3 reasons that debit card has not been popular in Japan
As I have written previously (old post), less than 1% represents debit payment in Japan while the percentage in other major countries such as US and UK represents almost the same as credit card payment.
This article is for exploring the reasons for this gap. It is often cited that the fact that debit payment is so small in Japan as J-Debit, Japanese debit network built in 2000, did not take off due to the network vulnerability and insufficient affiliated stores. It is certainly true and gets in the way for the penetration of VISA Debit Card became effective in 2006. While VISA Debit Card, which works on the same infrastructure as VISA credit card, has seen a sign of growth since last year thanks to the promotion of VISA Japan and the largest commercial bank, Bank of Tokyo Mitsubishi UFJ, I see 3 major reasons that likely pose debit card (even VISA Debit Card) to catch up quickly in Japanese market;
1. Insufficient benefit Unique characteristics of Japanese market are that retailers greatly promote their house cards by offering plenty of points/mileages and there are electric money (prepaid) such as Suica or PASMO for smaller amount transaction. Unless the case that account balance hits negative, consumers are likely to choose credit card to get rewards. Cash-out service, which allows debit card holders to withdraw cash at retailer’s cashier, is not currently available as the regulatory has not officially approved/disapproved. 2. Clearing method In the US or those people who choose to be in UK, the amount spent with credit card needs to be paid through checks within certain period of time. In Japan, the process that the full amount with credit card payment is automatically deducted from the connected account at due date has been a standard. This way, there is no need for using debit card as a mean to get rid of sending checks.
3. Settlement timing/Fee This is more from retailers’ perspective. In Japan, as acquirers proceed settlement to retailers altogether regardless of card types (debit/credit), while retailers in the US can enjoy much faster settlement timing (usually within a few business days) with debit cards. Swipe fee is capped for debit card to be much lower than that of credit card under Dodd-Frank Act Rules in US while the fee rate has been the same for debit card and credit card in Japan.
That said, I still believe that instant visualization of card payment would capture customers needs, the conventional use of debit card might not offer enough incentives to Japanese consumers unless above circumstance is changed.