Commentary: The challenges facing a cashless Japan

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.

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The governments 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 Japans 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.

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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.

RESTORING JAPANS HIGH-TECH REPUTATION

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.

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 Japans 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.

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 Japans 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.

OBSTACLES TO CASHLESS PAYMENT ADOPTION

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 paymRead More – Source