Let’s pretend that in order to sign up for that shiny new Mastercard, you:
- must give Mastercard your checking account number and allow it to withdraw money from that account
- aren’t allowed pay Mastercard by check
- must sign an agreement to pay 10% of the outstanding amount on the card every month if you don’t pay it in full each month; and
- must announce to, say, the teenage waitress at Chili’s and in front of your friends that you’ll have to pay for the fajita plate and Corona you just bought for dinner over the next few months because you can’t pay off your credit card in full that month.
Wouldn’t these things deter you from using your credit card? That’s downright batty, you say? Well, guess what, it’s also reality in Japan. No wonder cash is still the preferred method of payment there.
BBC News had a news story this week on a new service in Japan that allows customers to use their cell phones as credit cards. This isn’t new or novel, but what I found fascinating was that the article stated that in Japan, less than 1/10th of consumer spending is paid for by credit card. (Hence the reason DoCoMo, Japan’s largest mobile service provider, thinks it can take advantage of Japan’s obsession with technology to provide this new service.)
In comparison, 25% of purchases are paid for by credit card in the US, and most of my friends and I use credit cards for purchases almost 100% of the time.
So what gives? Is it the tendency of Japanese consumers to save instead of spend that’s at play here? You might think so, but the reasons for differences between US and Japanese credit card usage are a little more complex.
It turns out that credit cards in Japan aren’t quite the same as those in the US. In this country, we write checks to Visa and Mastercard to make minimum, partial, or full payments each month. In Japan, checks don’t even exist. Instead, Japanese credit card holders must link their bank accounts to their credit cards, and the amount owed is withdrawn at a predetermined date each month. So, credit cards in Japan act really more like debit cards in the US.
“Revolving credit” in Japan is also slightly different because it’s not flexible. Rather than having the option to pay off a minimum amount each month, the credit card holder agrees to a preset payment schedule (e.g. a percentage or flat yen amount each month) at the time the card is issued.
And, saving the best for last:
The designation of the transactions as revolving generally must occur at the cash register – with an admission to the sales clerk that the cardholder does not plan to pay for the purchase out of current income.
I’ve summarized and quoted from a report I found published in 2001 from Robert Mann, a professor at the University of Michigan Law School. It’s worth reading, but like all law publications, quite heavy on notes. If you’re curious, you can download the full report, called “Credit Card and Debit Card Usage in the United States and Japan” (scroll down the page for download options).
By the way, the report is a few years old, so if it’s out of date or anyone knows if the situation has changed in Japan, feel free to correct the content I’ve written here!