Mobile payment platform Square is now processing more than $15 billion in annual payments with roughly half of its 2 million US customers stemming from iPad users. In addition, Square recently released its new Square Stand cash register for its line of small business solutions. This momentum has fueled last week’s announcement that Square is set to enter the Japanese market – its first country outside of North America – through a partnership with Sumitomo Mitsui Card Corporation.
Unlike in the US, NFC and mobile payment solutions are not a new phenomenon in Japan. The service has been around for the last eight years and is perceived to have matured considerably under the leadership of competitors such as:
- NTT DOCOMO
- KDDI
- PayPal
Rather than offer “old fashioned” swiped payments, these companies have relied on Osaifu-Keitai, or a mobile wallet that leverages NFC chips embedded in mobile phones. In fact, the vast majority of mobile phones in Japan are preloaded with mobile wallet technology. On the surface, the mobile wallet appears pervasive, leaving little room for swipe technology offered by Square. However, research has indicated that while mobile wallet technology is widely distributed as a function of mobile phones, these applications are not widely used; there are mature players in the market but not widespread adoption. Japan is still, in fact, a cash driven society.
With a little room in the market, the question arises as to how Square will choose to enter and compete with mobile POS powerhouse PayPal and pioneers like KDDI when NFC has yet to command interest in the Japanese market. The answer seems to be incentives.
For example, Square recently revealed a beta version of SquareCash in which money can be delivered via email directly to a recipient’s debit card. The company also introduced SquareWallet – its own take on NFC mobile payments. KDDI has leveraged strategic partners such Japan Airlines to offer NFC airline tickets and loyalty programs through Bic Corporation. These companies are trying to make mobile payments attractive to the Japanese consumer that tends to value convenience above all.
While mobile wallet vendors strive to grow their market penetration through various partnerships and incentive strategies, future evolution of the mobile payments market will be largely determined by consumer and retailer preferences.
We see future growth limited – to a large extent – by consumer questions concerning the security of mobile payments and the price of transactions, in addition to their persistent penchant for hard cash. Further, retailers could prove just as important a market to win over for vendors looking to gain market share. Value for retailers may stem from the capacity of these solutions to facilitate operational efficiencies, improved inventory management and an enhanced ability to leverage customer data. Retailers will look to be able to print receipts, refund capabilities, and the ability to track cash payments among a variety of other applications designed to increase retail efficiencies.
While swipe technology will most likely face an uphill battle in Japan due to the established NFC infrastructure, Square could find success if it plays its cards right - by embedding them in the phone and focusing its efforts on retailers as much as consumers.
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