Country reports for Japan, Luxembourg and Russia

Covid kickstarts drive for cash displacement
Japan’s payment landscape is dominated by cash, which accounted for 71.2% of overall payment volume in 2020. With government initiatives to promote electronic transactions and improved payment infrastructure, payment cards grew in prominence during the period under review (2016–20).

Card issuers and payment service providers are focusing on developing payment infrastructure via the expansion of the payment acceptance network. In addition, the market is witnessing new developments encompassing payment card security and convenient payment solutions, with card issuers and technology companies experimenting with advanced technologies such as blockchain and biometrics.

The outbreak of Covid-19 is also driving non-cash payments in the country. Overall consumer spending has been directly impacted, and the resurgence of Covid-19 cases could act as a dampener for economic growth.

Major global events including the 2020 Olympic and Paralympic Games were postponed, resulting in significant losses and expected future losses for the economy, directly impacting payment industry revenues. Due to restrictions imposed as a result of the crisis, consumers are increasingly shifting from in-store to online purchases, with ecommerce one of the few industries that can expect an overall positive impact from Covid-19.

Credit cards are the preferred card type for payments
Despite lower penetration, credit cards are the preferred card type, accounting for 97.1% of total card payment transaction value in 2020. This is mainly due to their associated reward programmes, which are considered far more beneficial than those offered with debit and prepaid cards.

Another important factor driving this usage is the wider acceptance of these cards among merchants, with credit cards now accepted across all types of merchants. Backed by reward programmes, the usage of credit cards for payments will continue to grow over the forecast period (2020e–24f).

Debit cards remain high in penetration, low in use
Debit card penetration is very high in Japan, with each individual holding over three debit cards in 2020. But their usage has been mostly confined to cash withdrawals, and they are rarely used for payments.

Overall, ATM cash withdrawals accounted for 78.7% of total debit card transaction value in 2020. This is at least partly due to limited awareness among consumers about the ability to use debit cards for payments. Debit cards are also unpopular with merchants due to their longer settlement period. Payments conducted via J-Debit cards are settled in merchants accounts in three or more days.

Covid-19 is aiding ecommerce growth
Ecommerce in Japan has registered healthy growth, increasing from JPY15.1trn ($139.3bn) in 2016 to an estimated $186.9bn in 2020 at a CAGR of 7.6%. The figure is anticipated to reach $247.5bn in 2024 at a CAGR of 7.3%.

The pandemic has accelerated the shift to online shopping. Companies like Rakuten, Amazon, and Yahoo Shopping have seen their monthly online sales increase since the outbreak of the pandemic. The likes of PayPal, Amazon Pay, Rakuten Pay, Apple Pay and Google Pay are increasingly being used for online purchases.

The Japanese prepaid card market is highly penetrated
The Japanese prepaid card market boasts strong penetration, with nearly four cards per individual. Prepaid cards are increasingly used for travel, shopping, and dining in Japan. Contactless technology has also been adopted to meet the needs of public transport users. Popular prepaid cards include Suica, Pasmo, Icoca, Pitapa, Toica, Manaca, Kitaca, Sugoca, Nimoca, and Hayakaken. All these prepaid cards are widely used for trains, subways, and buses in major cities including Tokyo, Osaka, Kyoto, Nagoya and Fukuoka.

Improved payment infrastructure will aid the shift to electronic payments
The number of POS terminals is expected to reach 2.6 million by 2024 at a CAGR of 2.3%. Payment service providers are launching new POS terminals in the country. In March 2021, Square launched Square Terminal in Japan, allowing merchants to accept both contact and contactless payments. The terminal costs $432.

With the growing popularity of QR code -based payments, payment service providers are offering QR code -supported POS terminals targeted at SMEs. LINE Pay offers LINE Pay terminals that accept QR code-based payments. To promote the adoption of its terminals, LINE Pay is waiving transaction fees until July 2021.

Frequency of debit card payments is on the rise
Luxembourg’s payment card market is mature, with a high penetration rate of 5.2 cards per inhabitant. Cards are the preferred payment instrument in the country, accounting for 62.7% of total payment transaction volume in 2020. Improved payment infrastructure, high awareness of payment cards, enhanced security, and the growing adoption of contactless payments will support this growth.

Luxembourg is also host to a number of wealthy individuals and large corporates, and the majority of banks serve them by offering private banking, wealth management, and asset management services. Credit cards are mostly offered as part of bundled banking packages. Meanwhile, debit cards are widely used for low-value payments.

The Covid-19 outbreak is expected to further drive the adoption and usage of cashless payment methods in the country. Although the pandemic has impacted consumer spending, overall there will be a rise in payment card transactions at the expense of cash. Rising adoption of contactless payments, the emergence of digital-only banks, and increasing ecommerce payments will further support this trend going forward.

1.8 debit cards per individual
Debit card penetration in the country stands at 1.8 cards per individual. This is supported by a strong adult banked population, which stood at 99.6% in 2020. However, credit cards dominate in terms of both cards in circulation and total payment value.

The frequency of debit card payments is progressively on the rise, registering a healthy 2016–20 CAGR of 5.1% – up from 85.7 times a year in 2016 to 104.7 times in 2020. Rising usage has been supported by the availability of value-added services and growing acceptance of contactless debit cards at retail outlets.

Credit cards are the preferred card type
Credit card penetration is high in Luxembourg, with each individual holding three cards as of 2020. Consumers are also avid users of credit cards, which accounted for 60.5% of total card payment value in 2020. This is supported by banks offering credit cards alongside banking packages, as well as rising disposable income and household consumption in the country.

Banks are also offering private banking services along with premium credit cards and a range of value-added services to wealthy customers as part of bundled packages. Banks also offer benefits such as reward points and discounts to widen credit card adoption and usage.

Ecommerce registers robust growth
Ecommerce in Luxembourg grew from €678.2m ($829.3m) in 2016 to $1,079.3m in 2020 at a CAGR of 6.8%. Growth was supported by high internet and smartphone penetration, growing interest in online shopping, government initiatives, and an increasing number of online merchants. Online spending is likely to surge due to Covid-19 at a forecast 2020e–24 CAGR of 7.6%, as wary consumers are increasingly favoring online channels for shopping.

The government is pushing ecommerce adoption among SMEs via several initiatives, including the Luxembourg Internet Days event conducted once a year. The government also runs a national ecommerce marketplace, letzshop.lu, which enables Luxembourg’s merchants to sell their goods online. Amid Covid-19, the platform’s merchant subscription fee was waived for 2020 and 2021.

Payment providers are introducing innovative POS terminals in Luxembourg
The number of POS terminals increased from 13,544 in 2016 to 17,438 in 2020 and is set to record a forecast CAGR of 6.9%. Payment service providers are offering innovative products such as mobile POS terminals. Germany -based SumUp launched its mobile POS solution in Luxembourg, allowing merchants to accept payments using their mobile phone.

With the growing popularity of QR code payments, POS terminal providers are integrating QR code payment functionality into their POS terminals. In January 2021, Servipay collaborated with Payconiq International to integrate its PAX A920 POS terminals with Payconiq QR codes.

Domestic scheme Mir disrupts the debit card market
The Russian payment card market evolved at a rapid pace during the period under review: 2016-2020, recording a compound annual growth rate (CAGR) of 19.7% in terms of overall transaction value. Consumers are enthusiastically embracing new technologies and are increasingly preferring card-based payments for low-value transactions.

The introduction of national payment scheme Mir in December 2015 also provided a much-needed push to the overall payment card market. The relatively low interchange fee charged on Mir cards, coupled with loyalty programmes associated with card transactions, is driving their usage in Russia. Meanwhile, financial inclusion initiatives and improving banking infrastructure also contributed to growth in the Russian payment card market.

Debit cards dominate the overall payment card space, accounting for 96.1% of total card payment value in 2020. A growing ecommerce market, the adoption of alternative payments, improving payment infrastructure, and the growing popularity of contactless payments will further drive electronic payments in the country going forward. Although Covid-19 has affected overall payment market growth, it has further propelled the shift in preference towards cashless payment methods, which will support growth in the card payment space.

Mastercard and Visa lose out to Mir
While Mastercard and Visa continue to lead the Russian debit card market, they are experiencing a decline in their shares due to rising adoption of Mir cards. Mir was introduced in December 2015; by March 2020, 312 banks had joined the system and 158 banks had issued these cards.

To enable payments globally, Mir offers co-badged cards in partnership with international schemes UnionPay, JCB, and Mastercard. Mir cards accounted for 25.3% of total debit card transaction value in 2020.

Credit cards are yet to gain traction in Russia
Credit card penetration remains low in Russia, with just 27.6 cards per 100 individuals in 2020. The introduction of the debt burden indicator in October 2019 led banks to perform even more thorough assessment of borrowers, offering credit cards only to consumers with a low debt burden and strong credit rating. Growth has been further hampered by COVID-19. However, the market registered strong growth in terms of card payments, with banks offering instalment payment facilities and pricing benefits.

Covid-19 further boosted ecommerce growth
Ecommerce transaction value rose from RUB1.6trn ($22.1bn) in 2016 to $38.5bn in 2020 and is set to record a forecast-period 2020–24 CAGR of 10.9%. Rising consumer confidence in online purchases, coupled with an increasing number of merchants entering the space, helped drive growth. The Covid-19 pandemic also pushed ecommerce adoption among Russians. Against the backdrop of increasing cases and lockdowns, ecommerce has emerged as a mainstream shopping method in the country.

Segmentation remains key focus area for prepaid card issuers
Prepaid cards have gained popularity among Russian consumers, as they do not require a bank account or credit check. As of 2020 there was a substantial unbanked population – accounting for almost 17% of the total adult population. This offers growth prospects for the Russian prepaid card market. Another classic use case for prepaid cards is to provide access to a salary – especially to financially underserved Russians. In addition to individuals without bank accounts, prepaid cards are actively marketed towards students, holidaymakers, and temporary residents.

Contactless and mobile POS terminal adoption are on the rise in Russia
The number of POS terminals in Russia recorded a 2016-20 CAGR of 19.5%. Growth was supported by increasing adoption of mobile POS devices among merchants. According to RSB, the number of card transactions in the bank’s mobile acquiring network increased by 195% in the first half of 2020 compared to the same period of 2019. With the growing popularity of QR code payments, POS providers are updating their terminals with QR code functionality.

In July 2020, POS terminal provider Evotor integrated Sberbank’s Pay with QR service into its POS terminals. In addition, Evotor collaborated with Sberbank to launch a new POS system, Evotor5i, which allows merchants to accept various payment methods, including contactless and QR codes.