Whether they’re used for online shopping or in-store purchases, credit card payments are an indispensable part of everyday life in Japan. In the cashless payment sector, credit cards are the most widely used payment method, accounting for over 80% of transactions in 2021.

Due to their convenience and reliability, many Japanese ecommerce sites and brick-and-mortar stores have adopted credit card payments. They are important for businesses, providing support for both customer satisfaction and increased sales. However, there are also issues to consider with credit card payments, such as implementation and security.

In this article, we explore the basics of how credit card payments work, including the types of payment methods available and their advantages and disadvantages.

What’s in this article?

• What are credit card payments?
  
• Credit card payment use rate in Japan
  
• Japan’s credit card payment system
  
• Types of credit card payments
  
• Advantages and disadvantages of credit card payments
  
• Issuing receipts for credit card payments
  
• The credit card payment payout cycle
  
• Security measures for credit card payments
  
• How Stripe Payments can help
  

What are credit card payments?

Credit card payments allow customers to pay for goods or services using a credit card issued by a credit card company. The payment is later deducted from a designated bank account. Widely used in Japan, this popular payment method allows customers to avoid carrying cash. They can also choose from various payment options, such as lump-sum payments, installment payments, revolving payments, and bonus payments.

Credit card payment use rate in Japan

Credit card payments are one of the most widely used cashless payment methods in Japan.
According to the Information and Communications White Paper from the Ministry of Internal Affairs and Communications, approximately 80% of customers used credit cards as their payment method when purchasing goods online in 2021. This reveals a significant preference for credit cards over other cashless payment methods.

The Ministry of Economy, Trade and Industry (METI) positioned cashless payments as social infrastructure in its Cashless Vision formulated in 2018. The Japanese government initially set a target of achieving a cashless payment ratio of around 40% by 2025. However, it had already reached 42.8% by 2024. The overall goal is 80% cashless payments, which would be among the highest in the world.

Japan’s credit card payment system

Credit card payments involve a complex system with multiple parties, including customers, retailers, card companies, and payment agents. The process slightly differs depending on whether or not the retailer has a direct contract with a credit card provider or is using a payment agent.

Below, we examine the steps involved in credit card payments, specifically from card authorization to transaction settlement.

Direct contract

Retailers can enter into direct contracts with each card brand, such as Visa, Mastercard, and JCB. This method includes the following:

• The retailer and the card company directly negotiate fees.
  
• The retailer manages sales data.
  
• The retailer handles system integration for security and credit card payments.
  

Here is the basic flow of a credit card payment:

• The customer makes a payment at the retail location.
  
• The payment information is sent to the credit card company.
  
• The credit card company runs the authorization process.
  
• The retailer sends sales data.
  
• The credit card company makes an advance payment to the retailer.
  
• The credit card company issues a bill to the customer.
  
• The customer makes payments to the credit card company.
  

With a direct contract, the retailer pays fees to the credit card company. When the card company makes an advance payment to the retailer, the amount paid is the purchase price minus the transaction fee.

Payment agent

Because negotiating directly with each credit card brand can take time and effort, many businesses use payment agents. Payment agents offer the following benefits:

• Retailers can use multiple card brands with a single contract.
  
• Sales management and payments are processed collectively.
  
• The payment agent navigates Payment Card Industry Data Security Standard (PCI DSS) compliance.
  

The flow of a credit card payment when using a payment agent is shown below:

• The customer makes a payment at the retail location.
  
• The payment agent transmits the payment information to the card company.
  
• The credit card company runs the authorization process.
  
• The payment agent advances payment to the retailer, and the credit card company reimburses the payment agent.
  
• The credit card company issues a bill to the customer.
  
• The customer makes payments to the credit card company.
  

The retailer pays fees to the payment agent. Therefore, when the payment agent makes an advance payment to the retailer, the amount paid is the purchase price minus the transaction fee.

Types of credit card payments

Multiple types of payment methods are available when using a credit card. Each method is suited to different customer needs.

Lump-sum payments

Lump-sum payments are the most common type. The customer pays the full amount for the purchased goods the following month. One major advantage of this method is that no interest is charged.

Installment payments

Installment payments involve paying the amount charged to a credit card through multiple, smaller payments. This payment type makes it easy for customers to purchase high-priced items, but there can also be installment fees, depending on the number of payments.

In Japan, many major ecommerce sites offer installments, making them an indispensable part of credit card transactions. This payment type enhances payment flexibility for the customer. For businesses, it is an important tool for lowering barriers to making purchases. Introducing installments can also lead to expanded purchasing opportunities and improved customer satisfaction.

Revolving payments

Revolving payments are similar to installments. Revolving payments allow customers to set a fixed monthly payment amount without setting a specific number of payments. While it can eliminate worry over the number of payments, long-term use can lead to increased fees.

Bonus payments

Bonus payments—where payments are made in bulk during the summer and winter bonus periods—are widely used in Japan. The peace of mind that comes with postponing payments allows some customers to plan large purchases that coincide with the month they receive their work bonuses.

Advantages and disadvantages of credit card payments

Credit card payments have advantages and disadvantages for both customers and businesses.

Advantages for customers

• Easily shop without needing cash
  
• Can earn reward points and miles
  
• Use flexible payment options, such as installment and revolving payments
  

Disadvantages for customers

• Risk overuse and overspending
  
• Incur increased interest costs with prolonged payments
  
• Could experience information theft or leaks
  

Advantages for businesses

• Potentially increase average transaction value due to easier purchases of high-priced items
  
• Easily accommodate foreign tourists
  
• Can increase sales opportunities
  

Disadvantages for businesses

• Incur payment processing fees
  
• Must use antifraud measures
  
• Experience a time lag before receiving payouts
  

Issuing receipts for credit card payments

Receipts can be issued for credit card payments. To be formally recognized as a receipt, the following information must be included on the statement or issued document:

• Date of issue
  
• Recipient
  
• Payment amount
  
• Purpose of payment
  
• Issuer name
  
• Payment method (i.e., indicate use of credit card)
  

If the items listed above are clearly stated, credit card payments can be treated as valid receipts for accounting purposes.

It must be noted that the credit card slips issued by card terminals might not contain all the required information. Therefore, they might not be accepted as official receipts.

The credit card payment payout cycle

The term “payout cycle” refers to the number of days or frequency between payment completion and deposit into the retailer’s account. It is important to remember that credit card payments do not immediately convert into cash. Businesses should be aware of the payout cycle when accepting credit cards.

Payout cycles vary depending on the credit card company or payment agent. The cycles can include payment at the end of the following month, on the 15th of the following month, or twice monthly. Slow payout cycles can have a significant impact on cash flow. Before accepting credit card payments, it is important for businesses to confirm the cycle length with the credit card company or payment agent.

Security measures for credit card payments

When processing credit card payments, it is important to handle customer information carefully and securely.

Businesses are required to implement mechanisms to prevent fraudulent use and information leaks. These can include compliance with PCI DSS and the use of tokenization that securely processes card information without actually storing it. In addition, adopting 3D Secure 2 can strengthen identity verification during payment processing. This can help prevent fraudulent transactions, such as identity theft.

It is also important for customers to maintain everyday security awareness, such as entering card information only on secure sites and regularly checking their statements.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.