When the consumption tax finally hits 10 percent next month, the government plans to seize the opportunity to dramatically accelerate Japan’s shift to cashless payments through a rebate program.

But with Japan’s roughly 20 percent rate for cashless payments lagging other countries, is it possible to persuade mom-and-pop shops, backstreet pubs and cozy, decades-old coffee shops to invest in the infrastructure and let processing fees erode their profits?

Yoko Watanabe, who runs a cash-only dry cleaner in Tokorozawa, Saitama Prefecture, is one of the small-business owners inclined to offer a digital payment option. While conceding more customers are likely to patronize stores with cashless options when the tax hike and rebates start on Oct. 1, she’s taking a wait-and-see attitude.

“Compared to the old days, it’s becoming a cashless era,” she said. “We’ll look at various conditions and if we think we can get a great deal, we’ll introduce cashless.”

Since the tax hike to 10 percent from 8 percent is expected to dampen the economy, the government devised a nine-month digital rebate program to offset the impact and promote cashless payments at the same time. The ¥279.8 billion program, which rewards people who make purchases at small stores, is intended not only to provide economic relief but also to drive digital payments more widely throughout Japan.

For nine months, consumers will receive 5 percent rebates for purchases made at small establishments by credit card, debit card or smartphone. The rebates will be limited to 2 percent for purchases at stores franchised by big companies, including convenience stores. The rebates will take the form of reward points or simple discounts, depending on the payment platform.

Stores must register with the government to join the temporary campaign. As of Thursday, about 510,000 had filed requests and the number is growing quickly, according to the Ministry of Economy, Trade and Industry. About 2 million stores are reportedly eligible.

According to METI, to become a rebate-ready store from Oct. 1, shop owners should apply by Friday, though they can actually apply anytime before April. Consumers won’t have to do anything as the rebates will be awarded instantly.

To promote the rebate program, the government is hosting seminars for small businesses in the nation’s struggling shōtengai (shopping arcades), pushing the message that going cashless will increase efficiency.

Watanabe, the dry cleaner, attended one of the seminars in Tokorozawa on July 31. She said business is getting quite busy and “from that perspective, I’m thinking that cashless may help.”

Other factors motivating the government to push cashless include more efficient record-keeping for taxation purposes, a chance to reduce cash-handling costs, and easier shopping for travelers who prefer credit cards.

METI’s goal is to double Japan’s rate for cashless payments to 40 percent of all transactions by 2025 versus 20 percent in 2016.

Government estimates based on 2015 data from the World Bank, the Bank for International Settlements and other organizations show Japan’s cashless rate was 18.4 percent, versus 60 percent in China and 89.1 percent in South Korea.

To achieve METI’s goal, officials believe the key is to make noncash payments customary at small stores that traditionally shun credit cards because of their processing fees, which roughly range between 3 percent and 5 percent of each payment.

These days, more cashless options are available thanks to smartphone apps based on QR codes or barcodes, as well as to commuter cards that can be loaded with electronic money to make small purchases.

Apps have lowered the barrier for small stores and added momentum to the cashless push, with some offering lower fees or waiving them temporarily. For instance, PayPay, the platform of the SoftBank Group, is scratching fees for one of its two QR-code payment options until September 2021.

To lure more shops, the government is asking the payment firms to cap their processing fees at 3.25 percent during the rebate campaign and subsidize the cost of credit card readers and other infrastructure so shops can effectively join it for free.

“Processing fees have made us hesitant to introduce cashless payments,” said Ayakazu Saito, who manages an udon restaurant in Tokorozawa.

Describing the trend toward cashless as “inevitable,” he said he hopes to somehow give customers more options.

Much of the trend is being driven by the fierce battle being waged by payment platforms, tech firms and convenience stores. Some are investing billions of yen in their own rebate programs to develop loyal customers and compile lucrative information on their buying habits.

Mercari Inc.’s digital payment arm Merpay Inc. is targeting the shopping streets of Tokyo’s Koenji district. The area is packed with roughly 800 to 1,000 stores, and Merpay persuaded about 200 of them to adopt its QR code and barcode payment options.

Shop owners tend to show some interest when the tax hike, rebate program and application deadline are explained to them, said Yuta Saito, Merpay’s sales representative in Koenji.

Saito said Merpay wants to persuade as many cash-only stores as possible to get ready.

But intense competition has also raised doubts about security since the July hacking of 7pay, the payment service of 7-Eleven parent Seven & I Holdings Co. Hackers stole ¥38 million from users and Seven & I announced it would be scrapped just a month later.

Kazuya Nakazawa, an executive of one of the shopping street associations in Koenji, said the movement toward cashless was slow before Merpay arrived and many shop owners are ignoring the pressure campaign.

“They are probably watching news programs on TV and thinking, ‘Oh, this is quite troubling’ but not doing anything to prepare for the tax hike, he said.

“So, we need to back them up as a shopping street community,” Nakazawa said.

Daisuke Tanaka, an expert at Nomura Research Institute who is watching the cashless trend, echoed this point, saying community-scale efforts are likely to work well with small retailers.

“Social factors will probably play an important role,” Tanaka said, adding that seeing other owners accepting cashless payments could motivate others to jump on board.

Still, it remains unclear whether the rebate program will motivate those who haven’t even thought about noncash options.

“Unless the policy drives those store owners, cashless won’t spread everywhere across the country,” Tanaka said.

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