Unlocking the potential of Japan’s ecommerce market

The Japanese market is getting more and more popular in between Western companiesfueled by its large, wealthy population and strong grasp of Western goods.
However, it is a well-known market It’s hard to get in, not least because of their different culture and
high demands consumers. But can technology – and especially propulsion technology – begin to break down these barriers?

Japan appears poised to become increasingly international in the near future – as more Japanese companies look to expand into Western markets, and on the other side of the equation, many well-established Western companies seek growth in Japan. Certainly, Japan presents great opportunities for these companies. According to the International Monetary Fund, Japan had a population of about 125.9 million in 2020, making it among the 20 most populous countries worldwide. In addition, as the third largest economy in the world, its residents come with a high average income of about 5.16 million Japanese yen annually, which puts the per capita income outnumbering that of the Chinese by a factor of 10 and even the ratio of Germans to a third. Added to this great purchasing power, good infrastructure and a strong respect for European brands.

This strong combination of high population numbers, high incomes and a strong interest in Western goods makes Japan an ideal target market. And with the country ranked as the third largest e-commerce market — worth over $114 billion and growing 29% in 2020 — opportunities abound even for those without a local presence, according to eCommerce.

What are the challenges?

However, despite all the opportunities, Japan is known to be a difficult market to enter – and not without reason. Three points stand out in particular:

  • Consumers have different culture and preferences;
  • Consumers often use payment methods that are often unfamiliar to Western merchants;
  • Merchants must overcome the language barrier between their establishments and Japanese consumers.

While Japan and Western markets share a number of payment methods, the preferences and habits of consumers are very different. Credit and debit cards, for example, are currently used for more than half of all online purchases in Japan. This sounds simple enough, but 52% of online card transactions in Japan are done with locally issued cards – making it a much more difficult process for foreign merchants. Japan Credit Bureau (JCB), the most well-known domestic brand, has more than 130 million customers in 23 countries and is used in 40% of online purchases, but not many Western merchants know it.

Meanwhile, other popular payment methods will be completely new for merchants outside Japan. Notably, many consumers prefer paying in cash, even for online items, through local Konbini – a group of small multi-purpose stores widely spread across the country. Here, the online store will offer Konbini as a payment option, and when the customer confirms the purchase and nominates their local Konbini, the store will notify Konbini to expect the customer to come and make the payment within a pre-agreed time period. Once payment is confirmed, the goods are shipped (or digital goods released).

Recently, smartphone payments have also been gaining in popularity, providing an easy way for consumers to make online payments by scanning a QR code using their phone or using their mobile app. Smartphone payments are popular among younger, more digitally savvy demographics. To increase customer loyalty and satisfaction, the three major QR code payment providers – PayPay, LINE Pay and Merpay – offer various rewards for purchases made through their apps.

These are just a few examples of the varying range of payment options Japanese customers are accustomed to and will expect if they make online purchases – with other methods, more prevalent in the West, and often proving to be a hindrance to purchasing decisions.

All of this, of course, comes on top of the language barrier, as Japanese is still relatively rare outside the country and represents a significant departure from Western languages.

Japan made simple

However, technology helps reduce these barriers – with the advent of APIs, particularly in the wake of regulatory measures and the emergence of open banking – enabling companies to quickly integrate multiple new payment methods into their setup. This has the potential to serve as a shortcut for e-commerce companies to provide options that will instill confidence in Japanese consumers.

Payments, of course, are only the last mile in the customer journey, but tech solutions are also emerging to address the language barrier in the earlier stages. For example, AI-driven translation solutions, while still in their infancy in the grand scheme of things, are constantly improving – and many are already viable tools for fast and accurate translation.

In addition to familiar tools such as Google Translate and DeepL, where users enter text piece by piece, there is now also software available that can scan entire documents or even bid files, using optical character recognition (OCR) to identify and translate text directly on the page – without missing any items or lost them. This saves time, as there is no need to manually insert every text element into the compiler.

With the Japanese market promising great opportunities for Western business expansion, it is exciting to see how these trends are evolving – and gratifying that payments technology is playing a role at the forefront of this trend.

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