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Last Updated: Thursday, 1 June 2006, 13:32 GMT 14:32 UK
Cashing in on mobile-crazy Japan
By Chris Hogg
BBC News, Tokyo

Japan's biggest mobile phone provider is preparing to extend a new service which allows customers to use their handset as a credit card.

Takamichi Takizawa
Takamichi Takizawa says he is wary of using cards

DoCoMo already offers a limited version of this service, and using your mobile to pay for things is very common in Finland and other parts of Scandinavia.

But whilst in the US, for example,

around a quarter of purchases are paid for with a credit card, in Japan the figure is much smaller - less than one tenth of consumer spending.

In Kakegawa city, about an hour and a half by train south of Tokyo, people seem somewhat reluctant to use any kind of credit or debit card.

"I've had bad experiences with loans," said Takamichi Takizawa, in his early 30s. "I just stick to cash now. I bet there's no-one around here who uses a mobile phone credit card - or who's even heard of them."

His friend Yukiko Uchiyama, who is the same age, is just as cautious.

Mobile phone, Japan
While mobiles are very popular in Japan, credit cards are less so

"There are just so many things you can do with keitai [mobile phones] now," she said. "It's scary because that also means there are more ways to abuse the system."

She and her friend Emi Murata admitted that they both had credit cards, and that they were both paying annual fees, but neither of them ever used them.

"That feeling of not knowing how much you are spending is worrying," Ms Murata said.

These are the kind consumers that DoCoMo has to win over if it is to make a success of its new venture. Perhaps unsurprisingly it has started cautiously.

First it launched a 'mini' service in April which offered customers as young as 12 years old access to a monthly credit line of around $90 (50, 10,000 yen).

Paying for goods could not be simpler. Users of the service just wave their phone in front of a dedicated reader in the store. They are billed later for the purchase together with their monthly phone charges.

DoCoMo will not say how many people have signed up yet.

They insist though that "the credit payment business will make great contributions to our core cellular business because of the increased attractiveness offered by the credit card payment capability".

That is going to be more and more important in the months to come.

Firstly, the Japanese cell phone market, as in many other countries, is at saturation point. Companies need to find new ways of making money from their customers.

DoCoMo will earn commissions from the shops and restaurants that offer the service as well as earning interest on credit balances.

Secondly, this autumn the rules will change to allow customers to keep the same phone number even if they change the company they use for mobile phone services.

So companies like DoCoMo need to find new ways to hold on to their customers.

Carrying a wallet stuffed full of notes does not feel as foolish here as it might do elsewhere

"DoCoMo wants to create a new revenue source. Its target is $1bn," said Chikatomo Hodo, an analyst from Accenture Japan. "And if Keitei credit users hesitate when thinking about changing phone companies that could earn [DoCoMo] a further $45bn every year".

DoCoMo says it was the first company anywhere in the world to introduce osaifu keitai or wallet phones - the forerunner to credit card phones - two years ago.

What that means is it offered handsets which had chips in which could communicate with external network systems.

By April there were around 3m wallet phones in Japan using a pre-paid credit system where users topped up their account, often via a website, before using their phone to pay for something.

Awarding loyalty

The credit card system DoCoMo is offering obviously takes that a step further.

The main service due to be launched in late June will offer lines of credit starting at 200,000 yen ($1,800, 1,000).

To ensure security for purchases over 10,000 yen ($90, 50) customers will need to enter a pin number and if a phone is stolen it can be blocked. But will this tempt consumers who are wedded to cash?

Three million wallet phones might sound like a lot, but it is not in a country of 126 million people.

Crime rates have always been low in Japan compared to many other countries. Carrying a wallet stuffed full of notes does not feel as foolish here as it might do elsewhere.

But the Japanese do love new technology - perhaps credit card mobile phones will finally persuade them to leave the cash at home.

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