Unlocking the potential of Japan’s ecommerce market

The Japanese market is becoming increasingly popular among western companies, fuelled by its large, wealthy population and strong perception of western goods. Yet it’s a market known for being difficult to enter, not least due to its very different culture and and the high demands of its consumers. But can technology – and, in particular, payment technology – start to break those barriers down?

Japan looks set to become increasingly international in the near future – with more Japanese companies looking to expand into western markets and, on the other side of the equation, many established western companies seeking growth in Japan. Certainly, Japan presents significant opportunities for these businesses. According to the IMF, Japan had an estimated population of around 125.9 million in 2020, placing it among the 20 countries with the largest population worldwide. In addition, as the third third largest economy in the world, its population comes with a high average income of around JPY5.16m per year, which makes for a per-head income that exceeds that of the Chinese by a factor of 10 and even that of the Germans by a third. Added to this considerable purchasing power, is a good infrastructure and strong respect for European brands.

This heady mix of high population numbers, high income and high regard for western goods makes Japan an ideal target market. And with the country standing as the third largest e-commerce market – worth more than US$114bn and growing at 29% in 2020 – opportunities abound even for those without a local presence, according to ecommerceDB.

What are the challenges?

Yet for all the opportunities, Japan is known to be a difficult market to enter – and not without reason. Three points stand out in particular:

• Consumers have a different culture and preferences;
• Consumers are used to often payment methods that are often unfamiliar to western merchants;
• Merchants must overcome the language barrier between their organisation and Japanese consumers.

While Japan and western markets share a number of payment methods, consumer preferences and habits are very different. Credit and debit cards, for instance, are currently used for more than half of all online purchases in Japan. This seems simple enough, but 52% of online card transactions in Japan are made with locally issued cards – making it a trickier exercise for foreign merchants. Japanese Credit Bureau (JCB), the most popular local brand, has more than 130 million customers in 23 countries and is used for 40% of online purchases, but is little known to many western merchants.

Meanwhile, other popular payment methods will be completely new to merchants outside Japan. Most notably, many consumers prefer to pay in cash, even for online items, through local Konbini – a range of all-purpose convenience stores highly prevalent across the country. Here, the online store will offer Konbini as a payment option and, when the customer confirms the purchase and nominates their local Konbini, the store notifies the Konbini to expect the customer to come in and make the payment within a pre-agreed time period. Once the payment is confirmed, the goods are shipped (or digital goods released).

More recently, smartphone payments have also been gaining in popularity, offering an easy way for consumers to make payments online by scanning a QR code with their phone or using their mobile app. Smartphone payments are popular among younger, more digitally savvy demographics. To increase customer loyalty and satisfaction, the three major QR code payment providers – PayPay, LINE Pay and Merpay – offer various rewards for purchases made through their app.

These are just a handful of examples of the divergent range of payment options Japanese customers are accustomed to and will expect if they are to make purchases online – with other methods, more prevalent in the west, often proving a barrier to purchasing decisions.

All of this, of course, comes on top of the language barrier, with Japanese still relatively rarely spoken outside the country and representing a major departure from western languages.

Making Japan simple

Technology, however, is helping to lower these barriers – with the rise of application programming interfaces, particularly in the wake of regulatory measures and the rise of open banking – enabling businesses to quickly integrate multiple new payment methods into their set-up. This has the potential to serve as a shortcut for e-commerce companies to provide options that will instil trust and confidence in Japanese consumers.

Payments, of course, are only the last mile of the customer journey, but tech solutions are also arising to address the language barrier in the stages beforehand. AI-driven translation solutions, for example, though still in their infancy in the grand scheme of things, are constantly improving – and many are already viable tools for quick and accurate translation.

In addition to familiar tools such as Google Translate and DeepL, where users input text piece by piece, there is now also software available that can scan entire documents or even bid files, using optical character recognition (OCR) to identify text and translate it directly on the page – without losing or missing any elements. This saves time, since there is no need to manually insert each text element into a translator.

With the Japanese market promising considerable opportunities for western businesses to expand, it is exciting to see how these trends develop – and pleasing that payments technology is paying a role at the forefront of this trend.