By Jack Momose, CEO at Degica
The global e-commerce market is rapidly changing, with the APAC consumer market – until now largely untapped by western businesses – increasingly opening up to the world. Japan stands out as one of the most prominent markets in this respect, with many Japanese businesses aiming to expand into western markets and many well-established western businesses seek to expand in Japan. In the past, this market had been left largely untouched because it has long been a highly difficult market to enter from the outside, but technology is making it more approachable than ever.
Japan’s high population, high average income, and high appreciation for western goods make it an enticing market for businesses in the US and Europe. With an estimated population of about 125.9 million, Japan is among the top 20 most populous nations in the world. And despite almost three decades of recession, it remains the third largest economy in the world and has the most millionaires of any country in Asia. On top of this the average Japanese consumer has an annual income of about JPY 5.16m – a per-head income 10 times greater than that of the Chinese and even a third higher than that of the Germans.
Moreover, the Japanese luxury goods market is the only market in the world with two-digit growth rates. Opportunities arise even for those without a local presence because its consumers have high purchasing power and discerning tastes. According to ecommerce DB, the ecommerce market is worth more than US$114bn and projected to increase at a rate of 29% in 2020.
No other country in the world is as concentrated a source of revenue for so many brands as Japan. For this reason, Tokyo is very often the key reference point for the large players on other Asian markets of interest to European firms. If a brand succeeds in Japan, it will automatically create demand from other markets in Asia. In other words, succeeding in the Japanese market is of strategic importance for European brands looking to expand into Asia.
Barriers to becoming a global market
Despite the possibilities, Japan has been traditionally known as a challenging market to get into, which has made it more difficult for it to open up to the global market. The language barrier, of course, poses a natural challenge, while different cultural expectations – and notably different payment behaviors have also proved key sticking points.
There are some payment methods that are common to both Japan and western markets, but customer preferences and behaviors are considerably different. Today, for instance, more than half of all internet purchases in Japan are made using credit or debit cards, but 52% of them are made with cards that were issued locally, making it more difficult for overseas retailers to compete. Other common payment options, meanwhile, are completely unfamiliar to retailers outside of Japan. While credit card payments are still the most popular method, many customers, even for purchases made online, pay with cash at their convenience stores (or ‘konbini’ as they are called in Japan). Other solutions such as eWallet payments from a smartphone are also growing in popularity, with consumers increasingly choosing to pay by scanning a QR code on their phones. Smartphone payments are quickly adopted by younger, more digitally competent demographics. However, as wallets offer various point rewards, they are becoming a favorite payment method among all generations.
On the other side, a trend highly developed in Europe that is yet to take off in APAC is Open Banking payments. Currently, there are very strict banking regulations in Japan and Korea, and financial institutions are not that open towards these standards, as many are reluctant to experiment with new technologies when it comes to people’s bank accounts. However, in the next two or three years, Open Banking and Account-to-Account payments will likely arrive in these markets too. Certainly, these are the biggest trends to watch further.
This is a matter of trust – something not easily earned in Japan. This also gives a clue as to why it is so important for retailers to meet customer expectations when it comes to the shopping and payment experience. The use of a trusted payment method – such as a Japanese card or Konbini – can be a powerful signal for buyers that they are dealing with a trustworthy provider.
Fortunately, technology is making this possible, with payment fintechs increasingly offering solutions that enable businesses to swiftly integrate multiple new payment methods into their set-up without disruption. This offers a way to quickly inspire trust and confidence in Japanese customers and overcome one of the key barriers to entry in the market. And this looks to be part of an ongoing trend. As technology continues to improve, the more global the Japanese market becomes – and the more businesses can capitalize on the opportunities.