Japan is not an advanced payments market, in spite of NFC mobile phones and other high tech gadgetry

We often think of Japan as a technologically advanced payments market where people regularly use their mobile phones or contactless cards to pay. The reality is that Japan remains strongly a cash based economy.

I just got back from skiing in Hokkaido, an island in the northern part of Japan, in a village called Niseko, considered to be the best ski resort in Japan for fresh powdery snow, which we got lots of. Using a credit card was a real pain, even at ATM’s, which mostly accept cards issued by local banks, and nothing else. Lots of merchants don’t accept cards. Others apply a surcharge to cover the interchange fees.

Here's an example. This snowmobile rental service on one of the ski slopes doesn’t take cards at all, even though there are lots of foreigners, especially Australians (notice the prices in English). I was waiting for a friend who went into the shop to get his snowboard fixed, when I saw the sign and couldn’t resist taking a picture.



Then a few hours later, at dinner in a local restaurant, I noticed a little sign at the counter, advertising a 5% surcharge for credit card customers. Camera phones are great.



It was easy to use my card at the hotel in Niseko, as well as in hotels and department stores in Sapporo and Tokyo, without a surcharge. I also watched people pay with their contactless cards at a sandwich counter in the Tokyo airport, apparently at the same price as cash customers. But as you venture a little bit away from hotels and department stores (and the airport) and explore local restaurants and stores, you quickly discover that electronic payments are actually rare in Japan, even in the big cities.

Credit card companies do try hard to get their cards used more, with every incentive possible, including high tech gadgetry like NFC enabled mobile phones and contactless cards. But all of this effort doesn’t appear to be promoting widespread use and acceptance of credit or debit cards. I imagine that cash usage is most likely falling in Japan, as it is elsewhere, but it doesn’t seem to be falling very fast. It will take a long time at this rate to catch up with other developed nations. This may be why credit card companies in Japan are so keen on exploring things like mobile payments, while banks in other countries have trouble finding a viable ROI for such massive investments.

In most cases, these investments are a waste of money, even in Japan. They focus almost entirely on creating incentives for customers to use a card, or mobile phone, or whatever, to pay, when they need to be focusing instead on creating incentives for merchants to accept cards. That’s a completely different mindset.

Credit card steering in Singapore: why you may never see interchange regulations here

The other day, a jewelry store clerk frowned when I handed her my Visa Platinum card.

“Do you have another Visa card?” she asked. “Like a Visa Gold or Classic? The Platinum card costs us too much.”

I hesitated.

“I’ll have to add 2 percent if you pay with your Platinum card,” she said.

I handed her my MasterCard debit card. No miles on that transaction.

I’ve seen lots of steering and surcharging across Asia, but I’ve never seen anything this sophisticated and targeted. She was obviously a clerk, not the owner, and she had clearly been given detailed instructions on how to steer customers towards lower cost payment methods.

Then, at a Cold Storage supermarket, I believe it was the one at Paragon Centre, the cashier turned my Visa card down again, saying that they only accept debit cards.

“But I always use my credit card at Cold Storage.”

“Maybe you shop at other outlets, which do accept credit cards,” she said.

Indeed, I do.

It is surprising to see such different policies across stores that are part of the same supermarket chain. My guess is that this particular store might have a higher number of expat customers paying with high end cards that earn miles. It’s surely easier to train cashiers to only accept debit cards, as opposed to the more precise steering done by the jewelry store clerk.

I wouldn’t be taking much of a risk by predicting that you will never encounter serious attempts at interchange regulation in Singapore. There is no need for regulation. It is all market driven.

Merchants that have low margins and feel overly squeezed by the high interchange fees on Platinum cards, Premiere cards and American Express cards, have the option to steer the customer away from rewards cards and towards lower cost payment methods that don't earn miles or points. They can do this either by adding a surcharge on the high end cards or simply turning them down.

Most merchants choose to accept all cards, without surcharging or steering. Even in not so obvious places. The salesman at the BMW dealership actually encouraged me to use my American Express card to pay the deposit on my new car, saying that I could get lots of miles on that one transaction. Hospitals and clinics here also happily accept American Express cards. It’s all a commercial decision that each merchant is free to make.