Editor’s note: We are pleased to announce our new ‘Country in Focus’ series. Every few weeks we will take a closer look at a different country and analyze it in terms of its e-commerce and payments environments. If you haven’t done so yet, subscribe to our blog so you won’t miss a single post in the series. 

In terms of nominal GDP, Japan is the third largest national economy in the world and fourth largest in terms of purchasing power parity (PPP). According to the Japan Statistics Bureau, the number of people who used the Internet for the first time exceeded 100 million people, making up 82.8 percent of the population 6 years of age and older.

The country currently has the third highest population of broadband users after China and the USA.The number of mobile phone subscribers totaled 149.56 million at the end of March 2014 with mobile penetration exceeding 117%.

Rakuten is a major e-commerce player in Japan and, with over $4 billion in annual sales and 28% market share. The company is among the largest internet companies in the world.

E- and m-commerce by the numbers

Japan is a fourth largest country in the world in terms of e-commerce revenue and was number one in the APAC region until 2013. Statista.com reports that the e-commerce market in Japan is expected to grow from $128 billion in 2012 to $143 billion by 2016.

Other key e-commerce facts include:

  • 75% of the population has already made an online purchase
  • 89% of e-shoppers have already engaged in m-commerce

Japan rates third globally in app usage, at an average of 40 apps per smartphone, and the country ranks the highest globally in paid app usage at an average 18 apps per phone. Japan also leads the world in mobile commerce with nearly half of all online retail transactions being made on either a smartphone or tablet. Apple’s iOS is the preferred mobile operating system in Japan, with a 68.7% share.

Japan’s e-commerce industry growth is expected to be driven by a combination of m-commerce and higher average spending amid slower growth in internet penetration and population. However, the growth rate is likely to be lower compared to China, the US and the UK. The e-commerce industry is projected to expand at a CAGR of 9.2% from 2012–16. Clothing and food are among the most popular product categories in Japan’s e-commerce industry.

E-commerce payments environment

So now that we understand a bit more about the Japan’s e- and m-commerce environments, how do Japanese shoppers pay for their purchases and what is the environment like for payments companies?

In Japan, credit cards are the most popular payment method (59.5%), followed by Konbini (16.6%), a local payment method with a notable share of the payments market. With the latter payment method, a customer receives a reference number and pays at the counter or enters it in a kiosk in the Konbini (convenience store).

The e-money market in Japan is growing fast and is dominated by payment providers operated by large retailers, banks and mobile operators.

Working with, not against, local regulations

Local regulations tend to present numerous stumbling blocks for foreign payments companies. Many of these companies tend to enter the Japanese market lacking the expertise to deal with them. So the tendency of some foreign companies has been to avoid these regulations instead of learning to work with them.

Our approach has been to work with local regulations in all the markets we enter, but in Japan in particular. Our expertise in local regulations saves time and money for both local and international merchants. While many Japanese businesses tend to be wary of foreign payments companies, our willingness to work with the system has allayed many of these fears. This allows us to help drive payments innovation in Japan. Digital and cost-effective payment processing that abides by local finance regulations is key to this goal.