Japan

Insight

Japan is a particularly interesting case study for IP adoption and its drivers. Despite IP capabilities existing in the market for decades now, adoption of IP has been gradual. This may be due to the country’s heavy dependency on cash, though the levels of paper-based payments in the market present an excellent opportunity for cannibalization by IP.

The most likely reason for minimal adoption is market perception and knowledge of the system. Current IP usage seems to be focused on high-value, low-volume transactions, such as wires. If the public’s understanding of Zengin’s capabilities is limited to wire transfers, it is unlikely that the network is even considered as a payments option when consumers are presented with a typical IP use case.

A recent upgrade to the Zengin System may see trends uptick due to increased availability, but usage will likely stay limited without additional public outreach and education. Moreover, for growth to truly accelerate, acceptance among merchants and billers must expand, IP initiation and authorization methods should diversify, and the types of payments offered to users need to grow.

ACI’s take

Although Zengin System has been upgraded many times and is now the seventh generation system, it is still ultimately a legacy system, and only allows connections from banks. Merchants and fintechs can’t connect to Zengin directly, and access requires users to provide bank ID, branch ID, account ID and user name information for all transactions — meaning it’s not easy/friendly for retail users’ usage.

If Zengin could support mobile ID like other countries and be more flexible to expand more usage for retailers, this could increase the share in spend. Japan will need to think carefully about how it updates its central infrastructure to really drive IP forward and enable new revenue streams that create the business case for participants.