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Commentary: The challenges facing a cashless Japan

Cashless payments are key in reviving Japan’s reputation as a leader in cutting-edge technology as it aims to catch up with China, says the University of Tokyo's Soichiro Takagi.

Commentary: The challenges facing a cashless Japan

File photo of a cashless transaction via PayPay at a restaurant in Tokyo, Jul 25 2019. (Photo: AFP/Toshifumi Kitamura)

TOKYO: The Japanese government is determined to promote cashless payments and has set a policy target to reach 40 per cent use of cashless payment by 2027, up from 18.4 per cent in 2015.

This still lags far behind other countries such as South Korea and China, each with a higher rate of cashless transactions totalling 89.1 per cent and 60 per cent respectively.

The government’s outlook on promoting a cashless society includes the issuance of a policy document titled “Cashless Vision” last year, and the start of a massive subsidy programme to promote cashless payments in October 2019. 

This subsidy aims to promote the transition to cashless payments, while also mitigating the effects of Japan’s consumption tax hike from 8 per cent to 10 per cent, which also came into effect the same month.

READ: Hoping to boost spending, Japan tries to sell shoppers on cashless purchases

Parallel to government initiatives, Japanese consumers are witnessing fierce competition among cashless payment providers. This particular market has seen the entrance of a significant number of smartphone-based payment providers such as PayPay, LINE Pay and Merpay. 

This is in addition to traditional cashless methods such as Suica or Pasmo cards for public transportation, and various brands of credit cards.

This raises the question of why the Japanese government and providers are so eager to promote cashless payments, and how likely it is that their attempts will succeed.


Since its rapid growth in the 1970s, Japan has enjoyed a strong reputation as a country at the forefront of high-tech innovation. This reputation is a result of a successful manufacturing industry, especially in automobiles and electronics.

Humanoid robots work side by side with employees in an assembly line in Kazo, Japan, July 1, 2015. (Photo: REUTERS/Issei Kato)

In contrast, the services sector has been regarded as a less competitive division of the Japanese economy. For example, the Japanese economy failed to foster technology start-ups in the global software and IT services industry.

In another example, despite the cutting-edge innovations that led to the first internet-connected cellphone architecture “i-mode” in 1999, the system has never become a global standard. In contrast to Japan’s high level of scientific research, social adaptation and global business strategies have been long-standing challenges to Japanese innovation.

READ: Commentary: Beneath the digital friendly facade, Singaporeans still reluctant to accept cashless payments

In addition, another factor that has encouraged leaders to take a bold step towards a cashless society is Chinese competition in technological innovation.

Since 2010, the Chinese tech industry has exhibited massive advancements in the adoption of cutting-edge technology in various services from cashless payments to ride sharing and online to offline retail.

One particular service that attracted Japanese attention was the use of the QR code (originally invented by a Japanese company), provided through Alipay or WeChat Pay. 

This innovation coincided with a rapid increase of inbound tourists from China into Japan — now, the logos of Alipay and WeChat Pay can be observed in many Japanese retail stores.

FILE PHOTO: An Alipay logo is seen at a cashier in Shanghai January 12, 2017. REUTERS/Aly Song

The exposure to Chinese cashless payment options has caused a sense of crisis in Japan and a fear that the Japanese economy is falling behind.

Driven by this sense of crisis and expected business opportunities, cashless payment has become key to reviving Japan’s reputation as a leader in cutting-edge technology. The Japanese government has decided to invest 280 billion yen (US$2.5 billion) to subsidise retailers and consumers who use cashless payments.


Although there is an expectation that cashless payments present unique business opportunities, there are several key barriers Japan must overcome before it becomes a cashless society, and these factors also explain why Japan has been so heavily cash dependent.

READ: In high-tech Japan, cash is still king

The first challenge is the high cost of adoption for retailers. One of the reasons for the success of QR code based payments in China is the low cost of investment and transaction fees. It requires only conventional smartphones or paper QR-codes for retailers.

In contrast, contactless-card payments in Japan require a significant investment in equipment and payment of transaction fees. While government subsidies sufficiently lower costs to ensure the transition to cashless payments, it is unclear whether subsidies are a sustainable option.

A poster offering cashless payments displayed outside a supermarket in Tokyo, on Jul 25, 2019. (Photo: AFP/Toshifumi Kitamura)

Another barrier to the penetration of cashless payments is perceived inconvenience. Cashiers in retail stores are well-trained and can complete a payment with cash in just a few seconds.

On the other hand, smartphone-based systems require several steps to finalise payments. The benefits of cashless payments need to be made more desirable and integrated with other internet services.

READ: Commentary: Bike-sharing e-wallets, peer-to-peer lending and the astronomical rise of shadow banking

The consumer perception of risks associated with cashless payments is another key challenge. Research has shown that a significant portion of Japanese consumers prefer cash because they fear overspending with cashless methods.

Security is also a common concern among consumers, given that security breaches and improper use of personal data have frequently been reported across Japan.

Soichiro Takagi is an associate professor at the Interfaculty Initiative in Information Studies at the University of Tokyo. This article first appeared on East Asia Forum.

Source: CNA/el (ms)


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