Электр деньги в Японии

информационно-аналитические материалы

									Table 1
	Categorization of electronic money according the Bank of Japan’approach
		Server type		IC-chip type			Credit type
Access media/		Server based		Cards (contactless)		Cards (contactless)			Cards (contact)
method		ID/password			Mobile ph.	Mobile ph.
Payment timing			Prepaid				Post-pay

as electronic money, while less people think of serverbased type as electronic money. Meanwhile, post-pay type of payment instrument with contactless IC chip in mobile phones and credit cards is similar to electronic money. But, post-pay type electronic money is not categorized as electronic money according to Bank of Japan’s report. They are categorized as one of the types of credit cards.

Therefore, in the following discussion, statistical figures of electronic money such as transaction volume and value are based on the typical contactless IC chip-based (prepaid type) electronic money (shown as blue part of table 1).

Typical business model of electronic money1

Many business models of electronic money have been discussed since the late 90’s beginning with Mondex whose demonstration experiments were widely conducted in England, but we must say that successful models of issuing electronic money itself have not been found easily because it is necessary to have both innovation which corresponds to the advanced technology and to have a public nature which ensures the large market. Due to such background, issuing electronic money itself had not made a good business. In Japan, today, we can say that there are two types of successful electronic money, one is electronic money provided by major retail companies and the other is the one provided by major transportation companies.

Retailers such as convenience stores or supermarkets promote the holding by customers of cards with electronic money functionality to provide greater incentives for customers to spend money at the stores, thereby boosting overall sales. Service providers can also conduct purchase analysis at the individual level by utilizing information on customers’purchase behavior.

Transportation companies usually begin by issuing a chip-based fare card and extend the service to allow purchase of goods. Electronic money services can be started at a relatively low cost, since they can utilize existing system infrastructure.

The typical electronic money brands in Japan are shown on fig. 1 on p. 112. The statistic reported by Bank of Japan regarding electronic money concerns these eight brands of electronic money.

1 Descriptions on the business models of electronic money are based on “Developments in Electronic Money in Japan”(by Bank of Japan) [1].

2 Edy was categorized as independent type of electronic money. However, since a big internet commerce company became its primary shareholder, it is categorized as electronic money issued by retail companies in this report.

Amongthetypicalelectronicmoneybrands,theusage of WAON1 has been drastically increased recently. In 2009, its payment volume (480 billion yens) accounted for about 40% of the total payment volume of the six biggest contactless electronic money brands in Japan (source: Nikkei) and WAON has become the most frequently used electronic money in Japan in respect of both volume and value of transaction. The business model of WAON is explained as follows.

WAON electronic purse has two types, card type (WAON card) and mobile phone type (mobile WAON). Both types are equipped with contactless IC chip which stores value in the chip. There are several types for cardtype WAON, such as anonymous electronic purse, credit card, and electronic money installed in a regional card for shopping (fig. 2 on p. 11).

“Charge”2 meanstoload(credit)electronicmoneyinto electronic purse. Electronic money can be charged using POS terminals at retailers (member merchants), charging terminals, and ATMs of AEON Bank by debiting bank or credit card account. As for mobile phone type electronic purse, charging electronic money can be conducted by accessing the Internet and debiting the designated credit or bank account. There is not the identification to charge electronic money by cash, but the identification take place automaticallyincaseofchargingelectronicmoneybybank or credit card account.Also if the balance of the electronic money has become less than the specified amount (e. g. JPY1000), specified amount (e. g. JPY3000) of electronic money is charged automatically when holding the purse on a POS terminal or charger to pay for something (or ATM). This function is called “auto-charge”. Electronic money is provided by a server operated by an electronic money distributor. If it is the case of loading from the specified bank account, the amount of money is immediately deducted from the bank account just like when using a debit card. When charging from a credit account, the payment bill notifying that the amount shall be paid to the electronic money issuer will be sent to the user later just like when using a credit card (fig. 3 on p. 12).

When electronic money is used as a payment method at a member merchant, the payment information of electronic money is sent from the member merchant to the electronic money issuer, and later, the amount of money used as electronic money shall be transferred from the electronic money issuer to the acquirer (bank) account of the member merchant. In this case, the member merchant shall pay a specified amount of fee to the acquirer, and the acquirer shall pay to the electronic money issuer. The amount of fee is said to be equivalent to that of the case of

1 A brand of electronic money issued by retail company AEON Retail.

2 This function is called “Top-up” in some countries.

ДЕНЬГИ И КРЕДИТ ● 4/2011

19

информационно-аналитические материалы

using a debit card.An example of the flow of fee allocation is shown in fig. 4 on p. 12.

Recent trend of electronic money in small value retail payment instruments

Number of electronic purses (number of contactless smart cards) and terminals

The number of issued electronic money card (electronic purse) has continued to increase and in April 2010, it exceeded 130 millions. It means each Japanese has one electronic purse in average. About 11% of electronic purse is installed in mobile phones so called “Osaifu keitai (electronic purse mobile phone)”. The terminals for the payment by electronic money are now able to handle different types of electronic money brands, however the number of the terminals has increased by about 50% compared annually, and now more than 700 thousand terminals are installed in Japan. This means that the usage of electronic money has been expanding in Japan.

Settlement (amount and number)

The volume and value of the electronic money paymentshaveincreasedby40to50%comparedtothoseof the previous year, and Bank of Japan reported the monthly volume in June 2010 was 170 million and the amount of the same month is JPY140 billion, which are the highest in the record1. The amount per payment has been increasing, but electronic money is still used for smaller amount of payment which is less than JPY 1000 (fig. 5 on p. 13).

Outstanding amount of electronic money

Outstandingamountofelectronicmoneymeansthetotal of the stored value of the electronic money in the electronic purses. It has also been increasing and as for that of the IC chip type electronic money, as of June 2010, it was JPY 115 billion. It increases by about 20% annually, and expected to continue to increase. The average outstanding of electronic money per electronic purse is about JPY 850. It is relatively smaller compared to the maximum amount of the limit each electronicmoneyspecifies(fromJPY20,000toJPY50,000), which indicates that there have been many unused electronic purses. On the other hand, outstanding amount of electronic money seems to increase after two years of decrease since 2007 when all the major electronic money were launched, which implies that electronic money has accepted as one of the major payment instruments.

Market segments which electronic money occupies

Compared to the value of transactions settled by other small payment instruments [1], valued of transaction settled by electronic money in fiscal year 2009 exceeds that

1 These figures are based on 8 typical brands of contactless IC chip-based prepaid type electronic money. Therefore, the figures do not include server-type or credit-type electronic money. Also, this does not include the amount paid as transport tickets and commuter passes.

of debit cards, but remains smaller than that of credit cards. Thevaluesettledbyelectronicmoneycontinuestoincrease by 50% annually but still remains in a small amount.

	Table 2
Comparison of outstanding (March, 2009)
Electronic money	JPY 0.12 trillion
Money supply	JPY 4.5 trillion
Banknotes outstanding	JPY 77.3 trillion
Money Stock (M3*)	JPY 1078 trillion
* Sourse: www.boj.or.jp

Monetary policy implications

Outstanding amount of electronic money is yet about 2.6% of the coins in circulation in June 2010 (1.7% in March 2008 and 1.4% in September 2007). It has increased drastically. The outstanding amount of coins in circulation (especially small denominated coins) has been decreasing since 2007 which implies that electronic money has been replacing coins1. Meanwhile, it was 0.16% of the outstandingamountofbanknotesincirculationand0.011% of M3, and we assume that electronic money would not affect central bank’s seigniorage nor the monetary policy implication.

		Table 3
	Comparison of payment amount (March, 2009)
	Electronic money	JPY 1.3 trillion
	Credit card	JPY 42.4 trillion
	Debit card	JPY 0.7 trillion
	Bill payment service	JPY 6.8 trillion
	at convenience stores
	Collect on delivery	JPY 2.3 trillion

Regulations and contracts related to electronic money

Prepaid type electronic money is operated according to the “Payment Services Act” which is a domestic law of Japan. Prepaid card issuers including WAON forms a self-regulatory organization called Japan Payment Service Association and formulated more detailed self-imposed regulations and guidelines to promote sound usage of electronic money.

Payment Services Act as a regulation for electronic money

In Japan, the act to regulate prepaid type electronic money is the Payment Services Act which became effect since 1April 2010.As for the detail operation, it is regulated

1 As for the cause of the decrease in coins, there are several factors such as the change in consumer spending of individuals and logistics of coins, therefore we need to continue to observe carefully if electronic money is the direct cause or not.

20	ДЕНЬГИ И КРЕДИТ ● 4/2011

информационно-аналитические материалы

by Order for Enforcement of the Payment Services Act, Cabinet Office Ordinance on Prepaid Payment Instruments, CabinetOfficeOrdinanceonAssociationsofCertifiedFunds Transfers, and Clerical Guidelines Volume 3. The primary purpose of the acts regarding payment services is to protect consumers. The salient points are shown as follows.

–Server-type of electronic money has been added as a prepaid payment instrument in addition to the paper-type, magnetic-type and chip-based type of prepaid instruments.

–If outstanding amount of each electronic money brand exceeds specified amount by the Cabinet Order (JPY 10 million), the issuer needs to submit notification.

–Third party type electronic money issuers need to be registered in advance.

–Issuers are obliged to aware users necessary information specified in the act and ordinance on prepaid instruments. Regarding server-based electronic money equivalent information needs to be presented with appropriate media such as websites to make the users aware of them.

–If outstanding amount of each electronic money brand on the reference date exceeds the amount stipulated in the Cabinet Order (currently JPY10 million), the issuer is obligedtosetasidemorethanhalfoftheoutstandingamount as issuing security deposit (contract of guaranty with a bank or entrustment to a trust bank can be alternate way).

–Electronic money issuers both third-party type and house-type issuers are to be inspected by regulatory authorities though house-type issuers were exempted from the inspection under the previous law.

–Basically, it is not allowed to redeem electronic money against legal tender. But, in case of bankruptcy of an electronic money issuer, it is obliged to redeem stored value of users hold in their electronic purses against cash.

–If an electronic money issuer is a bank whose financial status is sound, it is exempted from the obligation of making deposit.

Japan Payment Service Association

Japan Payment Service Association (JPSA) was certified by the prime minister on April 1, 2010, as a “certified payment service companies’ association” in accordance with the Article 87 of the Payment Services Act.

In order to secure the sound development of the electronic money businesses and the protection of users of electronic money, the Payment Service Act is promoting both regulations by the Act and independent efforts of the members of JPSA. The articles of incorporation of JPSA specifies that this association was founded to secure properly implementing businesses of prepaid instruments and funds transfer (here-in-under referred to as “payment services”) and to aim to secure the sound development of the payment services and to protect users’right.

This association is not only establishing selfregulations on the prepaid instruments but also formulating standardtermsandconditionsforissuingelectronicmoney, and it aims to secure the effectiveness as a self-regulatory industry group and to create environment to develop creative and attractive services.

Technological components for electronic money

Contact-less IC (smart) card

Contactless IC cards, especially Felica1, have greatly contributed to the widespread of stored-value type electronic money. In 2001 electronic money brands based on Felica such as Edy and Suica were launched and started to spread nation wide in Japan. In 2007 WAON and Nanaco (both are Felica based electronic money) issued by retail companies, were launched and have drastically prevailed (fig. 6 on p. 15).

Felica is an IC (smart) card embedding contactless IC chip and antenna inside the card. When holding the card over an electronic money device (reader/writer), its antenna captures the electromagnetic wave emitted from the device, generates electricity by electromagnetic induction and supplies necessary electric power to the IC chip inside the card.Therefore no battery is needed (almost maintenance-free). Related data are also transmitted by the electromagnetic wave (fig. 7 on p. 15)

High-performance is one of the features of Felica. It is necessary to process one transaction within 0.1 second to be used as a stored fare card for Japanese transportation system of which many stations with more than three million passengers per day. We assume that Felica was chosen to be the standard contactless IC card due to its high-performance.

But Felica is not in accordance with the international standard (ISO), it is not used outside of Japan except for someareassuchasHongKongwhereitwasfirstintroduced Felicaasstoredfarecards.Inthefuture,asforthecontactless IC technology, NFC (Near Field Communication) may become the standard, we assume, though Felica will continue to be the best contactless IC card for electronic money for the time being (fig. 8 on p. 16).

Network infrastructures

In order to provide services related to the electronic money, stable operation of network infrastructures supporting them is essential. In Japan, CAFIS (Credit and Financial Information Network) which was originally developed for credit cards and INFOX-NET which was developed to manage terminals are utilized for electronic money now (fig. 9 on p. 16).

“Felica Networks” is the company operating and managing the “shared area” on the Felica chip so that mobile phones with Felica chip can be used for various services such as electronic money. Therefore, “Felica Networks” provides a service called TSM (Trusted Service Manager) which enables the major three mobile phone companies to provide the phones with electronic purse functionality with electronic money.

Security

Security is one of the most important elements for electronic money to be accepted in the society. Needless to

1 Felica is a contactless IC card from SONY.

ДЕНЬГИ И КРЕДИТ ● 4/2011

21

информационно-аналитические материалы

say that all the components such as servers being operated by electronic money issuers, terminals at the member merchants, and network infrastructures connecting them have sufficient security. What is different from the previous payment systems is that stored value (electronic money) needs to be stored in an end-equipment (each electronic purse) with physical tamper-resistance of the IC chip safely and securely. As a matter of course, several countermeasures for security are implemented such as embedding several different encryption keys as well as limiting maximum value to be stored in an electronic purse (fig. 10 on p. 17).

Challenges and opportunities

Interoperability

Oneofthecurrentproblemsofelectronicmoneyisthe lack of interoperability. Basically, major electronic money brands in Japan use Felica, contactless IC card to store the value. Also, shared terminals for different electronic money brands have already developed and have been implemented. Recently, interoperability among electronic money brands issued by major transportation companies has been realized. On the contrary, as for electronic money issued by retail companies, interoperability is not realized. One of the biggest elements for issuing electronic money is to expand its area to use it, and when we think of securing the profit of the issuers while improving the convenience for the users, the interoperability may remain the biggest issue to promote electronic money.

Transferability and redeemability

The current electronic money basically does not have transferability. Whether it is a card type or a mobile phone type, there is no transferability to exchange electronic money between electronic purses. Also, once you purchase electronic money, it is prohibited to redeem electronic money in Japan. Unless the electronic money issuers stop their electronic money business due to the bankruptcy of the issuer etc., we have to use up electronic money once we purchase. This kind of matter will be a challenge of electronic money to have similar function with legal tender.

Change management including addressing new technologies

Catching up with the technological innovation is one of the biggest issues for electronic money. Currently, Japanese electronic money is based on Felica, contactless IC chip technology. For the future, transferability may be added to electronic money using NFC (Near Field Communication) or equivalent technology. In such a case, the question is how you will assess and utilize existing infrastructures (investment) as well as new investment.

Cross border transactions

Current Japanese electronic money can be used only in Japan. There is no electronic money which can be used in overseas. It is not easy to realize a cross border transactions due to the technological issues, the lack of infrastructure, and the difference of the legal framework. But if cross border transactions are realized, we can expect many merits suchasworkers’remittance.Personallywestronglywishfor the spread of electronic money which can be used in many countries as a global payment instrument. We hope the discussion will be made among those who are concerned. ■

Bibliography

1.Developments in Electronic money in Japan. Reports&Research Papers. Bank of Japan. 2009. http:// www.boj.or.jp/en/research/brp/ron_2009/data/ron0908b.pdf

2.The Bank of Japan official web-site: www.boj.or.ip

3.The Bank of Russia official web-site: www.cbr.ru

The authors would like to express their sincere gratitude to the Payment and Settlement Systems Department of the Bank of Japan who allowed them to refer to the publications published by the Bank of Japan. Also, the authors would like to express their sincere gratitude to AEON Retail who provided with the valuable information of WAON. The authors would like to express theirgratitudeto thecolleaguesofNTTDATACorporation and the Settlements Regulation Department of the Bank of Russia who supported the authors in writing this article.

P. S. Russian authors of this article express to Mr. Taiji Inui and all Japanese people the deep condolence in connection with the natural and technogenic accidents, occurred in Japan on March this year.

22	ДЕНЬГИ И КРЕДИТ ● 4/2011