Music Fans Start to Rock Japan's Cash-Loving Economyby , , and
JR East is targeting 39% increase in tap-to-pay card usage
Teamed up with Apple to allow payments on latest iPhones
For the first time at Japan’s Fuji Rock Festival this summer, concert goers like 37-year-old information technology worker Ai Okuyama were able to use tap-to-pay cards to buy food and beer as they mingled amid performances by Beck and the Red Hot Chili Peppers.
“It was convenient to skip the process of taking my wallet out, getting money out, putting change back in, and putting my wallet back in my bag,” said Okuyama, “especially because you normally have a beer in one hand so you have to do it all with the other.”
Rock music fans and the other 60 million holders of the cards issued by East Japan Railway Co. are blazing a trail toward a cashless future in Japan, a nation where people still walk into stores with 100,000 yen ($980) in cash to buy a television. The train operator, known as JR East, wants to help break the country’s attachment to banknotes and coins by getting more and more people to use its Suica cards for uses beyond transportation. On the agenda: pushing their use at rock concerts, beer festivals and sightseeing spots to grab a bigger share of Japan’s growing e-payments market.
"Over the past 30 years in Japan, I have seen the incremental whittling away of cash as king as credit cards have gained popularity, and now Suica and other prepaid cards are transforming how consumers settle their bills," said Jeff Kingston, director of Asian Studies at Temple University in Japan. "So we are trending toward a way less cash-oriented society."
JR East is seeking to expand its e-money system 39 percent to as many as 8 million transactions a day by 2020, according to Hajime Yamada, head of the company’s Suica business. Reaching the target may be helped by its recent agreement with Apple Inc. to include Suica on the latest iPhone, letting consumers pay for transport by swiping their phones. Competing cards including ones issued by retailers, such as Aeon Co.’s Waon and Seven & i Holdings Co.’s Nanaco, can be used at convenience stores and supermarkets and offer loyalty points. Another card, Pasmo, works on train networks and at most stores that accept e-money.
"I want Suica to be number one in e-money in Japan in terms of transaction numbers,’’ said Yamada. “I really want Suica to be the first thing people think of when they talk about e-money.’’
Commuter passes and other contactless cards equipped with Sony Corp.’s FeliCa mobile payments technology were used for 4.6 trillion yen in transactions in 2015, up 16 percent, according to the Bank of Japan. That’s double the increase in credit card transactions of 7.7 percent to 49.8 trillion yen, Japan Consumer Credit Association data show.
"Credit cards have become far more ubiquitous and accepted, shifting from the outlier to a mainstream mode of payment," said Kingston of Temple University, citing convenience stores’ increasing acceptance of e-payments and the growing use of PayPal, as well as online banking and stock trading. "All across the board we see that cash is shrinking in importance for everyone under 60."
Yet the country has a long way to go. Japan pales in comparison with countries including South Korea and Singapore that have already adapted digital settlements. Credit and debit cards and e-money make up only 17 percent of the nation’s retail consumption, versus 85 percent in Korea, 56 percent in Singapore and 35 percent in India, according to a 2015 report by the credit association. Usage in the U.S., which includes data only for credit and debit cards, exceeds 40 percent.
Cash is still used for most retail transactions in Japan because automated teller machines are common and people are comfortable carrying large amounts of money due to the country’s reputation for low crime, said Eiichiro Yanagawa, a senior analyst for consulting firm Celent.
“Cash is the easiest to use, and people don’t find it inconvenient,” he said.
Maximizing the use of Suica for more than train tickets has benefits for JR East by both cutting costs and finding new revenue sources, according to Yamada. Ueno Station in Tokyo, which handles 182,000 rail passengers a day, once had long rows of ticket machines that required maintenance and took up space, he said. The company decreased their number thanks to Suica, opening up an area that it now leases to a retail shop. For merchants, reducing cash handling cuts down on the costs and hassle of handling large volumes of paper as well as speeds up payments.
JR East introduced Suica as a commuter pass in 2001 and expanded it to e-money services in March 2004. Transactions reached a record 5.75 million on Aug. 5, when sweltering midsummer weather prompted a rush of people to buy cold drinks from vending machines and convenience stores.
“I believe that e-money and Suica have huge potential,” JR East President Tetsuro Tomita said at a news briefing on Tuesday in Tokyo. “I want to aim for another level of growth in Suica.”
Yamada said that while he expects the introduction of iPhone-based services will contribute toward the 8 million-a-day transaction target, expanding the number of places that accept the cards is the real key to getting people to switch from cash. The use of Suica on other mobile devices has been sluggish so far, only reaching 3.8 million customers, he said.
“Cash was our biggest rival when we started with e-money, but what it really comes down to is increasing member outlets,” said Yamada. “With just a single Suica card you could take a train anywhere in the country, ride the bus, or take a taxi -- any kind of transportation -- and on top of that you could shop anywhere. That would be ideal.”