Electronic Money Trends As Revealed by a Consumer Survey Vol.66 (10.December.2009) Electronic Money Trends As Revealed by a Consumer Survey

lakyara 2009Kyara, which means “precious” in ancient Japanese, is an aromatic resin regarded as the highest quality of all agarwood. “lakyara [la-kæ´la]” aims to deliver the same quality as Kyara together with NRI’s endeavour for continuous excellence and innovation to provide the most advanced and up-to-date information to our readers worldwide.

vol.66 (10.December.2009) Electronic money trends as revealed by a consumer survey vol.66 (10.December.2009) Electronic money trends as revealed by a consumer survey

Electronic money is gaining prevalence as a means of payment. With e-money ownership and usage rising in Japan's five largest metropolitan areas, the keys to further growth in usage are capturing women users and pairing e-money with other types of cards.

Electronic money has gained Exhibit 1. Electronic money ownership and usage rates mass prevalence (%) 90 82.8% Electronic money enables Japanese consumers to 80 70 purchase goods and services using a mobile phone or 61.4% 60 56.5% non-contact smartcard (e.g., Edy, Suica). With over 100 51.5% 51.8% 50 47.4% million such cards now issued, e-money is said to have 42.9% 38.8% achieved universal acceptance. According to a Bank of 40 34.0% 35.9% Japan survey published in July 2009 (Developments in 30 Electronic Money in Japan During Fiscal 2008), over 100 20 million e-money transactions with an aggregate value of 10 0 some ¥800 billion took place in fiscal 2008. Fiscal 2008 Sapporo Greater Tokyo Tokai Kinki Fukuoka transaction volume increased 40% from fiscal 2007 in both (n=250) (n=1,000) (n=250) (n=500) (n=250) Percentage of respondents that have e-money unit and value terms. Percentage of respondents that use e-money

Source: NRI's Third Electronic Money Survey Against such a backdrop of growth in e-money usage, NRI conducted its third Electronic Money1) Survey. Specifically, we surveyed 2,250 adult (aged 18 or older) residents of five major metropolitan areas (Sapporo, Greater Tokyo, Sharp increase in average expenditure Tokai, Kinki, and Fukuoka Prefecture)2). per "main e-money" transaction

Survey respondents with e-money cards have an average Electronic money ownership of 2.4 such cards. The survey queried respondents with and usage frequency have risen e-money about their usage of their "main e-money" (i.e., the e-money brand that they use most frequently for In Greater Tokyo, 82.8% of survey respondents have a routine purchases). We found that the average e-money card (or mobile phone) with e-money functionality, as do user makes 7.0 e-money purchases per month with an more than half of the respondents in Kinki (56.5%) and average value of ¥900 per purchase4). Average usage Fukuoka (51.8%). In Tokai, the corresponding percentage frequency was nearly unchanged from last year's average was 42.9%, a 6.9 point increase from the year-earlier of 7.2 times per month, but the average expenditure per survey. In Sapporo, which was surveyed for the first time transaction rose 19% from approximately ¥750 last year, this year, respondents’ e-money ownership rate was partly by virtue of increased acceptance of e-money 61.4%. The percentage of respondents in Greater Tokyo among merchants and growth in issuance of retailer- that own e-money and use it for purchases3) was 51.1%, affiliated e-money cards. above 50% for the first time since the survey's inception. This usage rate increased in all four metropolitan areas for which year-earlier data were available, suggesting that e-money is gaining prevalence as a means of payment (Exhibit 1).

Key to growth is capturing female Exhibit 3. Average monthly expenditures by type of "main users and dual functionality e-money" classified by paired functionality 0 20 40 60 80 100 (%) Analysis of e-money usage by users' demographic e-money paired with credit card or 9.5 22.2 19.4 21.3 18.4 6.2 3.0 attributes revealed that average expenditure per "main bank ATM card(n=210) 2.1 e-money" transaction was higher for female users than e-money paired with retailer's male users and increased with age among both males and membership or loyalty point card 15.9 25.9 21.0 15.6 17.5 1.9 (excluding airline mileage cards) (n=178) females (Exhibit 2). 0.9 e-money paired with airline mileage card or hybrid mileage/credit card (excluding 23.8 22.0 19.3 19.7 8.9 5.4 regular credit cards and ATM cards) (n=123) e-money integrated into a mobile phone 1.3 Exhibit 2. Average expenditure per "main e-money" (excluding mobile phones in which 22.9 26.0 13.8 21.9 12.7 1.4 transaction by gender and age group e-money is paired with mileage or loyalty point functionality) (n=189) 1.2 (yen) e-money card with no paired 33.9 26.2 11.7 17.8 5.0 4.1 1,200 1,166 functionality(n=283)

992 1,000 Less than ¥1,000 ¥1,000 - 2,999 ¥3,000 - 4,999 895 824 ¥5,000 - 9,999 ¥10,000 - 29,999 ¥30,000 or above 800 Not known 639 640 Source: NRI's Third Electronic Money Survey 600

400

200 Infrastructure sharing is the way to profitability 0 18 - 29 30 - 49 50 and older 18 - 29 30 - 49 50 and older (n=117) (n=211) (n=204) (n=86) (n=182) (n=185) Now that e-money has gained prominence as a means Males Females of payment, the total e-money transaction volume is Source: NRI's Third Electronic Money Survey projected to surpass ¥1 trillion in fiscal 2009. Despite the market’s growth, earnings per e-money brand are still With growth in usage frequency stagnating, capturing meager. A number of issues remain to be resolved for the support of female users with their higher average e-money to emerge as a profitable business on a stand- expenditure per transaction is the key to market growth. alone basis.

Additionally, analysis of e-money usage by type of The immediate issue is how to increase usership by "main e-money" revealed that the type of e-money with enhancing convenience, boosting recognition, and/or the highest average monthly expenditures is e-money expanding the network of merchants that accept e-money. integrated with a credit card or financial institution's ATM From a medium- to long-term perspective, sharing of card. Conversely, the type with the lowest average monthly infrastructure is essential. Currently, there are several expenditures is simplex e-money not paired with any other standards in use for the terminals that process e-money function (Exhibit 3). transactions. This diversity imposes a heavy hardware cost burden on e-money issuers. Meanwhile, point-of- We surmise that combining e-money with another function sale adaptation, terminal installation, and the hassle (e.g., credit card, Airline mileage) is an effective means of of processing e-money transactions are impediments promoting e-money usage. to cultivating a merchant network. To resolve these difficulties, e-money issuers need to share terminals and networks. Issuers' progress toward establishing e-money as a mass-market cashless payment technology will continue to bear close monitoring.

Note

1) The survey covered the following 18 brands of electronic money: Edy, Suica, PASMO, ICOCA, PiTaPa, TOICA, nimoca, SUGOCA, Kitaka, SAPICA, nanaco, WAON, iD, QUICPay, Smartplus/VisaTouch, PayPass, JAL IC Coupon, and taspo/Pidel.

2) NRI's Third Electronic Money Survey was conducted on June 12 –16, 2009. A total of 2,250 adult (age 18 and older) residents of the five regions named below were surveyed using NRI's TrueNavi Internet research service (survey responses were tabulated by gender and decennary age brackets). Numbers of survey respondents by region were as follows: 250 from Sapporo (Sapporo City), 1,000 from Greater Tokyo (Tokyo Metropolis, Kanagawa Prefecture, Chiba Prefecture, and Saitama Prefecture), 250 from Tokai (Aichi Prefecture, Mie Prefecture, and Gifu Prefecture), 500 from Kinki (Osaka Prefecture, Kyoto Prefecture, Hyogo Prefecture, and Nara Prefecture, and 250 from Fukuoka (Fukuoka Prefecture).

3) Usage as a commuter pass or to pay train/bus fare was not counted as a purchase. In Exhibit 1, usage rates were calculated by dividing the number of active users by the total number of respondents in each region, including respondents that do not posses e-money.

4) For average expenditure per transaction, response tallies were adjusted by weighting them so that the samples collected from the surveyed metropolitan areas coincided with the metropolitan areas’ respective population distributions by gender and decennary age bracket based on the 2005 National Census.

Author's Profile Ai Kawano Consultant Financial Business Consulting Department II

E-mail : [email protected]

The entire content of this report is subject to copyright with all rights reserved. The report is provided solely for informational purposes for our UK and USA readers and is not to be construed as providing advice, recommendations, endorsements, representations or warranties of any kind whatsoever. Whilst every effort has been taken to ensure the accuracy of the information, NRI shall have no liability for any loss or damage arising directly or indirectly from the use of the information contained in this report. Reproduction in whole or in part use for any public purpose is permitted only with the prior written approval of Nomura Research Institute, Ltd.

Inquiries to : Department of Financial Markets and Technology Studies Nomura Research Institute, Ltd. Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan E-mail : [email protected]

http://www.nri.co.jp/english/opinion/lakyara