakoku and an introduction to the world’s most complex economy

Japan’s unique duality stretches far back in history to its period of isolation.  Between 1635 and 1858, the Sakoku edict was decreed as a way of eliminating foreign influence. Foreign nationals were unable to enter Japan, and Japanese were unable to leave. Eight generations, confined to an island, it’s impossible not to create a particular set of rules and beliefs. Furthermore, during its recovery from World War II, the Japanese government pushed a Japan-first policy that assisted companies in promoting exports, all the while discouraging imports. This approach has led to the perception that it’s a tough market for international companies to crack. Nevertheless, it went from post-war recovery to the third largest economy in the world and became a key trading ally with the US and Europe, becoming the world’s third largest, and according to Harvard Growth Lab, the most complex economy

Japan’s success has been found in creating things that no-one else can; from innovative machinery and integrated circuits to completely new inventions like Walkmen and Nintendos, products that have such intrinsic value not just as hardware but as bonafide Japanese cultural products. As Hollywood exists to champion the US ideal, or haute cuisine paints France in its elegant best light, Japan’s tech products sell consumers the notion of a nation built on modernity and innovation.

The neon lights of Akihabara, the spiritual home of Japanese technology.

ローカリゼーションの活用
Leveraging localization

In a country where tipping is considered rude, slurping noodles loudly is polite, and deep-rooted traditions wrestle daily with an insatiable appetite for modernity, understanding the quirks and contradictions of Japanese life is essential for long term business success. 

Due to its wealthy, urbanized population, and internet penetration at over 93 per cent,  Japan’s ecommerce market is the fourth largest in the world. But despite this, Japan has some of the lowest cross-border shopping rates in the world. Just over 10% of Japanese consumers shop on overseas websites, compared to 54% of US shoppers, and 75% in Hong Kong

If you’re thinking of expanding to Japan, localization could play a key role in your success, from the product listings and keywords you use to the payment options you provide. 

Ecommerce and email with a local flavor

In Japan, ecommerce web page layouts are often dense with visuals, and quite different to the clean white space and longer sections of text favored on U.S. or European webpages. Since an estimated 99 per cent of the Japanese population only speak their local language, there are clear competitive benefits in catering to this. 

Email marketing also remains an effective tool in Japan, especially in the evening. A study conducted by Salesforce found that email use during the evening is surprisingly high in Japan with 44% of people responding that email is the last thing that they check in their digital day. Take time to understand local habits and marketplaces, and offer solutions that enhance daily life in simple, effective ways. Do that, and you’ll be on the right track for a low-risk, highly scalable entry strategy with reach. 

Local insight

Japan is home to several online shopping events that see a regular uplift in sales. Summer is the time when Japanese employees typically receive bonuses at work, causing shoppers to splash out on luxury items, travel, and leisure related purchases. White Day on March 14, Black Friday, and the Christmas period drive similar uptakes. Golden Week, beginning April 29, encompasses four of Japan’s 16 national holidays, and typically marks an annual spike in domestic and international vacations.

Paying with cash. Japan has the third highest cash usage rate in the developed world.

日本の決済市場動向
Japan’s payments landscape

The percentage of payments made with cash

Ranked fourth worldwide in ecommerce spending, after China, US and UK, Japanese shoppers spent a total of US$89.2 million online in 2019

The Japanese government’s goal for cashless transactions by 2025

Cash culture

Somewhat surprisingly, Japan is still a cash-based country, with the third highest cash usage rate in the developed world. In 2018, cash payments made up 82% of all payments, according to the Japanese government

Many locals still enjoy the sense of control that comes with paying in cash - they can see exactly how much they are spending each day, and feel that they are more careful with their purchases as a result. Kiosk payments, where shoppers use vouchers or reference numbers to pay for products in cash at a kiosk, convenience store, or bank branch, are still very popular, as is cash on delivery. 

Such is Japan’s reliance on cash, the government has decided to intervene. In 2018, the Ministry of Economy, Trade, and Industry released its Cashless Vision report which lays out a roadmap for breaking the country’s hold on the printed note. The primary goal of the report is to double the percentage of cashless payments made in the country to 40% by the time the World Expo rolls into Osaka in 2025. The stretch goal is to raise this to 80% soon after. 

Local insight

As a result of the COVID-19 outbreak, Japanese consumers are switching from cash to electronic and contactless payments to meet changing habits.

Card and Furikomi

Card payments with credit, debit, and IC cards, plus mobile payments via smartphone apps, are commonly used for larger purchases or when cash isn’t on hand. 72% of shoppers prefer to pay via credit card, with the most popular cards being Visa, JCB and MasterCard.

Local insight

IC cards are an NFC based card used for transportation since 1998. They’ve since expanded to work beyond the public transit networks and have become a handy payment method for Japanese on the go.

Credit and debit cards dominate online payments – Japanese consumers pay for more than half of their online purchases with credit cards. A JCB report found that Japan has a credit card penetration rate of 84% in Japan, and the average number of credit cards per individual is around 3. Meanwhile, while each consumer owns an average of 3 debit cards, debit card usage is largely confined to cash withdrawals at ATMs.

Bank transfer, or Furikomi, is the third most popular payment method in Japan. This can be attributed to the fact that Japanese adults hold more bank accounts per capita than anywhere else in the world. Despite this though, and perhaps explaining the popularity of cash and Furikomi, not all bank accounts have a card attached or an account with online payments enabled.

Furikomi can be done online, at a bank branch, or via ATM. Pay-easy ATMs found in convenience stores (Konbini) allow consumers to make payments in either cash or card. With ATM payments, merchants can reach all shoppers that have a bank account. This ensures a lower drop-off compared to Konbini payment which typically involves buying online, then paying offline at the convenience store.

Mobile payments

Compared with their neighbors in China; where 83% of payments are made via mobile devices, and South Korea; where only 20% of payments are made via cash, Japan is playing catch up. In 2017 the market for mobile payments equated to a paltry US$8 million, but is predicted to reach US$48 million by 2023.

This isn’t for a lack of contactless tech available though. The QR code was invented in Japan, and has been an example of Japanese innovation in the 21st century; As of 2018, 4% of all global transactions were made using QR codes. In Japan, great efforts are being made to promote this payment method, with providers such as PayPay, LINE Pay, Rakuten R Pay, Merpay and NTT DoCoMo in the market.

NFC (Near Field Communication) payments are more common than QR at this time and are used by FeliCa at point-of-sale, as well as Apple Pay and Google Pay.

スナップショット
Snapshot Haruki recharges at a Konbini

Haruki’s had a long day in Ochanomizu, Old Tokyo. In addition to his full time studies, he works part time on the Meidai Dori, known locally as Guitar Street, in a bustling music shop. He’s worked 10 till 7, sold five guitars, tidied the store, and is feeling pretty tired. The humidity isn’t helping. But just as he’s closing up shop, he gets a LINE message from his uni friend Sakura: “Finishing that essay nearly killed me - drinks tomorrow night to celebrate?”. Haruki groans. He has an assignment due tomorrow that he’s totally forgotten about. So what does he do? 

Haruki heads to his local Konbini.

The walk takes about about 30 seconds, because there’s a Konbini on practically every corner of Tokyo. This one’s Haruki’s usual go-to, a Lawson. Once inside, he buys himself some fresh fried chicken, a steamed pork bun, three cans of Boss Coffee (Rainbow Mountain Blend), and, after a quick armpit sniff, a stick of deodorant. At the cash register, he picks up his latest Rakuten delivery - a textbook he should have ordered weeks ago - and pays his electricity bill while he’s there. He pays for everything in cash. Outside, Haruki takes a swig of Boss Coffee, and spills half of it down his shirt. Back into Lawson he goes, emerging a minute later with a brand new shirt and some KitKats to give Sakura for extra luck. He sets off to the Meiji Uni campus, armed to the teeth with snacks and ready to smash out that essay.

Local insight

Konbini payment, or convenience store payment, is the second most-used online payment method in Japan, making up 10% of purchases. While it may seem like an odd concept for brands new to Japan, local consumers are accustomed to paying their phone bills, online orders, games, movie tickets, and so much more, at any of the 55,000 convenience stores throughout the country. 

Konbini payment offers an easy way to tap into the cash market for ecommerce. The ubiquity of 24/7 convenience stores like Lawson and FamilyMart also makes it easy for anyone to pay. For most products and services, shoppers don’t need to be a local resident or have a Japanese bank account.

Vending machine culture. 

日本のショッピング習慣と消費者動向
Japanese shopping habits and consumer trends

In the face of changing behaviors, some shopper habits are still deeply ingrained in Japanese culture, and will continue to influence how consumers connect with brands. Here are the enduring habits you should keep in mind:

Quality, novelty, loyalty and convenience

A deep affection for original, unique and rare items has long shaped the Japanese market; from guitars to sneakers to soft toys, and subsequently, shoppers are happy to pay a premium for quality products and luxury imported goods from trusted brands. 

Japanese consumers are also famous for their love of efficient service and speedy convenience, and have typically favored spending money to save time  - in fact there’s roughly one convenience store for every 2,500 and one vending machine for every 23 people in Japan.  

Such elevated shopper standards also mean that high levels of service are expected in-store and online Japanese consumers love to discover memorable or specialized in-store experiences as a source of leisure and entertainment. Many shopping malls are designed with a specific demographic in mind, take Tokyo’s Shibuya109 as an example. Long iconic as the home for Harajuku style, Shibuya109 is a mall dedicated to young female fashion. With pastel shades, the latest J-Pop, and extravagantly dressed shop assistants, it’s an unforgettable experience for anyone who visits, but is a veritable paradise for the subsection of anime-obsessed teenage girls it caters to.

Bringing more color to Japanese shoppers, from the outsiders perspective; Lush’s first digital concept store, a four floor playground of interactive technology and sensory displays in Shinjuku, Tokyo, is a great example of the kind of immersive retail encounters that draw a crowd.

Brands that can build an emotional connection with consumers are typically rewarded with long lasting loyalty, a key advantage in a culture that strongly values referrals from friends and family. 

Coffeehouse chain Starbucks has long held a firm place in the hearts and hands of Japanese customers, largely thanks to unique product releases, a wildly popular loyalty program, and collaborations with local brands. Starbucks regularly releases limited-time beverages and snacks tailored to match local tastes and interests, and have even collaborated with Japanese streetwear legend Fragment Design on limited-edition merchandise. The Starbucks mobile app even enables mobile payment and eGifting, where customers can send unique digital cards with a wide variety of themes and occasions to their friends and family.

Local insight

Gift giving is an important part of Japanese culture, and regularly informs retail trends. It’s traditional to give gifts around seasons (Ochugen and Oseibo) or around travel, instead of Christmas and birthdays. A long running craze for KitKats started when the confectionery became known as a good luck charm for students taking entrance exams. 

スナップショット
Snapshot Alone in Kyoto: Holly’s expat shopping experience

Holly, an Aussie expat, arrived in Kyoto six months ago to start an exciting role at an electronics giant. She’s found an apartment, learned how to count to ten in Japanese, and now that she’s settled, she intends to update her wardrobe.

Holly is a woman of creature comforts, and loves luxury brands, so she heads to Kyoto Takashimaya Department store.

Her first stop is Starbucks; she gets a limited edition Peach Frappuccino - she certainly couldn’t get one of them back home. She pays with her ewallet, and accrues her loyalty points to the reward card she opened 6 years ago in Melbourne. She’s building up enough points to buy a round for her family when they come to visit.

Now that she’s refreshed, she heads to the nearest ATM. She knows Japan is cash crazy, so she attempts to withdraw a wad of bills for her shopping trip. Unfortunately though, her Australian credit card isn’t accepted. Homesickness strikes and she starts to panic, until she notices in the shop window that Aēsop accepts her ewallet, and even her Australian credit card. Shopping trip saved!

Local insight

Invest in both mobile web and shopping apps that offer significant sales opportunities to reach a mobile-first population. Use mobile friendly Point-of-Sale systems to streamline in-store purchases, or mobile alerts to update customers about sales, new product launches, and promotional information, as well as to follow-up on purchases. Build loyalty with mobile coupons and other forms of tokenization, which have proved very popular with Japanese consumers. 

A new era of online shopping and bargain hunting

In addition to longstanding consumer habits, a major shift in Japanese shopping behavior has been occurring for the past decade. Increasingly, younger generations of shoppers are mirroring the habits of their counterparts in Europe and the United States. This includes a growing affinity for bargain hunting, a disinterest in luxury brands, a fondness for at-home activities, and an increase in online shopping. Japanese millennials are fond of words like “cospa” - short for “cost performance” - to describe an item or experience’s value for money.

Fueling this trend are domestic online stores like Rakuten or Kakaku, as well as local branches of global online retailers like Yahoo and Amazon. Rakuten recorded a 56% rise in sales of personal delivery lockers in 2019, revealing the increasing amount of shoppers wanting packages ordered online to be delivered even when no one is home. In response to more consumers staying at home, retailers in Japan are investing more in their online delivery and grocery offers. There is also a collection of up-and-coming companies focused on the two promising segments of customer-to-customer ecommerce and marketplaces, primarily targeted towards young female customers.

There are  a number of opportunities for ecommerce businesses looking to expand. Credit Suisse Analyst Takahiro Kazahaya recently predicted that Covid-19 will fuel a long-overdue increase in ecommerce’s market share in Japan, with many first-time users discovering the benefits and convenience of online shopping. 

What the Japanese shop for online

Value of e-commerce consumer expenditure in Japan in 2020, by category* (in billion U.S. dollars)

*Forecast as of July 2020, adjusted for COVID-19 impact. Source: Statista DMO

Tapping into the subway with an IC card. 

ローカルニーズを満たすためのテクノロジーの活用
Harnessing technology to meet local needs 

The combination of deeply ingrained preferences and an openness to new ways of shopping  makes this a pivotal moment for businesses to invest in building strong relationships with Japanese customers, partnering with trusted platforms, and harnessing the right tools to allow greater flexibility across sales channels in order to seize the opportunities created by Japan’s new type of consumer.

Faster settlement for better cash flow

Payment settlement in Japan can typically take up to a month, but not with Adyen. We are committed to ensuring faster settlement and payouts throughout Japan for better cash flow. Shoppers can pay in JP¥, while merchants can also receive settlement in JP¥ so neither party is impacted by cross border fees. 

Simpler fraud and chargeback management

Adyen’s comprehensive risk management solution doesn’t just look at keeping fraud to a minimum, it also helps simplify processes so merchants can focus on what’s important.

For example, many international merchants may be surprised to know that chargeback notifications in Japan can arrive via fax or phone, costing business resources and man-hours to manage. Adyen offers a defense system that is fully automatable for merchants.

Build better relationships with Unified Commerce

To grow local loyalty and achieve maximum business results, consider leveraging Unified Commerce across your online, mobile and in-app channels. By unifying your backend and frontend systems, you can: 

  • Offer more frictionless checkout experiences, all popular payment methods, language and currency recognition, and the same payments setup across all sales channels and regions.

  • Reach Japanese shoppers through their favorite online, social, and mobile channels, as well as popular apps like Line, Instagram, and Facebook.

  • Gain access to invaluable data insights that can drive better decision making, customer service, and long term strategies.

Challenge the duality: cater to Japanese shoppers with a modern solution

Cash reliance in the home of the QR code, and a love affair with Konbini; the Japanese payments landscape is unique. Embrace the uniqueness, and when entering the village, remember it’s a global one. Our view is to challenge the duality; provide Japanese customers what they need now, and offer what they will want in the future.

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