Competition for cash

[Dave Birch] Some unrepentant e-cash fanboy was quoted saying that "society will eventually end its love affair with cash and embrace technology - as in Japan where mobile phones, not bank cards, are replacing coins and notes".  It this a reasonable comment or techno-blinkered boosterism?  We need, as Aneace says, to find some figures on actual transactions performed with mobile phones.  Let's look at Japan.

Technorati Tags: contactless, e-purse, mobile, retail

The main alternative to cash in Japan in the EDY (euro-dollar-yen) stored-value e-purse run by bitWallet, but in the last couple of years four other competing contactless payment schemes have launched.  EDY now has to compete with DoCoMo's DCMX credit product, the Suica combination train and e-purse scheme and the new Pasmo combination transit and e-purse scheme.  Seven-Eleven Japan is about to launch another contactless payment service, called “nanaco,” in 12,000 stores.  Phew.

But, you might note, Japan is a cash-oriented society.  In Japan, 90% of retail payments are cash whereas in the UK it is 60% (although, obviously, a much higher proportion of small payments).  But on the other hand, 90% of payments in the UK used to made in cash, so maybe we're ahead of the curve.

In February 2006, Japanese consumers performed 15 million transactions with the nearly 27 million Edy cards and Mobile Edy applications on wallet phones in circulation.  For comparison, I think Visa has around 70m+ cards in circulation in Japan and just one major card issuer, Sumitomo Mitsui (which is partly owned by DoCoMo), handles about $3 billion per month.  Nevertheless, the EDY volume is more than double the 11 million monthly transactions made a year earlier.  80% of EDY users carry cards, 20% use EDY on phones (all the telcos --DoCoMo, KDDI and Softbank -- have EDY handsets).  There are nearly 50,000 merchant locations that accept EDY.

While the EDY application already runs on a number of banking cards, bitWallet is about to extend the reach significantly.  ATM cards issued by Japan’s postal savings bank are the next stop: and this is vitally important because the postal savings bank is huge there.  Japan Post has agreed to put EDY as well as Suica onto some of the more than 70 million magnetic stripe ATM cards it is replacing with chip cards.  And bitWallet will try to expand the merchant network to gas stations, retail shops and restaurants along Japan’s toll motorways.

What I find particularly interesting about the latest figures is that Japanese consumers are already buying goods and services over the Internet by tapping their EDY cards or mobile phones on readers connected to or built into PCs and as we have discussed before, bitWallet hopes to increase use of Edy for e-commerce, along with payment by the e-purse for downloads of games to PlayStation 3 consoles.  As in Europe, where we expect NFC interfaces to be built in to a variety of consumer electronics, more devices (such as set-top boxes) will be sprouting contactless interfaces to support small payments in the future.

So what does all this means when it comes to figures?  Well, here's the key one: the Feds say that the Bank of Japan reported that the total amount of coin in circulation has started to fall for the first time on record.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Comments

[BillSomerville]

Where did you get the info that states: "the Feds say that the Bank of Japan reported that the total amount of cash in circulation has started to fall for the first time on record"? It's not in the Boston Fed report . . .

Bill S.
SVP, Unidelp

[Dave Birch] I apologise unreservedly for my sloppy editing. The Philidelphia Fed report says that "coin" in circulation fell, not "cash", and I have edited the blog post to make the correction. Thanks for drawing my attention to it. The full quote is "The large number of cardholders and transactions is one measure of these products’ success in Japan; another is the recently observed changes in coin usage. The Bank of Japan has reported that coins in circulation dropped by 0.05 percent in 2005, marking the first time that such a decrease has been observed since the bank started keeping records 30 years ago. The first few months of 2006 show additional
declines."

[BillSomerville]

Great. Thanks for the update--good to know the source.

Bill

[KushCash]

Great post, Dave.