Business

Japan bets on QR code payments to sustain spending

by Stanley White

Reuters

When the baseball season kicked off in Japan this spring, fans of the Tohoku Rakuten Golden Eagles were faced with an inconvenience they’d never encountered before: The food and drink stalls did not accept cash.

The team’s owner, internet commerce firm Rakuten Inc., was trying to promote its QR code mobile payment system. But the marketing ploy quickly turned out to be much more than that.

In April and May, food, beverage and merchandise sales at the Eagles stadium in Sendai jumped 20 percent from the same period in 2018, partly because taking cash out of the equation changed spending habits.

“We consider it to be a success story,” said Hayato Morofushi, marketing manager for Rakuten’s mobile payments. “Using QR codes for payments has only just started in Japan, so we don’t expect everyone to jump on the bandwagon. As we get more success stories, this will win more people over.”

Experts say that when lines move faster, more people join. Customers don’t see cash leaving their wallets and focus on the satisfaction of a purchase, so they spend more.

That psychology could be crucial for Japan’s economy, locked for decades in a deflationary mindset, where consumers delay spending in hopes of stable or lower prices. The Bank of Japan has spent more than $3 trillion since 2013 on bonds and other assets to stoke a 2 percent growth rate in prices, but without success.

A scheduled increase in the consumption tax to 10 percent from 8 percent in October could hurt spending. Aware of that risk, the government is betting big on mobile payments, an industry only just taking root.

As soon as the tax hike kicks in, the government will offer points redeemable for future discounts to shoppers who use QR codes and other forms of cashless payment for nine months.

The project has a six-month budget of ¥280 billion ($2.6 billion), which will be reassessed in fiscal 2020 starting next April.

“If we change how we pay, we can change society as a whole,” said Masamichi Ito, director of the Ministry of Economy, Trade and Industry’s cashless promotion office, set up in October with the goal of doubling cashless transactions to ¥120 trillion by 2025.

Cash settles 80 percent of the transactions in Japan, with the rest done by credit cards, mobile payments and prepaid swipe cards. That is the highest cash usage rate in the developed world, after Germany.

Low crime rates — most residents in Japan are comfortable carrying large amounts of cash — and an aging population are seen as the main obstacles to deeper adoption.

In India and China, two of the world’s most voracious spenders, mobile payments account for 30 to 35 percent of transactions, according to Statista.

On average, cashless payments increase per-customer sales by 1.6 percent, according to Nomura Research Institute. Domestic consumption in Japan has grown an average of 0.5 percent each year for the past six years.

The government says going cashless could alleviate other major headaches, such as a labor shortage and the falling profitability of banks, simply by virtue of being more efficient.

Cashiers spend on average over two hours a day managing cash, while banks spend around ¥1 trillion a year on their ATM networks and physically moving cash, NRI says.

Tourism, especially from China, has been one of the few economic bright spots in Japan, and Chinese tourists use the mobile payment system AliPay, run by Ant Financial Services Group, at over 300,000 Japanese merchants.

Some duty-free counters at big department stores deposit tax refunds directly into AliPay accounts. The app uses targeted ads to help users find what they want and recommends related products nearby. When users return to China, they get a recommendation to buy similar Japanese goods online.

South Korean mobile payment firm Kakao Pay is also looking to enter Japan, betting on Tokyo’s push to go cashless, Ryu Young-joon, chief executive of Kakao Pay, said in a May interview.

“When I go to Japan, they do not accept credit cards in many stores,” Ryu said. “So I thought if I can use Kakao Pay in Japan, it’s going to be good.”

PayPay, a QR code system launched in October with backing by SoftBank Group Corp., Yahoo Japan Corp. and India’s Paytm, is also compatible with AliPay, which may smooth the path toward local adoption.

Satoshi Komiya, 39, who runs a Tokyo curry restaurant, got PayPay three months ago — after signing a deal that guaranteed he would be charged no fees for three years.

He said he has noticed a “slight” increase in sales since then.

“So far, so good,” Komiya said.

But other Japanese payment providers, including Origami Inc., messaging app Line and auction site Mercari, typically charge fees of about 3 percent.

Because smaller retailers have profit margins of around 2 percent on average, fees are a major obstacle to adoption of mobile payments, said Yuki Fukumoto, a researcher at NLI Research Institute.

Japan also has a network of ubiquitous vending machines and meal ticket dispensers that rely on cash and cannot be replaced or upgraded overnight.

“People say shoppers spend more when they use QR codes, but I don’t think this will happen in my shop,” Tomoko Yokoyama, 50, who runs a Tokyo tennis shop, said as she re-strung a racket.

“I have to pay fees on every purchase, so it is the same as selling goods at a discount,” she added. “That would be a disaster.”