The Secret to Making E-Payments Work in Japan

Whenever you hear someone claim that the Japanese will never do something for unspecified "cultural reasons", you know there is a fortune to be made.

Lu Dong is the co-founder and CEO of Japan Foodie, a cashless payment system currently masquerading as a restaurant discovery application.

Lu and I talk about the boom in inbound Chinese tourism that led to the creation of Japan Foodie, and how he and his team quickly managed to identify and dominate this massive and underserved market.

We talk about how tourism is changing Japan, the best way to build a two-sided marketplace, the only way forward for most e-commerce platforms, the future of e-payments in Japan and the history of women's lingerie in China.

It's a great conversation, and I think you'll enjoy it.

Show Notes

The real problems with Japan being a cash-based society What people really care about in a restaurant app How to build a two-sided marketplace Why e-commerce platforms are really advertising companies What happens in Japan after the Olympics Launching China's first major sexy lingerie brand How too much success can kill a startup When you should turn down VC money Why its harder to be an entrepreneur when you get older The importance of corproate accelerators in Japan

Links from the Founder

Check out Japan Foodie Connect with Lu on LinkedIn Friend him on Facebook

Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero, and thanks for joining me.

One thing I have learned starting startups in Japan for 20 years is that every time you hear people claiming that Japanese people won’t do something because of unspecified cultural reasons, there’s a lot of money to be made.

In the 90s, people claimed that e-commerce would never catch on because Japanese preferred the high touch, expensive department stores, but today, those department stores are struggling as every year, more and more commerce moves online. 10 years later, people were saying that online auctions would never work because Japanese people would simply not by used goods for cultural reasons. They were wrong, of course, and today, Yahoo! Auctions and Mercari, and dozens of others are thriving.

When a behavior is widely described as a result of cultural reasons, it usually means that the behavior doesn’t really make sense, and we cannot explain it, and man, that is the perfect area to start looking for business opportunities. If you can discover the real reason for this behavior, and it’s usually a rational economic reason, if you can discover the real reason for this behavior and fix it, you can make a fortune.

You might have heard that Japan is a cash-based society for cultural reasons, but we are already starting to see the cracks in that falsehood forming.

Today, I’d like to introduce you to Lu Dong, the founder and CEO of Japan Foodie, a restaurant discovery app and yeah, there are a lot of those, but this one is special. Well, not so much the app, but the business model, and the perfectly rational way in which Japan’s cash-based culture will migrate to electronic payments, and it’s already working.

In our conversation, Lu also provides some great advice for building multi-sited marketplaces, and he tells some pretty interesting stories about tourism, fundraising, and women’s lingerie.

But you know, Lu tells that story much better than I can, so let us get right into the interview.

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[Interview]

Tim: So, I’m sitting here with Lu Dong, the founder of Japan Foodie and several other companies, so thanks for joining us.

Lu: Thank you.

Tim: You know, actually, recently, we’ve been focusing on sort of serial entrepreneurs in Japan, but before we talk about your other companies, let us talk about Japan Foodie.

Lu: So, I started Japan Foodie in 2015. What is Japan Foodie? It’s basically a lot of friends from China, from the US, from all around the world come to Japan, to Tokyo. Whenever they know I’m in Tokyo, they always ask me, “Lu, hey, I’m in Tokyo next week – next month, where should I go to eat?” Right? So, they never asked me where should I go shopping? Where should I go sightseeing? But, all of them ask, where shall I go eat? A lot of times, I book restaurants for them, I give them instructions, and a lot of times, I also go to those restaurants with them to help them order.

Tim: So, is the site really, is it more focused on restaurant discovery? Is it more focused on Japanese cuisine in general? In a nutshell, what are we –

Lu: Yeah. In a nutshell, okay. So, basically, help tourists discover and book, and pay. That solves the three main pain points in terms of foreign tourists in Japan. They can’t find restaurants, they can’t communicate in terms of booking, and in store, in restaurant ordering, and finally, they can’t pay because 82% of the retail in Japan is done by cash.

Tim: The payment pain point in particular is interesting because not only is so much cash, even the payment methods that aren’t cash tend to be Japan-only. They are like, Suica or the Rakuten Pay, or they are something that foreign visitors don’t have access to.

Lu: Yeah, well, before I started the company, I spent 10 years in China, started two companies in the e-commerce area, so in this 10 years, e-commerce became mobile commerce, so everybody knows that 80% of the traffic right now is on mobile where the mobile payment – smartphone payment, that’s what people call it which in China, there are only two: WeChat Pay and AliPay, right, became the major payment tool for people’s daily life. So, people live on those, whereas they come to Japan, back to stone age. They can’t use not only the smartphone to pay, but also, a lot of places, they can’t even use credit cards. The only one thing they accept is cash, especially during lunch, they’re like, “No, no, no, for dinner, we accept credit card, but for lunch, only cash.”

Tim: Really?

Lu: Yeah.

Tim: What’s the logic there?

Lu: Exactly. So, I had a lot of questions. How come Japanese people love cash or how come the credit card or non-cash payment adoption rate is so low in Japan? The most answer I got are two. One is like, people love cash, period. The second answer is like, when people use cash, it’s easier to manage your expenses, whereas if you use credit card, you get broke very easily.

Tim: Well, I don’t know, I mean, I think there’s a couple of simpler reasons, I think. I mean, if you look at the commissions that they charge the merchants, they’re much higher in Japan than they are overseas, there are laws that prevent the banks from aggressively doing consumer lending, so the banks don’t make as much money on credit cards, so they don’t push them as hard.

Lu: These two questions I got from most Japanese, I don’t agree because Suica is so widely used. If you had a Suica and the other option is to buy other tickets using cash, you always choose the Suica option, right? Japanese people love cash, I think that’s – I don’t buy that.

Tim: I agree. Any time you hear this kind of this general, oh, that’s Japanese culture, that’s the Japanese way, no, there is a business opportunity there.

Lu: Exactly, exactly, and you are right. So, basically, the charge for credit card to the merchant in Japan is probably the highest in the world, I know. So, the lowest right now is probably Rakuten Pay among the other couple payments, it is around 3.25, and the payment cycle is about 45 days, right? And also, the POS machine, typically costs somewhere between a couple hundred dollars to a couple thousand dollars for the POS machine, and they charge a monthly fee, and the reason they don’t take credit cards for lunch, but they take for dinner because on top of all that, they charge you three or five yen per transaction, on top of all that.

Tim: So, it is not so much that the Japanese consumers like cash. It’s that Japanese merchants hate credit cards.

Lu: Hate, exactly, exactly.

Tim: And, I don’t blame them. It’s great to see Japan Foodie taking off because I think you and I were talking about this like, just when you were starting out in like, the Starbucks in a basement of Roppongi Hills. It’s awesome to see you guys taking off this way.

So, you mentioned like, the importance of discovery and reservations, and payments. So, of the three, is payments really the key or are they all sort of equally important?

Lu: To the merchant and to the users, nobody cares about payment. You don’t go to a restaurant because you can pay with such and such payment, and to the merchant, they don’t care payment in a way because payments, whether it is 4% or 3%, it doesn’t affect that much of their business, if you think about that, right? So, what do they really care, I think what they really care for the users, is a wonderful experience. They really want to get the most out of it in their limited time in Japan. So, most value is actually discover and making sure you can get into that restaurant you really want to get in, and also, you want to know what is in there, right? A lot of times, you go to a kaiseki, you don’t even know what you are eating. So, a lot of value from the user, I think, is that, so we do a lot of content marketing, and for the merchant, what they really care is, they want to have a good client base and eventually, in the long-term, they want to make more money. I think they are the two things that they care.

Tim: Okay, actually, let’s us dive into your customer acquisition strategy. Multi-sided markets are really fascinating because you sort of have to be two different things to two different groups of people.

Lu: Yeah, better start with one.

Tim: Well, which one has been more challenging, is it to pick up the restaurant owners to bring them on board,