How Apple Pay Will Dominate Japan Despite Arriving A Decade Late

Mobile phone users in Japan have been making contactless mobile payments for more than a decade, but  Apple will join the trend only this year. From October, the 7 series phones and Apple Watch Series 2 will come with chips that allow payments through Japan’s Suica prepaid e-money cards, meaning users can buy “everything in their daily routines,” Apple says in a statement.

Japanese people have been paying for so many things with handsets since 2004 -- back then using advanced feature phones -- that some don’t even take their real wallets out the door. Apple needs to catch up and analysts expect that it will in the long term, despite being a laggard now. Here's how.

But first, why. Apple needs the boost because its handsets have lost global market share since 2015 to Samsung and Chinese brands, while Google ’s Android mobile operating system cut into Apple iOS in Japan in the second quarter of 2016, news source itwire.com says. Apple Pay mobile commerce in Japan would drive up sales of the iPhone 7, which is better known for camera features and water proofing, while drawing Japanese users to paid content on those phones.

First advantage for Apple Pay: Japanese are used to the idea.

“Japan...already has a mature mobile payments industry, so it makes sense for Apple to adapt its service to fit the infrastructure already in place in Japan,” says Jack Kent, operators and mobile media director with market research firm IHS Technology. “While Apple will be catching up in terms of mobile payments in Japan, its advantage there is that it will not have to persuade users to adopt a new use case.”

According to a 2011 study by the business consultancy Accenture , 33% of active mobile users in Japan had used phones to make payments that year and 47% said they favored this method, more than in Europe and the United States. Japan's trend boomed in 2004 when dominant mobile carrier NTT DoCoMo popularized its Mobile FeliCa cards, mainly to pay by phone for public transportation tickets. By the end of 2016, around 32 million smartphone owners in Japan will be able to make contactless mobile payments and drive $15.3 billion in expenditure by credit, debit and prepaid cards, estimates Nitesh Patel, director of wireless media strategies with market research firm Strategy Analytics. That total should double by 2021, Patel says, but he anticipates "upgrading this estimate based on the Apple Pay launch.”

Second advantage: Apple remains popular in Japan despite pressure from Android rivals, and Apple Pay is technically solid. An iPhone can take photos of payment cards, process the details and apply fingerprint authentication. “Apple Pay has solved the early complexity of registering for, setting up, and authenticating payments by making it easy for users with bank cards stored on their iTunes file to apply those credentials to Apple Pay,” Patel says.

Finally, the latecomer's advantage: Earlier payment services have smoothed out old snags in getting banks to agree and in signing up customers in Japan, leaving Apple an advanced ecosystem in which to start. (Apple Pay is expanding in other places with a critical mass of smartphone users and accommodating financial systems.)

Japan will give the Silicon Valley scion "incremental revenues from its share of transaction fees for Apple Pay," Kent says. Japan, he adds, "already has a mature mobile payments industry, so it makes sense for Apple to adapt its service to fit the infrastructure already in place in Japan."