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1. Introduction

Paying suppliers and other business partners can be a challenge in any setting, and this is especially true in Japan. With its unique regulations and security measures, as well as the availability of a variety of payment methods, selecting the right vendor for B2B payments in Japan can be a daunting task. In this article, we will discuss what B2B payments are and provide an overview of the Japanese market, before exploring the key factors to consider when selecting a vendor in Japan. We will then summarize our findings and provide recommendations for further research into B2B payment solutions in Japan.

With this information, business owners can make more informed decisions about their payment strategy, methods and vendors to chose and ensure that their companies operate as efficiently and securely as possible.

1.1. What are B2B Payments?

Business-to-business (B2B) payments refer to transactions and associated payments between companies. These payments are essential for keeping businesses running and providing customers with goods and services in a timely manner. The payments are often made electronically, saving companies time and money. Typical characteristics of B2B payments are rather higher amounts compared to consumer payments, B2B payments are often timed on due dates of executed as same-day transactions and the payment initiation is mostly done automatically through Cash Management or Treasury Management Software. In the past several years, B2B payment platforms have started using integrated digital systems that automate and streamline all aspects of the payment process. This offers businesses increased transparency and better cash flow management. As technology continues to develop, more innovative solutions are being created to make B2B processes more efficient.

1.2. Overview of the Japanese Market for B2B Payments

Japan has a growing market environment for B2B payments, with commercial transactions estimated to have grown at 7.3% in 2019. Japanese companies have embraced new digital payment technologies and methodologies, making B2B payments advanced and innovative compared to other markets in the world. The New Payment Services Act introduced in April 2020 has opened up even more opportunities for companies looking to improve their existing payments infrastructure and offer greater insights into spend levels that can facilitate better decision-making for customers. Many domestic service providers in Japan are targeting high-growth foreign markets, making Japanese know-how a valuable asset when looking to increase efficiency within other markets around the world. With rich technologies and an especially knowledgeable customer base, it’s no wonder Japan continues to be such an attractive proposition for those implementing B2B payments solutions.

2. Factors to Consider When Selecting a Payment Vendor in Japan

When selecting a payment system or vendor to use in Japan, it is important to consider a number of factors. These include the payment culture, regulatory environment, availability of payment methods, fee and cost structures. This article explores these considerations in more detail so that companies can make an informed decision when selecting a payment vendor in Japan.

2.1. The payments culture in Japan

Even though Japan is at the forefront when it comes to technology, the payment industry didn’t really take off before this decade.

The Japanese culture has been a faithful servant of its ancient cultures and it is generally one of the prides of the Japanese people. Giving this a thought, they are not keen to introduce new changes that involve a change in behaviour among the Japanese people

There are two major payment infrastructures in Japan, ZenginNet & BOJ-NET, both not being updated until this decade. This has led to that the Japanese are used to the payment method being introduced a couple of decades ago. These payment habits can be likened to behaviours that have penetrated routines and which many know are difficult to get rid of. If a new payment culture is introduced, you can temporarily manage to stop a old habit, but the risk is high that it will return if it’s a too big jump from a current behaviour. therefore, it’s important to introduce a change that reflects the previous habit.

2.2. Regulatory environment

The regulatory environment for B2B payments in Japan is largely governed by the New Payment Services Act (新しい決済サービス法), which was enacted in April 2020 and came into effect in April 2021.

The main purpose of the New Payment Services Act is to create a legal framework for the operation of payment services in Japan, including B2B payment services. It aims to protect the interests of users of payment services and ensure the stability and security of the payment services industry in Japan.

Under the New Payment Services Act, B2B payment service providers, such as banks and electronic payment systems, are required to obtain a license from the Payment Services Oversight Office, a government body responsible for overseeing the payment services industry in Japan. Payment service providers are also subject to various requirements and obligations, including requirements related to consumer protection, security, and the prevention of money laundering and terrorism financing.

In addition to the New Payment Services Act, B2B payment service providers in Japan may also be subject to other laws and regulations, depending on the specific nature of their business and the services they provide. For example, financial institutions that provide B2B payment services may be subject to regulation by the Financial Services Agency (FSA) and other government bodies.

The New Payment Services Act also established the Payment Services Oversight Office, a government body responsible for overseeing the payment services industry in Japan. The Payment Services Oversight Office is responsible for issuing licenses to payment service providers, conducting inspections, and taking enforcement action against payment service providers that violate the provisions of the Act.

2.3. Availability of Payment Methods

In Japan, B2B payments are typically made through one of several methods:

Bank transfer: This is the most common method of B2B payment in Japan. Companies can make payments to each other through their respective bank accounts using the Japan Net Bank or other online banking platforms. In Japan, Furikomi is used as term to refer to the transfer of money from one bank account to another. It is a common way to make payments in Japan, especially for things like rent, utility bills, and other regular expenses. Furikomi can be done in person at a bank, or through online banking or mobile banking apps. To make a furikomi payment, you will need to provide the recipient’s bank account information, including the bank name, branch name, account type, and account number.
Direct debit: Direct debit is a common payment method in which a company or organization can automatically withdraw funds from a payees bank account to pay for goods or services. In Japan, direct debit is typically used for recurring payments, such as monthly utility bills or subscription fees. It is also sometimes used for one-time payments, such as online purchases or payment for goods or services provided by a company.
Check: Companies can also make B2B payments by writing and issuing a check to the recipient company.
Electronic payment systems: There are several electronic payment systems that are commonly used for B2B payments in Japan, such as EDI-NET and JP-Bank Webcollect. These systems allow companies to make payments to each other electronically, without the need for paper checks or bank transfers.
Credit cards: Some companies in Japan may also accept B2B payments by credit card, although this is less common than the other methods mentioned above.

It is important to note that the specific method of B2B payment may vary depending on the needs and preferences of the companies involved.

How do electronic payment systems work in Japan?

EDI-NET: This is a network that connects companies and allows them to exchange electronic documents, including invoices and payment instructions. Companies can use EDI-NET to make B2B payments to each other.
JP-Bank Webcollect: This is an electronic payment system that allows companies to receive payments from their customers via the Internet. Companies can set up their own payment pages on the JP-Bank Webcollect website and send their customers a link to make a payment.
Rakuten Pay: This is an electronic payment platform developed by Rakuten, a Japanese e-commerce company. Companies can use Rakuten Pay to accept payments from their customers via the Internet.
PayPal: PayPal is a well-known international electronic payment system that is also available in Japan. Companies can use PayPal to accept payments from their customers via the Internet.
Amazon Pay: This is an electronic payment system developed by Amazon that allows companies to accept payments from their customers via the Internet.
Pay-Easy: This is an electronic payment system that is operated by the Sumitomo Mitsui Banking Corporation (SMBC). Companies can use Pay-Easy to accept payments from their customers via the Internet.
WebMoney: This is a popular electronic payment system in Japan that allows companies to accept payments from their customers via the Internet.
LINE Pay: This is an electronic payment system developed by LINE, a Japanese messaging app. Companies can use LINE Pay to accept payments from their customers via the Internet.
Konbini Payment: This is an electronic payment system that allows companies to accept payments from their customers at convenience stores (called “konbini” in Japanese). Customers can make a payment by scanning a QR code at the register of a participating convenience store.
Mercari Pay: This is an electronic payment system developed by Mercari, a Japanese e-commerce company. Companies can use Mercari Pay to accept payments from their customers via the Internet.
Paidy is a financial technology company that provides a payment platform for online merchants in Japan. The company’s payment platform allows merchants to accept payments from customers without requiring them to enter their credit card information or other personal details. Instead, customers can make payments using their mobile phone number and email address.

How do direct debit payments exactly work in Japan?

There are two major direct debit payment systems available, commonly referred to as “Furikae” in Japan:

Kouza Furikae (口座振替) and Jidou Furikae (自動振替) are both types of direct debit payment systems in Japan. Both terms can be translated as “automatic transfer” or “automatic debit.” The main difference between the two systems is the frequency of the payments.

Kouza Furikae refers to direct debit payments that are made on a regular basis, such as monthly or quarterly. Jidou furikae, on the other hand, refers to direct debit payments that are made on an as-needed basis, such as when a certain threshold is reached or when a specific event occurs. For example, Kouza Furikae might be used to make regular payments for things like rent or utility bills, while Jidou Furikae” might be used to make payments for things like credit card balances or online purchases. Both are convenient and secure payment methods that allow you to automatically transfer funds from your bank account to the payee’s account without having to manually initiate the payment each time.

a) Jidou Furikae

To set up Jidou Furikae direct debit payments for B2B transactions, the payer (the business making the payment) will need to provide the payee’s (the business receiving the payment) bank account information to their bank or financial institution. The payer will also need to specify the conditions under which the payment should be made (e.g., when an invoice is due, or when inventory reaches a certain level) and the amount of the payment. Once the direct debit payment is set up, it will be automatically transferred from the payer’s bank account to the payee’s account when the specified conditions are met.

Jidou Furikae direct debit payments are typically set up through a service called “Furikae,” which is offered by banks and other financial institutions in Japan. The payer will need to provide the payee’s bank account information and the payment conditions to their bank or financial institution when setting up the direct debit payment. The bank or financial institution will then handle the actual transfer of funds when the specified conditions are met.

b) Kouza Furikae

To set up a Kouza Furikae direct debit payment, you will need to provide the payee’s bank account information, including the bank name, branch name, account type, and account number, to your bank or financial institution. You will also need to specify the amount and frequency of the payments. For example, you might set up a “kouza furikae” payment to transfer a fixed amount from your account to the payee’s account on the first of every month. Once the Kouza Furikae direct debit payment is set up, the designated amount will be automatically transferred from your bank account to the payee’s account on the specified date. You do not need to take any further action to initiate the payment.

Which institutions and payment schemes support Jidou Furikae and Kouza Furikae?

Jidou Furikae and Kouza Furikae direct debit payment systems are offered by a variety of financial institutions in Japan, including banks, credit unions, and other financial services providers. Most major banks in Japan offer both services to their customers, and many of these banks also provide online or mobile banking platforms that allow you to set up and manage direct debit payments directly from your computer or smartphone. In addition to banks, some credit card companies and other financial services providers in Japan also offer Jidou Furikae and Kouza Furikae services. For example, some credit card companies allow you to set up automatic payments to pay off your credit card balance using a Jidou Furikae direct debit payment.

The 5 major banks (in terms of transaction volume in Japan) support Jidou Furikae and Kouza Furikae:

Mitsubishi UFJ Financial Group (MUFG)
Mizuho Financial Group
Sumitomo Mitsui Financial Group (SMFG)
Sumitomo Mitsui Trust Holdings
Resona Holdings

In addition credit card companies in Japan offer “Furikae” direct debit payment options to their customers. This allows to set up automatic payments to pay off your credit card balance using a direct debit payment.

JCB
Visa
Mastercard
American Express
Some credit card products by Diners Club and UC (United Credit Card Co., Ltd., which is a joint venture between the Mitsubishi UFJ Financial Group (MUFG) and the Sumitomo Mitsui Financial Group (SMFG)

It is worth noting that availability of “Furikae” direct debit payment options can vary depending on the credit card company and the specific credit card product.

2.4. API standards in the Japanese financial industry

In Japan, electronic banking solutions, also known as online or mobile banking, are typically based on standardized application programming interfaces (APIs) that allow different financial institutions and third-party service providers to interoperate and communicate with each other. These APIs enable the exchange of financial data and the execution of financial transactions between different systems in a secure and standardized way.

The most commonly used API standards for electronic banking in Japan are FAPI (Financial API), OpenID Connect and OAuth. Most banks, credit card companies, and other financial services in Japan utilize the open standards OpenID Connect and OAuth in their banking solutions.

The Financial API (FAPI) is a set of API standards that are specific to the financial industry. It defines a common set of API interfaces and security standards for the exchange of financial data and the execution of financial transactions.

Financial API (FAPI)

FAPI is designed to enable secure and interoperable financial services, and it is used by banks, credit card companies, and other financial services providers to enable a wide range of financial services, such as online banking, mobile banking, payment processing, and account management.

FAPI includes a number of different API specifications, including:

FAPI Read/Write API: This API specification defines a set of APIs for reading and writing financial data, such as account balances and transaction histories.
FAPI Payments API: This API specification defines a set of APIs for processing payments, including one-time payments and recurring payments.
FAPI Event Notification API: This API specification defines a set of APIs for delivering event notifications, such as account updates and transaction notifications, to third-party applications.

FAPI is based on the OAuth and OpenID Connect API standards, and it is designed to be interoperable with other API standards, such as the Open Banking API (OBA) and the Berlin Group NextGenPSD2 API.

FAPI is used by a wide range of financial institutions and third-party service providers in Japan and other countries to enable secure and interoperable financial services.

These API standards are widely used by banks, credit card companies, and other financial services providers in Japan to enable secure and interoperable electronic banking solutions. They help to ensure that financial data is transmitted securely and that financial transactions can be conducted in a standardized way across different systems.

2.5. Cost Structure, Including Fees and Exchange Rate Markups

The cost structure for B2B payments in Japan can vary depending on the specific payment method being used and the terms of the agreement between the parties involved. In general, however, B2B payments in Japan may involve the following types of fees and charges:

Transaction fees: Some payment methods, such as credit card payments or electronic payment systems, may charge a fee for each transaction that is processed. These fees can vary depending on the payment method and the amount of the transaction.
Exchange rate markups: If the B2B payment involves a foreign currency exchange, there may be a markup on the exchange rate that is applied by the payment service provider. This markup can vary depending on the payment method and the terms of the agreement between the parties.
Other fees: B2B payments in Japan may also involve other fees, such as fees for account maintenance, customer support, or other services provided by the payment service provider.

It is important to note that the specific fees and charges that apply to a B2B payment in Japan may vary depending on the payment method being used and the terms of the agreement between the parties. It is always a good idea to carefully review the terms and conditions of any payment agreement to understand the full cost of the payment.

3. B2B Marketplaces

There are many different types of B2B (business-to-business) marketplaces in Japan, ranging from industry-specific platforms to more general-purpose marketplaces. Some examples of B2B marketplaces in Japan include:

Photo by Ryoji Iwata on Unsplash

Industry-specific platforms: These are B2B marketplaces that focus on a particular industry or sector, such as manufacturing, construction, or healthcare. Examples of industry-specific B2B marketplaces in Japan include JETRO’s Trade Matching Service and MRO-NET, a marketplace for maintenance, repair, and operations (MRO) products and services.
General-purpose marketplaces: These are B2B marketplaces that cater to a wide range of industries and sectors. Examples of general-purpose B2B marketplaces in Japan include EC Plaza, which is operated by the Japan External Trade Organization (JETRO), and TradeHero, which connects buyers and sellers from around the world.
Online auctions: Some B2B marketplaces in Japan use an auction model, where buyers and sellers compete to win contracts or purchase orders. Examples of B2B marketplaces that use an auction model in Japan include MerX and eBay Japan’s B2B marketplace.
Service-based platforms: These are B2B marketplaces that connect buyers and sellers of professional services, such as consulting, design, or marketing. Examples of service-based B2B marketplaces in Japan include Upwork and Freelance.
Wholesale marketplaces: These are B2B marketplaces that specialize in wholesale trade, connecting buyers and sellers of bulk goods and materials. Examples of wholesale B2B marketplaces in Japan include Wholesale Japan and TradeWheel.
Manufacturing marketplaces: These are B2B marketplaces that connect buyers and sellers of manufacturing services, such as prototyping, tooling, and production. Examples of manufacturing B2B marketplaces in Japan include MFG.com and Alibaba.com.
Trading companies: Some Japanese trading companies operate B2B marketplaces that connect buyers and sellers of a wide range of products and services. Examples of trading company-operated B2B marketplaces in Japan include Marubeni’s e-Marketplace and Itochu’s Trade Net.
Industry associations: Some industry associations in Japan operate B2B marketplaces that connect members of the association with each other or with external buyers and sellers.

4. Payment on B2B Marketplaces in Japan

There are several possibilities for running payments in a B2B marketplace in Japan, depending on the specific needs and preferences of the marketplace and the parties involved in the transaction. In one model, a payment is facilitated directly between the payer and the seller and the marketplace is not involved in the payment flow. In the other model, the marketplace orchestrates the payment flow via a collection account.

4.1. Direct payment payer to seller

The options for a direct payer to seller payment flow include the following payment methods (please refer to chapter “How do electronic payment systems work in Japan?” above for more details).

Direct bank transfer: This involves transferring funds directly between the bank accounts of the buyer and the seller. This can be done through a variety of methods, such as online banking or bank wire transfer.
Electronic payment system: This involves using an electronic payment system, such as PayPal or a bank-operated platform, to facilitate the payment between the buyer and the seller.
Credit card payment: This involves the buyer paying for the goods or services using a credit card, and the payment being processed by the credit card company.
Direct debit: This involves the buyer authorizing the seller to automatically withdraw funds from their bank account to pay for the goods or services. This is typically used for recurring payments, such as monthly subscription fees.

4.2. Payment via collection account

In a B2B marketplace, a collection account is a bank account that is used to hold funds that are collected from buyers in the marketplace. Payment through a collection account in a marketplace in Japan typically works as follows:

The buyer initiates a payment for goods or services through the marketplace.
The marketplace processes the payment and transfers the funds to the collection account.
The marketplace holds the funds in the collection account until the transaction is complete and both parties are satisfied.
Once the transaction is complete, the marketplace releases the funds from the collection account to the seller.

Using a collection account in a B2B marketplace can help to reduce the risk of fraud and provide a higher level of security for the transaction. It can also make it easier for the marketplace to process and manage payments, as the marketplace only needs to handle a single account rather than multiple accounts for each buyer and seller.

How is payment via collection accounts regulated in Japan?

The regulatory requirements for a collection account of a B2B marketplace in Japan depend on the specific nature of the marketplace and the payment services that it provides. In general, however, collection accounts in Japan may be subject to the following regulatory requirements:

Payment Services Act: The New Payment Services Act (新しい決済サービス法) is a Japanese law that regulates the provision of payment services in Japan, including B2B marketplaces. The Act sets out various requirements and obligations for payment service providers, including requirements related to consumer protection, security, and the prevention of money laundering and terrorism financing.
Financial Services Agency (FSA): The FSA is the Japanese government agency responsible for regulating the financial services industry in Japan. If the B2B marketplace is operated by a financial institution or provides financial services, it may be subject to regulation by the FSA.
Other laws and regulations: Collection accounts in Japan may also be subject to other laws and regulations, depending on the specific nature of the marketplace and the services it provides. For example, a B2B marketplace that provides online auction services may be subject to the Act on Specified Commercial Transactions, which regulates online sales in Japan.

How do escrow accounts help?

Escrow account services are provided to business customers in Japan. An escrow account is a bank account that is used to hold funds that are being transferred between two parties, typically as part of a business transaction. The funds are held in the escrow account until the transaction is complete and both parties are satisfied, at which point the funds are released to the seller.

Escrow account services are typically provided by third-party companies or organizations that act as an intermediary between the buyer and the seller. These companies or organizations may be banks, financial institutions, or specialized escrow service providers.

4.3. Escrow account service providers for Japan

Rakuten Escrow: This is a Japanese escrow service provider that is part of the Rakuten Group. It offers escrow account services for a wide range of business transactions, including online sales, auctions, and real estate transactions.
Trust Bank: This is a Japanese bank that offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.
SBI Sumishin Net Bank: This is a Japanese bank that offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.
JETRO Trade Matching Service: This is a B2B marketplace operated by the Japan External Trade Organization (JETRO) that offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.
EC Plaza: This is a B2B marketplace operated by JETRO that offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.
TradeHero: This is a B2B marketplace that connects buyers and sellers from around the world, and offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.
MerX: This is a B2B marketplace that uses an auction model to connect buyers and sellers, and offers escrow account services for business transactions. It provides a secure platform for holding funds until the transaction is complete, and helps to reduce the risk of fraud and provide a higher level of security for business transactions.

4.4. Other challenges for B2B Marketplaces in Japan

Japan is an incredibly attractive market for B2B entrepreneurs, thanks to its growing economy and unique culture. However, due to the complex business structures and relationships inherent in the country’s economy, there are a number of challenges that need to be addressed when establishing a successful B2B marketplace. These include developing meaningful connections between organizations, ensuring networks remain secure from hackers, as well as developing stakeholder support for the venture. Meeting these demands requires careful strategic planning, commitment to customer service excellence, and local knowledge of the marketplace, all elements which can make or break a B2B marketplace in Japan.

Language Barriers

Language barriers continue to be a major challenge for international companies engaging in B2B marketplaces in Japan. Communicating with Japanese businesses can seem daunting for those who don’t speak the language, as nuances tend to be lost in translation. For instance, managers from outside the country may not understand cultural expectations of etiquette around politeness and formality, or even understand when potential partners are being less than honest. To overcome this barrier and successfully pursue new opportunities in Japan, foreign firms need to invest in localization experts or work with experienced native speakers familiar with both the language and culture of Japan. Furthermore, working with local partner organizations can also help bridge those gaps. By understanding these challenges, companies can take proactive steps towards doing more effective business with Japanese partners in B2B markets.

Cultural Differences

Doing business in Japan comes with its own set of challenges, especially when it comes to cultural differences. It is important to be aware of the local customs and consider them when engaging in any sort of business-related activity or conversation. Being familiar with the concept of “omotenashi”, which is a form of hospitality towards guests, and adapting to not just the language but also the many customs related to conducting business in Japan can go a long way in ensuring a successful venture. Understanding Japanese culture and behavior can make or break a deal, so doing your research beforehand and preparing appropriately is key. Doing business in Japan can be incredibly rewarding if the necessary steps are taken.

5. Conclusion

The Japanese business environment has been changing and with that, the regulations around payments have also shifted. If you’re thinking about expanding your businesses into Japan or working with Japanese vendors, it’s important to understand how their electronic payment system works. While there are similarities, there are also significant differences between the way payments work in Europe/North America and Japan. We specialize in helping companies expand their business globally. We know that when it comes to payments, every country is different. That’s why we have a team of experts who can help you navigate the waters and find the best solution for your business needs. Whether you’re looking to set up a B2B marketplace or establish a presence in Japan, we can help you make it happen. So what are you waiting for? Contact us today and let’s get started!