Wallets packed with ¥1,000 notes along with ¥100 and ¥10 coins — Japanese people’s love for bills and coins has long been a hindrance to the creation of a cashless economy.
But with more people avoiding physical cash amid the COVID-19 pandemic, digital payments are becoming more popular in Japan, which has been embracing cashless options following a massive government-backed promotional campaign in the wake of a 2019 consumption tax hike.
The stay-at-home trend has also prompted more consumers to rely more on internet shopping, which usually requires cashless transactions.
The fact that local governments, which are typically the last in line to introduce any kind of technology, are starting to jump onto the digital payment trend may be evidence that a cashless economy is becoming prevalent in Japan.
One of them is the Mitaka municipal office in western Tokyo, which is hoping to mitigate the risk of infection and improve efficiency in catering to visitors who need to obtain documents such as residence certificates and copies of their family register.
“Since the outbreak of the coronavirus, we have implemented measures such as sanitizers for people to disinfect their hands and anti-droplet acrylic partitions … but nothing has been done (to reduce the risk of infection through exchanging cash) for payment,” as the city only accepted cash, said Hirofumi Tanaka, manager of the citizen services division.
“That’s why we started considering accepting cashless payment, such as QR codes, e-money and credit cards.”
Starting Jan. 18, the Mitaka city office set up self-checkout machines that enable visitors to either pay digitally or in cash by themselves without physically exchanging cash with city officials.
Mitaka, which saw about 66,000 cash transactions last year, is the first municipality in Tokyo to have installed self-checkout machines that can handle both cash and digital payments.
“Even if we make cashless available, many people will still use cash, so we thought that it wouldn’t be really useful without an automated cash register,” said Tanaka.
Visitors can now check out faster with the machine, easing congestion in the waiting area, thereby lowering infection risks. With the improved efficiency, it saves a lot of time overall during busy seasons, Tanaka said.
Mitaka is not the only place that has started embracing cashless. The city of Fukushima began accepting digital payments in January, while the city of Yokote in Akita Prefecture introduced cashless options at its office this month, becoming the first local municipality in the prefecture to do so.
Surveys show that more consumers are opting for digital payments amid the pandemic.
According to an online survey conducted in July by G-Plan Inc. and Biglobe Inc., 29.5% of 7,865 respondents said that they had been using cashless more often since last April. The top reason to use cashless was reward points, but about 31% said they wanted to avoid touching cash.
Another reason for the cashless payment drive is the increase in online shopping as more people are encouraged to stay at home amid the pandemic.
Data released by the Internal Affairs and Communications Ministry earlier this month shows that the ratio of households of at least two people using online shopping topped 50% in May last year for the first time, and stayed above that threshold through the year, with the exception of August and September — which both hit 49.9%.
The figure for December, meanwhile, was 54.6% compared with 45.7% in the same month in 2019.
This helps boost the share of cashless payments because credit cards or other means of digital payment are needed in most cases.
The rise of the cashless trend under COVID-19 will likely help Japan achieve its goal of doubling the country’s rate of cashless payments to 40% of all transactions by 2025 versus 20% in 2016. The figure for 2019 was 26.8%.
The pandemic has occurred on the heels of a government-backed campaign to promote cashless while assuaging the impact of the consumption tax hike in October 2019.
The ¥775 billion campaign from October 2019 to last June gave consumers 5% rebates for cashless purchases made at small stores, which tend to be reluctant to implement the technology because it can be costly to prepare necessary equipment and pay commission fees.
To ease such concerns, the government program offered financial support for them to become cashless-ready while asking cashless payment operators to lower the commission fees.
As a result, the campaign reinforced digital payment infrastructure, drawing the participation of 1.05 million small outlets — far more than the industry ministry had expected.
Experts pointed out that the integration of digitalization into shopping experiences at brick-and-mortar stores will further facilitate digital payments.
For instance, McDonald’s and Starbucks have introduced a mobile order service that allows customers to order and pay via apps before they come to stores so that they can pick up their orders when they arrive instead of waiting in line.
“It’s more like promoting the digitalization or virtualization of shopping experiences rather than promoting cashless, but I think it’s an important way of thinking,” said Toshio Taki, who heads the Fintech Research Institute under Money Forward Inc.
In addition to allowing consumers to shop more efficiently, this could enhance stores’ management of the customer relationship, since they can collect new data, said Taki.
Now that cashless payments are becoming more widely available, ensuring the security of the system will be crucial for digital payment platforms, he said, as a number of security breaches have been reported in the past few years.
For instance, Seven & I Holdings Co., the operator of 7-Eleven convenience stores, had to scrap its smartphone payment service, 7pay, since it failed to enhance its security systems after it was hacked in 2019.
Such mismanaged cases “can easily fuel criticism from people who would say ‘this is why fintech is no good,’” said Taki, using the term for “financial technology.” He added that it is critical that digital payment platforms continue safe operations to enhance public trust.
Digital payments using QR codes on the rise
When consumers pay for their purchases digitally, there are various options — credit cards, debit cards and electronic money.
While credit cards dominate in terms of overall transaction value, QR code payments using smartphones have been sharply rising.
According to Yano Research Institute, the transaction volume of QR code payments was ¥304.2 billion in fiscal 2018 but the figure is expected to soar more than twelvefold to ¥3.87 trillion this fiscal year, which ends in March.
“QR code payments have shown the highest growth rate. People are using them more often for the settlement of small amounts,” said Nao Nishikawa, director of the Cashless Payment Promotion Office at the Ministry of Economy, Trade and Industry.
Such payments do not require a special device for merchants, so it is easier for them to introduce. All they need is to simply post a code for customers to scan with their smartphones.
“The market for QR codes still has plenty of room to grow, and the payment platforms have been running some generous point-rebate campaigns,” which has contributed to the increasing number of users, said Nishikawa.
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