Further “deterioration”… Survival strategy and power structure of the “credit card industry” that will be eliminated as a result of the JFTC’s re-investigation

The Real Reason Why Japan Is Not Going Cashless

Credit card fees in Japan have been considered “relatively high. This is about to change drastically. In addition to the fact that the JFTC has often discussed the issue over the past several years, the cashless industry has begun to lower its own fees in response to the competition for market share. Experts point out that while such a move will bring benefits to merchants, it will lead to a deterioration of services for users, which in turn could lead to a possible reorganization of card companies.

More than 5%!　Cards not accepted at restaurants because of “expensive fees

The October 10 Nihon Keizai Shimbun (electronic edition) reported that the Japan Fair Trade Commission (JFTC) is conducting an investigation into credit card fee rates. This time, the Commission will mainly focus on the restaurant industry, where fees are particularly high.

In fact, credit card fees in Japan are relatively high. According to a report published in March 2010 by the Ministry of Economy, Trade and Industry’s Cashless Promotion Office, the average fee in Europe is in the 1% range, and in the U.S. it is often in the 2% range, but in Japan it exceeds 3%. Moreover, in Japan, commissions of 5% or more (!) It is estimated that about 10% of the member stores in Japan have a commission rate of 5% or higher (!), and many of these are small restaurants.

Profit margins in the restaurant industry are low, averaging around 5% for listed companies. Credit card fees are a major factor in squeezing profits, and there are still many restaurants, including major restaurant chains, that do not accept credit cards. The government, which is promoting cashless payment, intends to reduce the fee rate and increase the number of stores that accept them in order to further promote the use of cashless payment.

Some credit card companies and settlement agents are moving to “lower” fees.

As if in response to the government’s desire, there has been a noticeable movement to reduce fees ahead of other companies. In November, Sumitomo Mitsui Card lowered its merchant fees for Visa and MasterCard to 1.98% for small and medium-sized businesses and sole proprietors (under certain conditions, such as “first-time introduction of credit card payment” and “only touch payment with a smartphone”).

Square plans to reduce its fees from 3.25% to 2.5% for VISA and MasterCard from November, and Airpay, well-known for its TV commercials, plans to reduce its fees from 3.24% to 2.48% for major international brands from December. Airpay, well-known for its TV commercials, plans to reduce its fees for major international brands from 3.24% to 2.48% from December. Both of these fees are designed for small and medium-sized businesses.

E-money” ⇒ “Code payment”: Competition in the “small payment” market, the most familiar in our daily lives

The reduction of fees by credit card companies and settlement agents is of course influenced by the government’s intention, but there is another background as well. However, there is also another background: competition for market share in the “small-value payment” market. There is no clear definition of “small-value payment,” but it refers to payments of “small amounts” ranging from a few hundred yen to around 1,000 yen. It is the most frequent payment in our daily lives, such as a boxed lunch at a convenience store or a cup of coffee at a café.

The small-amount payment market has long been dominated by electronic money players such as Suica, but in 2010, “code payments” using QR codes and barcodes replaced them. According to the cashless payment ratio announced annually by the Ministry of Economy, Trade and Industry (METI), in 2011, the gap between electronic money and code-based payment was 6.4 trillion yen and 10.9 trillion yen, respectively, and the gap is widening (see graph).

Strong rival “touch payment”…will code payment end up “three days in the sun”?

However, a powerful rival to the steadily expanding market share of code-based payment began to emerge as early as last year. It is the “touch settlement” of credit cards. However, according to various recent surveys, about half of all credit card users seem to use touch settlement on a daily basis, and it is possible that it has already surpassed code settlement’s share of the small-value payment market.

The driving force behind code payments’ rise to the top of the small-value payment market is their low fees. The basic fee for merchants of the largest PayPay is 1.98%. On the other hand, Suica’s fee is estimated to be 3-4%, which is less expensive than credit card fees, but clearly more expensive than PayPay’s fee. Now, the credit card touch payment service, which is as easy to use as e-money, has lowered its fees to a level comparable to PayPay, and is trying to capture market share.

The battle for the small-value payment market extends to public transportation as well. Not only in regional areas, but also in the Tokyo metropolitan area and the Kansai region, an increasing number of private railways and subways with a large number of passengers have automatic ticket gates that accept touch and code payments, in an attempt to break Suica’s stronghold (Suica, which is fighting an uphill battle, is trying to find a way to make a comeback in financial businesses such as “JRE BANK” but continues to face a slow and steady decline). ……).

Details of fees finally disclosed… What is the “issure fee” that the JFTC considers problematic?

Based on the above, we can say that the immediate goal of fee reduction is “around 2%. Although the reduction is only a little more than 1% from the current level, the impact will not be small.

The JFTC investigation mentioned at the beginning of this report has, in fact, been conducted many times over the past several years. Each time, it has urged international brands such as VISA and MasterCard to disclose their fees. This fee is called an “issuer fee,” which is a commission paid by the card company with which the merchant has a contract (acquirer) to the card company with which the user has a contract (issuer).

When a credit card is used, an international brand authentication system is used to verify that the card is not blacklisted and that the credit limit has not been exceeded. The acquirer pays a fee to the issuer.

The issuer fee accounts for the majority of the fees paid by merchants to card companies. The JFTC considers this to be the main reason why credit card fees are relatively high in Japan, and has demanded that international brands disclose their fees. For many years, they have not disclosed their fees in Japan, even though they have done so in other countries.

As a result, VISA, MasterCard, and China UnionPay disclosed their respective commission rates in November 2010. However, since then, no progress has been made in lowering fees, which is believed to have led to the current re-examination.

Service deterioration and industry restructuring… a potential disadvantage for credit card users.

While the reduction of the issue fee will bring significant benefits to merchants, it is likely to be a disadvantage to credit card users. This is because the isurer fee is the source of funds for member services such as point redemption and sales promotion expenses.

If this portion of the fee is reduced, the source of point redemption will also be reduced. Therefore, the recent trend of credit card service content deterioration is likely to continue. Although each company is expected to avoid making changes to point redemption rates, which would directly lead to a decline in the number of users, it would not be surprising if all other aspects of their services were to be subject to change as well.

The business model of the credit card business on its own is approaching its limits, and this may lead to industry restructuring, such as mergers and acquisitions among card companies. The oligopoly of common points, which provide services in a comprehensive “economic sphere” that does not depend on commission income, will further advance.