In the previous article we discussed the state of cashless payment methods in Japan, of which mobile payment apps that utilize QR codes are also included.
With the launch of 7-Eleven’s own mobile payment app, 7pay, on July 1st a major blow to the perception of mobile payment methods in Japan has just been delivered.
A Major Blow to the Japanese Perception of Mobile Payment Apps
Not even 2 days after the QR code payment app from Japan’s largest convenience store chain launched it became apparent that ¥55million yen ($550,000) had been stolen from at least 900 users, with potentially more that has yet to be reported.
In response to this incident Seven Pay Co., the subsidiary company that manages 7pay, initially suspended new signups and limited the methods of adding funds to the app via cash at 7-Eleven Bank ATMs, 7-Eleven store registers, or through 7-Eleven’s prepaid card, nanaco. After a short while, however, the company decided to completely stop the service until further investigations into the matter are completed. Nearly 1.5 million users registered accounts for 7pay.
source: 7pay
While 7pay’s blunder is more of a flaw in their IT security planning and preparedness than the QR code technology itself—indeed it seems that the company overlooked the most basic of security measures surrounding user verification, which allowed bad actors to access 7pay users’ accounts—if you can’t trust the operator or company managing the app’s capabilities to securely manage data on their end then the security inherent in the technology becomes irrelevant.
Among a number of amateurish, security loopholes 7pay failed to recognize in their product was the ability to change the email address a requested password reset link was sent to. Additional security features not implemented by 7pay included two-step verification, where a text message is sent to a user to verify a purchase before finalizing payment, which is commonly seen in other mobile payment apps.
Rival convenience store chain, FamilyMart, who also released their own mobile payment app dubbed “FamiPay” on the same day as 7pay, have not encountered any difficulties. But with the negative press surrounding this story, potential new users of FamiPay may be reconsidering plans to register given the recent events.
Needless to say, as a result of this fiasco trust in 7pay is essentially gone before the service could even really get off the ground.
Why Companies Are So Interested In Mobile Payment in Japan
Besides the financial benefit to be had from participation in this lucrative market, why are companies so intent on entering the space when it’s already this crowded?
The answer is consumer data. User data has become currency in the digital age and is becoming increasingly valued by organizations.
Companies especially want the data on consumer spending behavior and habits that cashless payment methods can give them. Using this consumer data they hope to develop new products and services or expand their business operations.
What Do Japanese Consumers Think About Mobile Payments
QR code payment apps are not widely used in Japan, despite the efforts of companies inspired by the success of WeChat Pay and Alipay to make it a thing in this market as well.
The following piechart from MMD Labo clearly illustrates that among Japanese consumers, only 1.9% of people use QR code payments. The other responses are varying levels of “Don’t use it” to “Don’t even know what it is,” which should serve as an indication of how relevant QR codes are in the Japanese market.
source: MMD Labo
Furthermore, the mobile payment apps market is incredibly fragmented and with no guarantee you will be able to use any particular mobile payment app due to how many competing systems are out there. Usage is generally limited to a few select types of establishments, with the vast majority being convenience stores.
As mentioned in our previous article on the overall cashless payment situation in Japan, there is no shortage of mobile payment apps and with new companies springing up so quickly, it’s practically impossible for consumers to keep track of all of them. The general image is not exactly positive either, as many Japanese look at any new service as a me-too offering, instead of something innovative.
Will Mobile Payments Stand the Test of Time in Japan?
The current go-to strategy for companies trying to push QR code style mobile payment apps is offering incentives to sign up. For Japanese users this comes in the form of cash back campaigns and, in the case of merchants and retailers, the offer is years’ worth of zero transaction fees for customer purchases.
The short-term profitability, or in this case loss, of this strategy is seen as worthwhile if it means market dominance in the long-term. However, while the hope among companies competing in the mobile payment app space is for users to sign up and continue using these payment methods, most Japanese are registering to take advantage of the bonuses and then reverting back to cash, credit, and transit cards.
Among all the Japanese mobile payment companies currently out there, PayPay is arguably being the most aggressive with their acquisition attempts, but it’s becoming increasingly difficult to see the lasting value proposition for mobile payments that utilize QR codes in this market.
It may arguably be the case that Japanese consumers have already rejected QR code mobile payments it’s just that companies, in their never-ending quest to gain user data, haven’t picked up on this yet.
In the case of Japan, given how ubiquitous smartphones have become and how popular transit smart cards are, virtual wallets such as Apple Pay and Google Pay, with credit cards and Mobile Suica loaded into them may in fact be the future we are heading towards. At least, if consumers have anything to say about it.
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