The country’s mobile commerce landscape is unique. But with the huge recent upsurge in smartphone adoption, it could be on the brink of seismic change.
Mobile phones are a way of life in Japan. Rapid innovation and huge investments by network operators have led to the emergence of one of the world’s most dynamic and valuable mobile economies.<
The country has been leading the pack in m-commerce for some years, due in part to its pervasive mobile culture. Its first mobile network went live in 1979 and it was one of the first countries to launch 3G services. Mobile internet access is the norm, with the majority of Japanese citizens using phones and other portable devices to connect to the web.
According to a study published by Accenture back in 2011, 33 per cent of “active mobile users” in Japan had already used their phones to make payments in the preceding six months, with 47 per cent of them saying that they favoured this method, compared to 26 per cent in the US and Europe.
“M-commerce – which encompasses mobile banking, such as checking balances or paying bills over a smartphone, plus using coupons, promotions, gift cards, loyalty points and more – is poised to drive huge changes in the way we shop for goods and services,” says Andy Zimmerman, director of mobility services at Accenture.
That’s clearly already happening in Japan, where the idea of using mobile phones to make payments is well established. The national enthusiasm for the phone-as-wallet has its technological and commercial roots in Japan’s keitai (mobile) culture. Credit cards – and borrowing generally – have always been relatively unpopular in Japan, but the idea of storing real monetary value on plastic, such as the pre-paid Suica smartcard, stretches back more than a decade. Coupling Japan’s enthusiasm for e-money with its love of mobile phones has proved to be a winner.
The Osaifu-Keitai wallet mobile was launched in 2004 and quickly established itself as Japan’s de facto m-payment standard. Osaifu-Keitai wallet phones incorporate Sony’s “contactless” Mobile FeliCa payment technology. This is based on radio frequency identification (RFID) technology, allowing phones to communicate with other RFID-enabled devices, such as turnstiles at train stations and contactless card readers in shops, so purchases can be made using e-money.
Mobile FeliCa can support multiple applications on a single phone. And thanks to DIY card readers/writers and contactless-enabled PCs, such as Sony’s Vaio series, users can top up and manage their cards at home. Japanese businesses and mobile users have been quick to spot the wider potential of smartphones in this way, taking full advantage not only of their contactless connectivity but also their built-in cameras. Quick response (QR) codes, the two-dimensional successors to traditional barcodes, are an example. They can be more or less any size, from 1cm x 1cm (micro QR) to the size of a billboard, and can be “read” by smartphones with a camera and QR code reader.
QR codes enable mobile users to collect information about products and services quickly and easily. In Japan, they are used on everything from fast-food packaging to cinema posters, providing a vital channel for marketers and advertisers. And it’s a Japanese innovation: developed in 1994 by Denso Wave, the QR code was originally used in industrial applications including logistics and supply management. It became an international standard in 2000 and was first used in mobile applications in 2002.
Homegrown innovations such as QR, Osaifu-Keitai and i-mode (Japan’s long-established mobile internet standard) have played a defining role in the evolution of the nation’s unique m-commerce landscape. Japan’s network operators, though, have often struggled to make an international success of these innovations, so some technologies have evolved in isolation. For incumbents – from operators and manufacturers to content providers and platform vendors – this isolation has reduced competition from overseas entrants, a kind of m-commerce Galapagos effect. But the Japanese market is changing quickly and the past few years have seen significant changes. Smartphone ownership has rocketed. App stores are the new sales channel. And social networking sites are increasingly the first port of call for a new generation of users.
There’s little doubt that expertise honed over the past two decades puts Japan in a strong position in the m-commerce arena. And, with an increasingly saturated domestic retail market, some leading Japanese e-commerce businesses are looking overseas for expansion opportunities.
Rakuten is one such company. Rakuten Ichiba, its core business, is Japan’s biggest online shopping mall and its worldwide operations now offer some 70 million products from 35,000 merchants, as well as providing travel and financial services. In 2010, Rakuten paid $250m for US internet retailer Buy.com, giving them a strong foothold in the American marketplace. It’s the latest in a string of strategic acquisitions and joint ventures that Rakuten has made in countries including China, Taiwan and Thailand, not to mention France and the UK.
“A partnership with Buy.com made perfect sense,” says Hiroshi Mikitani, Rakuten’s founder and CEO. “Buy.com shares our vision for the future of e-commerce as a platform to give consumers the best value, to merge shopping with entertainment and to help retailers build deep and lasting consumer relationships.”
What does the future hold for Japanese m-commerce? Developments in near-field communication (NFC) technology are likely to prove significant. In February 2011, Japanese and South Korean providers agreed to use NFC to develop cross-border mobile payments, marking a decisive step in the evolution of e-transactions. Cross-border NFC will allow people travelling between the two countries to use mobile payment services, pay for journeys on public transport and access promotional coupons using compatible Android handsets embedded with contactless chips. Partners in the project include Visa, Samsung Electronics, Gemalto, Sumitomo Mitsui Card and bitWallet.
“Visa has been instrumental in developing the global standard for mobile payments based on NFC technology,” says Bill Gajda, head of Visa Mobile. “We welcome this project and see great value in extending the security, convenience and global interoperability of NFC-based mobile payments to consumers in Japan and Korea.”
Next-generation high-speed mobile networks known as Long-Term Evolution (LTE) could also change the landscape, with Asian nations leading the race to implement this 4G technology. The ubiquitous high-bandwidth connectivity it promises has the potential to transform the browsing experience for mobile users and its implications for the development of m-commerce are huge. It’s estimated that by 2015 nearly half the world’s LTE connections will be in Asia. By then, 20 per cent of Japan’s mobile market will have migrated to LTE, with South Korea’s a close second at 17 per cent.
What’s becoming increasingly clear from all of these developments is that Japanese m-commerce is entering an entirely new phase. The Galapagos effect could soon be a distant memory.