Japan’s Tourism Boom Causes Strain on Credit Card Companies

Japan's booming tourism industry, expected to attract a record 35 million visitors this year, is creating financial headaches for domestic credit card companies. As international visitors increase their spending on shopping and dining, Japanese card companies are facing mounting losses due to the high fees associated with processing transactions made with foreign-issued credit cards.

Also read: Tourism Boom Prompts Japan to Consider Dual Pricing System

Rising tourism in Japan leads to credit card company losses

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When foreign cards are used in Japan, the local card companies must pay fees to both the overseas issuer and the international card brands like Visa or MasterCard. These fees often exceed the merchant fees collected in Japan, leading to projected losses of around 30 billion yen ($205 million) this year, a 50% increase from 2023.

Seven out of eight major Japanese credit card companies reported growing losses, with some considering or already implementing higher fees for foreign-issued cards. Unlike controversial two-tier pricing schemes that target tourists, these higher fees would be absorbed by the stores and restaurants, not the tourists themselves.

The complexities of the credit card industry exacerbate the issue. Domestic companies like Sumitomo Mitsui Card and Mitsubishi UFJ Nicos issue cards and manage payment networks with merchant fees typically around 1.9% per transaction. However, when processing foreign-issued card transactions, these companies often face losses, as the combined fees to overseas issuers and card brands can exceed what they collect.

With the increasing share of transaction value attributed to foreign visitors, some companies are now contemplating dual rates — charging higher fees for foreign card transactions. High-end boutiques, hotels, and big-box electronics retailers, where losses outweigh earnings from domestic transactions, are prime candidates for such measures.

However, the idea of dual rates has faced resistance. A luxury hotel in Tokyo rejected the proposal, citing difficulties in adjusting room rates based on card fees. Instead, they suggested that any fee increase should apply across the board, regardless of the card used.

Also read: Japan Foreign Residents Surge Hit Record High Amid Citizen Decline

As Japan's tourism continues to soar, the financial strain on domestic card companies is likely to persist, especially given their reliance on international payment networks. Without intervention, these companies may struggle to maintain profitability amidst the tourism boom.

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