Appeal: Help me explain why the Japanese payment infrastructure hasn’t progressed and instead fragmented.

I got into payments because I was so impressed with a Japanese RFID system called FeliCa (wikipedia) which later became part of the NFC standard. This system is comparable to Mifare and in fact to Europeans it’s what Londoners would call the Oyster card. But first, let’s set the context: I first encountered FeliCa in Tokyo in the early 2000s while riding the public transport but It was only in 2010 and 2011 when I had a stint in Hong Kong that allowed me to use Hong Kong’s FeliCa implementation (Octopus) on the public transport system (MTR) every day for almost two years. The experience changed how I looked at payments forever.

Back in 2011, I had assumed that FeliCa and its various implementations would soon go beyond simple contactless closed-loop payments and enter more aspects of our daily life. In Hong Kong and in Japan this was evident by its other uses, for example, in Hong Kong you can use Octopus to enter your office or register your attendance in class. In Japan and in Hong Kong, you can use the system to pay at convenience stores and vending machines (besides the intended public transport system use). In short, for almost 20 years Hong Kong and Japan had a contactless payment system that worked really well and people started to use it daily.

Why am I telling you all this? For the last two weeks, I enjoyed staying at my Japanese in-laws and had a pretty good view on daily life in Japan. And what I observed was all but a simplified payment life, in fact I would argue the Japanese have one of the most fragmented payment infrastructure in the world (see pictures).

So what happened? I’m here to find out and I need your help. I propose three reasons for my thesis as to why the Japanese have not been able to simplify their payment life and in fact, are still a somewhat cash heavy society - my hope is that you can provide some insight. If we understand Japan it might in fact provide further insight into why “new” ways of accepting payments and streamlining it is so hard to do (yes, I understand that I’m simplifying this tremendously - I’m mostly focused on in-store payments having experienced this over the last two weeks). So here’s goes:

1. Demographics

Japan especially is an extreme example when it comes to demographics. A whole ⅓ of the population is over 65! That’s unprecedented and warrants the upkeep of legacy infrastructure for a population that neither grew up with mobile phones nor personal computers but are still very much active in the economy.

2. Globalization

I’m going out on a limb on this one, however I suspect that especially in Japan, the system had to accept more payment methods precisely because the homogeneous Japan could not shut out the foreigners. I’m actually surprised to find that only around 2 million foreigners reside in Japan (that’s less than 2% of the population) but this is offset by the explosive growth in tourism over the last 10 years and Japan has now 30 million tourists per year that need to spend money somehow.

3. Costs

In the Japan Cashless vision report, cost is a significant aspect:

“The first challenge is the high cost of adoption for retailers. One of the reasons for the success of QR code based payments in China is the low cost of investment and transaction fees. It requires only conventional smartphones or paper QR-codes for retailers. In contrast, contactless-card payments in Japan require a significant investment in equipment and payment of transaction fees. It is unclear whether government subsidisation will sufficiently lower costs to ensure the transition to cashless payments is a sustainable option.”.

Add to this the fee complexity on a per payment instrument and the fact that interchange is still relatively high (and reading between the lines, competition or lack thereof is partly responsible for this).

What say you? Do you agree or disagree? What is your experience in your country - do you see parallels?