E-Commerce in the Land of Cherry Blossoms

Selling to Japanese consumers has long represented a compelling proposition for Western businesses – offering access to a large market of generally wealthy consumers. To date, few have taken full advantage of this opportunity, with many held back by high hurdles to entry, including linguistic and cultural differences. Yet as technology advances, the right support can enable almost any business to realise considerable returns in the Japanese market. Jack Momose, CEO of Degica, explains how European merchants can open the door to Asian e-commerce

What is the biggest difference between Japan and Western markets?

It might come as a surprise to those who don’t know, but even though Japan is the fourth largest e-commerce market in the world, it is still largely dominated by cash payments, while most Western economies have long since shifted to card and other more digital methods. This preference carries through to perhaps the most striking of many differences between Japan and Western markets – the preference of Japanese consumers to pay with cash even for online purchases – via convenience stores known as Konbini.

These convenience stores can be found on every corner and serve as a one-stop-shop where consumers can purchase food and drinks, pay bills, use ATMs and printing machines – as well as pay for online purchases. With a high demand for Japanese convenience stores, many brands are competing for the top spot in the market, with the most popular brand being 7-Eleven.

When making online purchases, customers can choose a nearby Konbini, where the goods will be delivered and paid for in cash. While this is alien to most in the West, in Japan, Konbinis are a symbol of familiarity and trust for consumers, so being able to offer this kind of payment can be beneficial for foreign companies that want to establish themselves here as reliable and reputable sellers.

More recently, however, the Japanese government has been pushing for cashless payments methods, with smartphone payments being rapidly adopted among consumers.

How can foreign merchants adapt to accommodate these differences when selling to Japanese consumers?

It’s worth stating at this point that Japan does not pay entirely via Konbini or cash. Credit cards are also popular (though less so than in the West and largely through local Japanese providers, such as JCB). Mobile payments, meanwhile, have also seen rapid adoption among Japanese consumers, processing billions of dollars in transactions. The main technologies that enable mobile payments methods are Near-Field Communication (NFC) and QR code-based, with local brands such as PayPay allowing customers to pay by scanning a QR code with their smartphone. It is also a prepaid-based payment method, which means that users can top up their money from a debit and credit card, or from their bank account into their mobile wallet.

Until recently these methods have been largely inaccessible to most Western companies. Now, however, fintech platforms can facilitate the process, making it easier and more seamless for them to do business in other countries. KOMOJU, for instance, acts as an extension of an e-commerce shop, encompassing all payment methods under one contract. Merchants can simply connect their website to the platform and the solution manages their check-out process, with the software ensuring that the payment is completed and shipping can progress.

Fintech solutions like KOMOJU can offer support not only for payment methods like Konbini, but also for other popular Japanese payment methods such as credit cards, digital wallets or the increasingly popular mobile payments.

Do businesses need a Yen account to sell to Japanese consumers? How do they manage their exposure if their costs are in another currency?

Solutions such as KOMOJU incorporate FX functionalities that enable merchants to receive funds in their desired currency, while processing currencies native to local markets.

When merchants sell to Japan, their customers typically pay in Yen, but fintechs, such as Degica, these days have FX capabilities that can instantly convert between Yen and the merchant’s base currency – meaning they can keep their books and pay their expenses with minimal uncertainty.

Can problems arise when implementing new payment methods?

The biggest challenge in implementing new payment methods is to bridge the gap between the levels of expectation. Whether it is Know Your Customer (KYC) checks, merchant onboarding or identification of the final beneficiary, Western providers have different views on how this should be handled compared to their Japanese peers, and therefore different methods.

The speed at which merchants expect their money is also different. European merchants for instance, expect their money very quickly. In contrast, settlement cycles of a month or more are common in Japan. Experienced fintechs, with a strong knowledge of the country, its laws and its customs, should be able to negotiate these, however, and ensure that processes are as smooth as possible.

Why should the Western e-commerce markets even consider Japan?

Japan is considered particularly demanding due to its local and cultural characteristics. However, Western products do not need to hide here – quite the opposite. They are increasingly popular in the country and prized for their quality and Japanese consumers tend to pay more if they have the choice to get a better product. As a result, the Japanese market’ high margins and high per capita income make it fundamentally more attractive than many other regions.

The large population should not be underestimated either. According to Trading Economics, Japan had a population of approximately 126.4 million by the end of 2021 and therefore remains one of the 20 countries with the largest population worldwide. In turn, Japan’s e-commerce market is worth more than 11 billion euros and is growing by 9% annually, a sign that the country’s economy remains strong. Indeed, with Japan’s inflation well below that of other economies, this could be a good way of diversifying from Western markers that are currently facing a considerable cost-of-living squeeze.

Japan is considered the wealthiest country in Asia and one of the richest in the world. Meanwhile, its consumers have an affinity for global brands and are accustomed to shopping primarily online. With the help of appropriate tools, there is nothing to stop businesses from entering this e-commerce market and forging new and profitable revenue streams.