The term “online payment” can refer to several different payment methods. Ecommerce malls and other online shops offer a wide variety of payment methods, from cash-on-delivery payments to cashless payment methods such as credit cards. In Japan, cashless payments are also widely accepted at physical stores, such as convenience stores, supermarkets, restaurants, and vending machines.

In this article, we explore the different types of online payment methods used in Japan, as well as their advantages and disadvantages for businesses and customers.

What’s in this article?

• What are online payments?
  
• What kinds of online payment methods are there?
  
• Advantages and disadvantages of online payments for businesses
  
• Advantages and disadvantages of online payments for customers
  
• How can businesses choose the ideal online payment methods?
  
• How do online payments enhance customer satisfaction?
  

What are online payments?

Online payments are any payments made over the internet. They are used widely in Japan and throughout the world. Common examples include credit cards, electronic money, and user ID payments.

Customers make online payments without physical cash. This payment type makes it possible to pay without withdrawing money from a bank or automated teller machine (ATM). Some online payment methods also offer point rewards or cashback, allowing customers to purchase products more economically than with cash. As a result, some customers actively use online payment methods to save money and earn rewards.

Online vs. offline payments

Online payments are made over the internet, while offline payments are made in person. While online payments are made on an ecommerce site, the term “offline payment” refers to payments made using a dedicated terminal or card reader at a physical, brick-and-mortar store. For example, here is the difference between online and offline payments using a credit card:

• Online payment: On an ecommerce site, a customer enters their credit card information at checkout to make a purchase.
  
• Offline payment: At a physical store, a customer swipes, inserts, or taps their credit card to make a purchase. They might be prompted to insert a personal identification number (PIN) or provide their signature to complete the payment.
  

According to data from the Ministry of Internal Affairs and Communications, credit card payments are the most commonly used payment method for online shopping in Japan. But with the recent, rapid digitization of payments, there are now many other payment methods available. Customers are interested in payment methods beyond credit cards, such as electronic money payments. The introduction of a diverse range of online payment methods is an important element for the success of ecommerce sites.

Online payments vs. cashless payments

Online payments are payments made over the internet. On the other hand, cashless payments have a broader definition and can be made in physical stores and on ecommerce sites. Cashless payments can be made either online or offline. For example, credit cards are a type of cashless payment that can be used online or offline.

What kinds of online payment methods are there?

Here are the main kinds of online payment methods used in ecommerce:

Credit cards

A customer can use a credit card in ecommerce by entering their credit card number, expiration date, cardholder name, and any other relevant information during the checkout process.

The customer typically does not pay for their purchase until after the order date, as credit card payments are based on credit. In other words, the credit card provider will collect the amount from the customer’s bank account on a predetermined date, such as the third of the month.

Debit cards

Unlike credit cards, debit card payments are automatically deducted from the customer’s bank account at the time of purchase. Since payments are made immediately, a payment that exceeds the customer’s bank account balance cannot be made without overdrawing the account. Therefore, debit cards can help customers manage their money and avoid overspending. However, they do not support installment payments, revolving payments, or cash advances, making them less ideal for high-priced shopping.

Online bank payments (Furikomi)

Online bank payments are made via computer or smartphone using online banking platforms. These payments allow customers to make payments anytime or anywhere, without having to visit a bank or ATM.

“Online banking” refers to digital services provided by banks with physical branches. Online bank payments are one of the many services offered under that umbrella. To use them, customers must have a bank account and be registered for online banking.

On an ecommerce site, selecting “bank transfer” as a payment method prompts customers to choose their bank, after which they are automatically redirected to that bank’s online banking portal. After logging in, they can transfer funds to the designated account. It’s worth noting that branchless banks—such as Rakuten Bank—can also be used for payments through this process.

Carrier payments

Carrier payments are provided by major cellphone carriers, such as Docomo, au, SoftBank, and Rakuten Mobile. Customers can make carrier payments after authenticating the carrier account ID and password. This is a convenient payment method that allows customers to combine purchases with cellphone service fees. However, they can only make lump sum payments with a limit set in advance, so this method is only suitable for relatively inexpensive items.

Convenience store (Konbini) payments

Konbini payment—also known as “convenience store payments”—allows customers to pay for goods and services at convenience stores throughout Japan. When ordering a product with this method, customers receive a payment number or payment slip they must take to a convenience store to complete the payment.

Convenience stores are widespread in Japan, making this a highly convenient payment method. It can be used anytime, as long as there’s a convenience store nearby. Konbini is a popular payment method for customers who do not have credit cards or are reluctant to enter their card details online.

Electronic money

Electronic money enables customers to make purchases by preloading funds or linking a credit card to an electronic money card or account. Popular examples include PASMO and Suica Mobile—which are often used for train and bus fares—and Rakuten Edy, a retail-focused e-money service. PayPay also supports online payments using quick response (QR) codes and barcodes.

User ID payments

User ID payments let customers make purchases using login credentials for a linked external service. To use this payment method, customers must have an account with one of these services. When selected during checkout on an ecommerce site, a login screen for the chosen external service will appear, allowing the customer to complete the payment by signing in to their account. Well-known examples include Amazon Pay and Rakuten Pay.

Advantages and disadvantages of online payments for businesses

Here are the advantages and disadvantages of online payments from the business owner’s perspective.

Advantages for businesses

Expected sales growth

By diversifying your business’s payment methods and providing greater convenience, you can appeal to a wider range of customers. This, in turn, could lead to increased sales. Furthermore, if your business engages in cross-border ecommerce, it’s helpful to support the payment methods used widely in your overseas target markets.

Reduced administrative burden

Adding multiple payment methods typically means going through individual screening processes for each service, which requires advance preparation. Using a payment agent to implement online payments can significantly reduce the time and effort required for implementation. Your payment agent can handle these procedures on your behalf, allowing you to introduce several payment options at once.

Additionally, a single portal can help manage sales and purchase data, reducing the operational burden for your business. This centralization also makes it easier to analyze sales trends and customer acquisition rates, helping you develop and execute more effective marketing strategies.

Disadvantages for businesses

Security risks

When offering online payment services, it’s important to implement strong security measures to prevent data breaches and fraudulent activity. If security is lacking and customers experience harm, a business’s reputation and trustworthiness could be seriously damaged. This could lead to a significant drop in sales. As a result, robust security has become an important consideration for any business involved in online payments.

This caution also applies when working with a payment agent. When adopting payment methods for your ecommerce site, it’s important to choose your payment agent carefully, ensuring they meet high security standards.

Timeliness

With the exception of debit card payments and prepaid electronic money payments, most online payments are made on a deferred basis. Therefore, it’s important to pay close attention to your cash flow, as it can take some time to actually receive the money. Additionally, when evaluating new payment methods, consider both the initial setup costs and the ongoing fees. Carefully assessing their cost-effectiveness can help ensure stable and sustainable financial management.

Advantages and disadvantages of online payments for customers

Here are some of the impacts online payments have on customers.

Advantages for customers

No need for cash

As cashless payment methods become more popular, customers have less need to carry cash. This reduces the burden of withdrawing cash from the bank before shopping.

Access to cross-border ecommerce

Online payments enable customers to purchase goods from ecommerce sites based in Japan and throughout the world. Customers can purchase products not easily found in Japan—such as supplements or products not available in Japanese stores—using online payment methods.

Easy recordkeeping

Online payment services typically provide customers with a statement showing their transaction history. This makes it easier to manage household finances, as customers can check a detailed purchase history whenever needed.

Disadvantages for customers

Security risks

While businesses must prioritize customer safety and implement robust security measures, it’s equally important for customers to manage their personal information responsibly. As fraudulent actors become more sophisticated, even the strongest business-level protections might not be enough to prevent misuse of information. Customers should be vigilant about safeguarding their personal details by avoiding unnecessary sharing and handling their data with care at all times.

Risk of overspending

While online payments are incredibly convenient, it’s important for customers to pay attention to their spending habits. If they can make payments without cash on hand, they could spend more than intended if they don’t keep track. If a customer is concerned about such issues, it’s a good idea to take the following measures to prevent overspending:

• Use debit card payments.
  
• Set a low usable limit.
  
• Limit spending to prepaid payment methods, such as electronic money.
  

How can businesses choose the ideal online payment methods?

There are many types of online payment methods to choose from. When selecting a payment method, you should consider your industry and business model to determine which method is most suitable.

Whether you’re considering credit card payments or electronic money, ask yourself the following questions before adding a new online payment method to your company’s repertoire:

• Is this payment method widely used?
  

It’s important to deliberately adopt payment methods with high usage rates to make sure you can appeal to a wide range of customers.

• Do customers want this payment method?
  

Analyze your customers’ payment preferences by demographics such as gender and age. This can help prevent cart abandonment.

• Does this method support both online and offline payment?
  

Some customers switch between online and offline payment depending on the situation. Wherever possible, try to offer a wide range of options.

Here are a few different kinds of businesses and how they might answer the above questions:

Businesses with physical and online shops

If your business operates both a physical store and an ecommerce site, it’s important to support both online and offline payments. A good example of this is offering widely used payment options—such as credit cards and PayPay—that provide simple integration across both sales channels.

Ecommerce-only businesses

If your business focuses on ecommerce, it’s important to offer multiple payment methods that align with customer preferences to reduce the risk of cart abandonment. For new customers in particular, consider including options such as:

• Konbini: Allows customers to pay after receiving their orders
  
• Electronic money: Growing in popularity
  
• Carrier payments: Easy to use
  

These methods can help a first-time buyer feel more secure when placing an order.

Businesses with recurring payments

For businesses that mainly rely on recurring payments—such as subscription services—regular and ongoing payments for products or services are required. Be sure to choose a service that supports subscription payment methods, such as credit card payments and carrier payments.

How do online payments enhance customer satisfaction?

The more online payment options available to customers, the more convenient their shopping experiences.

However, there are many types of online payments. Including all of them could lead to high initial and operational costs—and some might go largely unused if they don’t match customer preferences. To avoid this, it’s important to research thoroughly and choose payment methods that align with your target audience’s needs. Selecting options that appeal to a wide range of customers can help ensure satisfaction. Additionally, working with a payment agent who offers strong support for managing and operating ecommerce sites can provide added peace of mind during implementation.

Stripe offers a wide range of tools and features that support the adoption of various payment methods, including cashless payments such as credit card payments. Stripe can also streamline daily payment operations with information processing and revenue management features. For example, Stripe Payments offers flexible online payment options that allow you to build a payment environment tailored to your business style. Payments has also established a high level of security that meets all Payment Card Industry Data Security Standard (PCI DSS) requirements, enabling us to provide customers with a secure shopping experience.

By using Stripe, you can enjoy a simplified payment process and reduced operating costs. By introducing multiple payment methods, you can make your ecommerce site easy to use and boost sales. If you’re looking to improve the payment process on your site, don’t hesitate to contact Stripe. We can propose the optimal payment solutions for your business and provide support for adopting them.