The impact of QR code payment and future business opportunities

Reverse innovation in cashless payments

Japan, as a traditional cash-based society exemplified by the New Year’s and wedding gifts in “cash”, is in the middle of transformation to a cashless world. Initially developed by a Japanese company, the QR code has, along with the spread of smartphones, grown to a major payment method in mainland China due to a simple and quick interface of payment. The effect is now reaching Japan which welcomes a large number of Chinese tourists, resulting in many competitive service providers entering the field of cashless payment market with the backing of government eager to promote cashless society.

Why is QR code payment attracting attention now?

Recently, more attention has been paid to the invisible costs of cash payment, including security and physical transportation. Meanwhile, the Japanese government is aiming to double the ratio of cashless payments from 20% in 2016 to about 40% by 2027, and METI’s “Cashless Vision” calls for earlier reach and set the goal on 2025.

In Japan, where the ratio of cashless payments is low compared to the international level and more than 80% of small payments are made in cash, smartphone-based QR code payment is seen as one solution. Cashless payment methods such as credit cards and prepaid-money have failed to disseminate due to several reasons, including vendor-related issues such as transaction fees and device maintenance costs, customer issues such as usable-shop limitations and uneasiness on security and overuse, and the limits of a low fee business model that participating vendors divides the income from each merchants.

Introduction of QR code payment, on the other hand, does not place a significant burden on vendors in means of initial investment, as has been evident in the technology’s rapid spread in China. Attitudes are also changing, as the young “digital native” generation in particular has begun to view mobile payment as convenient and safe. 

Ratio of cashless payments in Japan—KPIs and potential

*Click on image to enlarge
*Click on image to enlarge

Players in QR code payment

Many types of businesses are entering the field of QR code payment in Japan, including the acquirers of Chinese businesses (e.g. Orico, JACCS), IT companies (e.g. Rakuten, LINE), credit card companies (e.g. Epos Card), and banks (e.g. the “megabanks,” Japan Post Bank). Their reasons for entry include the merits of circulating funds within their respective economic networks of services and locking in customers, as well as the opportunities of acquiring payment data with a wide range of uses, including analysis of customer behavior.

Armed with advantages such as linkages between their own and other companies’ services and low payment handling fees, these companies are expanding their services with the aim of winning market share.


Future prospects pointed out by user surveys: the rising importance of user experience

QR code payment is still in its infancy in Japan, usable only at a limited number of merchants. However, in “Survey on QR code and mobile payment usage and intention,” released by Deloitte Touche Tohmatsu LLC in December 2017, more than 90% of users (aged 10-39) with experience of QR code payment indicated that they were “satisfied” with the experience, while half of the respondents who had not used QR code payment said that they are “willing to use” it. This suggests that QR code payment has significant potential for popularization as a cashless payment method. Users did indicate that they were worried about security, but as QR code standardization and other framework-establishing measures are being taken, we expect popularization to gradually pick up speed.

The Deloitte Tohmatsu view is that in order to expand the use of cashless payment methods such as QR code payment, it is crucially important that we see innovation in both payment functions and user experience.


Business opportunities looking beyond cashless payment

The market capitalization of both Alibaba Group Holding and Tencent Holdings, the “Big Two” Chinese QR code payment operators, has grown rapidly, with these companies now trailing only the so-called Big Five (Apple, Google, Amazon, Microsoft, and Facebook) in terms of market value. Driving this growth are their giant, app-based big data businesses. Payment is the most important point of customer contact, with the data collected through apps analyzed and utilized for an ever-growing lineup of businesses, including finance and entertainment, directly connected to users’ lifestyles. 

The key to a successful payment business in Japan can be said to lay in Chinese-style data business that uses payments as a starting point, as well as in using data to provide one’s own customers with new and more convenient experiential value. Ideally this will lead to increased use and progress toward a cashless society. 

Deloitte Tohmatsu supports the formulation of cashless payment strategies centered on data utilization.

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