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April 2006 -- The nearly all-in-one mobile phone has yet another feature: contactless payments.  In addition to accessing the Internet, checking email, taking pictures, and downloading movies and music, consumers in Japan are paying for purchases using their mobile phones by waving them in front of a reader at the point of sale .

Contactless payments using mobile phones are nothing new in Asia, but Japan’s mobile giant NTT DoCoMo has created this feature on their mobiles phones to drive the use of credit.  Consumers in Japan, as in many Asian countries, have an aversion to credit.  Only 8% of all purchases in Japan are made with credit compared to 20% in the United States. 

Such industry movements present enormous opportunities for U.S. companies in the payment technology and credit card industries to get involved as new payment platforms develop in Japan, which stands at the leading edge of mobile technology and now at the front of mobile payment services.  Moreover, these companies will be well positioned to bring those technologies back into the United States ahead of others as the trend spreads to other parts of the world.

Watching these developments is Andrei Hagiu, assistant professor at Harvard Business School and principal at Market Platform Dynamics , a strategy consulting firm for platform businesses, such as those centered on payment technologies and software.  Hagiu spoke to JETRO about his paper i-modes and Octopi: Will Asia Reshape the World’s Payment Industry?,  in which he reports his findings from spending the past 18 months in Japan working with the Research Institute of Economy Trade and Industry as well as large companies including NTT DoCoMo, Sony and KDDI.

Hagiu believes these emerging payment technologies could change the general structure of the payment industry and could eventually phase out credit cards, which currently dominate the payment industry.