Payment Terms

Breaking the cash habit in Japan by nudging employees


If the supply of alternative payment options could stimulate its own demand, Japan would now be nearly cashless. Since this is far from the reality, the government is giving people a useful boost, encouraging them to use their mobile wallets more often than their physical wallets.

The Japanese preference for cash is well known. The surprise is that he refuses to die despite an abundance of other choices. In addition to credit and debit cards – and their digital versions – most major retailers now accept at least half a dozen QR code-based services. For small-value purchases at the corner store, stored-value cards from transportation providers and their mobile app avatars are a popular substitute for yen notes.

Yet two-thirds of all transactions last year were in currencies, costing Japanese banks dearly and dragging down its economy. A country where the working-age population has shrunk by 14% over the past quarter century is reluctant to deploy labor in low-productivity activities such as filling ATMs and collecting banknotes and coins from businesses.

This is why the Ministry of Labor is lifting the ban on paying salaries in electronic money. Public and private sector employees who agree to receive part of their salary virtually will be allowed to hold up to 1 million yen ($6,800) in their digital salary wallets. If an online operator goes bankrupt, this balance will be refunded to the consumer. With the guarantee, which mimics the state deposit insurance of 10 million yen in the event of bank failure, unions have thrown their support behind the plan, ending a debate that began in 2020.

It’s a major win for the government as well as PayPay and Line Pay, both backed by SoftBank Group Corp., and Rakuten Pay, promoted by local e-commerce giant Rakuten Group Inc. And it could be just what the Japan needs to get into the habit of spending virtually.

In the space of a few years, the range of cashless payment methods has exploded. The QR code is the fastest growing cashless system, thanks to near-zero setup costs for merchants and heavy promotion by companies such as SoftBank.

Masayoshi Son’s company spent a lot of money on PayPay, signing up customers with generous discounts and allowing merchants to accept payments for free for the first few years. This investment paid off, with PayPay controlling 45% of the QR code payment market, according to market researcher MMD Labo. It has 51 million registered users, which is about half of the adult population.

E-commerce and telecom players are also looking to keep user spending within their expanding networks. Rakuten, which already offers more than 70 services, recently added investments with electronic money to the menu. It has about 17% market share in QR code payments, Nippon Telegraph & Telephone Corp’s Docomo mobile operator. and AU from rival KDDI Corp. holding similar shares. Mercari Inc., a flea market app operator that is one of the few Japanese startups making inroads in the United States, owns 3%.

In terms of penetration and ease of use, contactless mobile transport cards issued by rail networks are unmatched. The arrival of East Japan Railway Co.’s Suica on Apple Inc.’s iPhones in 2016 was an inflection point. But in truth, rail companies should have taken advantage of their first-mover advantage much earlier: despite launching mobile options before smartphones, they made little effort to develop payment networks. The initial standards lacked interoperability across regions, and point-of-service technology was costly for merchants.

Nevertheless, Suica and other rail cards remain the best alternative for foreigners as prepaid payment options that can be added to any smartphone. Contactless credit cards that visitors might be familiar with elsewhere have yet to achieve true penetration, with the waters muddy by NFC standards such as Quicpay and iD that exist alongside choices like Visa Inc.’s Visa Touch.

It’s a bit of a mess. The bewildering array of payment methods can also lead to decision paralysis for less tech-savvy users – cash is accepted everywhere after all. Many merchants, especially smaller restaurants, would see their tiny profit margin swallowed up by cashless payment fees. Others want to keep their transactions off the books in case the taxman comes around.

It’s one of the reasons the government is betting on digital wages, the first big change in decades to how workers are paid. Japanese labor standards law requires employers to pay all wages in cash. An exception was made in 1975, when wire transfers were allowed, and again in 1998, when employers were allowed to credit employee brokerage accounts.

Now, a new group of challengers will get their foot in the door. Money transfer apps will absorb some of the excess deposits with Japanese lenders, who have billions of dollars on deposit with the Bank of Japan at negative interest rates. The policy goal of increasing cashless payments to 40% by 2025 – and 80% in the long term – will stand a chance if purchasing power defaults to a phone. E-wallets will be closer to the means of spending than deposits that must first be withdrawn from ATMs. “Many people will likely choose to receive a portion of their salary through their digital wallet for day-to-day shopping and other transactions, while the rest of their salary will be received through a more traditional bank account,” a carrier told us. word of Rakuten. With e-money providers already offering savings products, even the securities industry could see a digital tilt.

From high-speed trains to smart toilets, life in Asia’s second-largest economy is filled with the marvels of modern technology. But when it comes to money, the Japanese are staunch traditionalists. Even the pandemic, when people everywhere feared touching money, did not tip the scales. Long after it has gone out of fashion in neighboring China and South Korea, cash remains the primary medium of exchange. But when salaries start showing up in digital wallets, the ossified pace of change may finally pick up.

More from Bloomberg Opinion:

• Money-loving Japan could be preparing for crypto: Andy Mukherjee

• Better flipping burgers than working in a megabank: Gearoid Reidy

• HSBC’s new CFO must dispel the gloom: Paul J. Davies

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.

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