Within industry experts’ persistent predictions about the imminent advent of mobile near-field communication (NFC) contactless payments, the Japanese market is frequently cited as proof that such payments have a future.

However, Japanese market reality is not as much of a straightforward success as many believe. Based on primary research with leading mobile carriers, banks, payment services, brands, and technology vendors, the Boston-based financial research and consulting firm Celent identified ways to learn how to lay the groundwork for faster, more successful implementations of mobile NFC payment solutions.

The key findings of Celent’s report “Lessons from the Mobile Payments Leader: What the World Can Learn from the Japanese Market” are the following:

  • Only a minority (even though a growing one) of Japanese consumers are using mobile contactless payments. Among Japan's market base of roughly 117 million total contactless payment accounts, Celent estimates that 28 million accounts are registered for mobile payments, and 20 million accounts are active in such payments. In other words, only 17% of the contactless account base, certainly not everyone, is making mobile proximity payments.
  • Given the rising number of mobile phones shipped with mobile wallets and the fact that mobile subscribers swap out old phones for new ones every 24 to 36 months in Japan, it is fair to say that within a short time, mobile wallet saturation across the entire population will be well over 90%. In just over four years, almost one-quarter of contactless payment accounts in Japan have been "mobilized"; i.e., 24% of contactless accounts are registered as mobile accounts, and the remaining 76% are plastic card accounts.

There are a number of lessons to be learned from Japan, which transcends market ecosystems, including the following:

  • Customer adoption takes time. Mobile contactless payments require relatively complicated discovery, download, registration, and use processes that take time to catch on; critical mass does not occur overnight, even in such a technologically fluent country as Japan.
  • For consumers, the payments aspect of mobile payments is ironically irrelevant. For consumers, flawless payment (i.e. financial settlement) functionality is assumed and thus is not a selling point. Rather, consumers are almost exclusively drawn by incentives. In other words, payments are a commodity-an afterthought.
  • Merchants feel the same way consumers do; the value of mobile payments is not the payments themselves. Instead, merchants are overwhelmingly responsive to the benefits of the incentive-type information that "wraps" the financial transaction, such as coupons, discounts, and loyalty points. While such sales lift benefits hold traction with merchants, transaction speed and cash handling cost reduction benefits are of secondary importance.
  • The use of new technology and business models associated with mobile payments creates a catalyst for market entry. In Japan, the card- and mobile-based contactless payment space is dominated by non-FIs, including mobile carriers, third party payments companies, and retailers. Banks and legacy payment brands have been easily usurped.
  • Inter- and intra-industry collaboration is absolutely essential. The mobile payments ecosystem is dependent upon a number of differing industries, which need to be included as stakeholders to grow the market. This includes not only marketing alliances but also joint investments, sometimes undertaken by competitors. Failure to include a major player can lead to its creation of a competing payment solution. Market players should see other industries not as part of the problem, but as part of the solution.
  • The jury is out on whether banks can make money. Prepaid mobile contactless payments reduce banks' role to funds transfers. Credit products are not geared toward contactless use cases. This means that banks' main hope lies with contactless debit products, for which there is no track record in Japan.

"Although Japan obviously differs from the rest of the world, its success in the mobile contactless payments space merits examination," says Red Gillen, Senior Analyst with Celent's Banking Group and author of the report. "If one puts aside the technical and infrastructure differences of the Japanese market, there are a number of empirical, strategic business lessons that are relevant to other countries."