BUSINESSWEEK ONLINE : JULY 31, 2000 ISSUE
INTERNATIONAL BUSINESS Net Shopping: Why Japan Won't Take the Plunge An awkward credit-card setup and high fees are hurting sales Midori Hara took her family's 83-year-old sake business, Echigo Meimon Shukai, online last year in a bid to turn it into a national company. Like any American e-business, she set up a credit-card payment option for her Web customers. Sure, the card outfits levied a stiff 4% on the amount of each sale charged on their cards--and that's after her landlord, virtual mall Rakuten Inc., secured a 50% discount. But Hara figured she could swallow the high fees while she built her customer base. That's when the hassles began. Thanks to Japan's antiquated system for settling credit-card payments, Hara is forced to tally the sales herself, fax the totals to the credit-card companies, then wait four weeks to collect her money. Besides, just one-third of Hara's clients use plastic online anyway. Most are happier to trudge to the local convenience store or post office and wire their payments from there. That would drive a U.S. online retailer crazy. But it's fine by Hara because getting her money via wire transfer is a lot faster than from a credit-card company. Hang on. Wasn't the Internet supposed to make shopping as simple as clicking a mouse? Not in Japan, it isn't. Anxious about security on the Net and discouraged by credit-card companies that charge exorbitant fees and make plastic use an ordeal, Japanese consumers are paying for their online purchases with coins and banknotes. Which means paying in person. GLACIAL. Online merchants accept this cumbersome process because, as sake seller Hara found out, fees for accepting credit cards are high and the settlement process glacial. Still, says Ian K. Marsh, president of American Express International Japan, ''it's an archaic way of doing business. The process must become more efficient.'' Until that happens, say analysts, e-commerce in Japan will not take off as it has elsewhere. ''If the cost and security issues are removed, what's going to hold the consumer back?'' asks David Richards, who covers credit-card companies for Goldman, Sachs & Co. in Tokyo. Last year, Japanese consumers spent just $1.8 billion online. While that's nearly four times the 1998 figure, it's just 6% of what Americans spent online in 1999. And efficient systems for online credit-card payment have helped U.S. e-tailing mushroom. Even a modest increase in credit-card use could give e-commerce in Japan a real boost. Why are Japanese allergic to plastic? Mostly because card companies charge 10% to 14% on balances unpaid for more than two months. While that is in line with U.S. rates, it's completely out of whack with the 0.05% Japanese earn on their savings accounts. Local card issuers also act like a loose cartel that rarely waives sign-up fees or offers other incentives. USER BEWARE. Moreover, credit-card companies withdraw prearranged payments directly from consumers' bank accounts. High rates and rigid payment schedules prompt consumers to spend only as much as they'll have in savings at the end of the month. And if they don't have enough in their accounts to cover the bill, they must pay as much as 29.2% interest on unpaid balances. Card companies' lofty charges spur many Web merchants to avoid plastic, too. ''If user fees came down, it would make it a lot easier for online stores to accept cards, and business would expand,'' says Kazumi Koizumi of the marketing department at Rakuten, which is Japan's largest cybermall. Silicon Valley transplants are offering some solutions. CyberCash KK, a Japanese subsidiary of CyberCash Inc. in Reston, Va., sells online merchants software that consolidates billing to as many as 50 credit-card companies. CyberCash, whose client list has quintupled in the past year, charges $935 to set up the service, a $190 monthly fee, 14 cents per transaction, and a 0.4% sales commission. For all that, CyberCash cannot drive down credit-card merchant fees that are double the U.S. rate or speed up the settlement process. That won't happen until credit-card issuers establish a uniform billing format and fully digitize their operations. Convenience stores, for example, still keep credit-card payment records on magnetic tape and transport them by hand to data centers. The Japan Internet Payment Promotion Assn. is trying to broker an industry standard that satisfies domestic players and meets international benchmarks. But card companies are reluctant to spend money to overhaul their proprietary systems. So merchants and consumers continue to subsidize their inefficiency by paying the credit-card companies high merchant fees and interest rates. That's hardly the low-cost e-commerce revolution Japan had hoped for. By Ken Belson in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					INTERACT E-Mail to Business Week Online

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