Are banks in Japan prepared for its country’s ‘Cashless Vision’ at all?

Despite a long-standing dependence on cash, regulatory changes that are threatening competition and changing out customer behaviours have spurred Japan to embrace a new form of currency – digital money.


What is this ‘Cashless Vision’?

It is an aim to reduce costs, tackle labour shortages, and improve the convenience of foreign visitors.

Although only 20% of its population have embraced digital money, Japan aims to raise this to 40% by 2025, and possibly 80% in the future. This will be done by increasing the spread of mobile payments, adoption of bitcoin and blockchain technologies amongst banks and organisations.

Japan has high prospects of achieving this goal. Forex Bonuses released a study, reporting that Japan currently ranks competitively at 9th place in the World’s Most Cashless Society, with Australia in the 7th place, and China in the 6th place.

China, which is the top Asian country going cashless, is also home to financial tech giants like Alipay and WeChat Pay. With a population that is receptive and adaptive to change, this has led the country to reign in terms of the variety of digital payment options they have.


How far is Japan in its race to become cashless?

With the tech expertise Japan has, the nation is engaging in a few initiatives such as QR codes, blockchain technologies, digital and mobile payments.

A few innovative projects in the market today that would drive its cashless economy:

  • J-Coin Pay

Initiated by Mizuho Financial Group, one of the biggest Financial Corporations in Japan, and other 60 local banks, J-coin Pay was launched this March. The J-Coin is a digital currency pegged to the yen and users would be able to spend it through a mobile application.

Traditionally, Japanese banks have charged customers fees for money transfer and money withdrawal at ATM during non-business hours. However there’s no charge for J-Coin Pay users, which would be a great advantage of the service.

Also, this could mean a faster process of phasing out cash and replacing it with mobile payments as an easier means of transaction. This will result in a change in behaviour and attitudes that are forecasted in the coming months to gradually move Japan towards a cashless society.

Having said that, the fact that other major banks in Japan are not participating this project could be a detracting factor of J-Coin Pay. Indeed, each bank is trying to establish their own cashless system. One example is examined in the following part.

  • MUFG Coin

Mitsubishi UFJ Financial Group (MUFG) has been one of the biggest corporations to experiment with blockchain tech to enhance digital payments. The bank is planning to commercialise its own cryptocurrency in later 2019.

It partnered with Akamai, a U.S. tech company, to design a blockchain-based ‘MUFG Coin’ that can handle 1 million transactions per second. This beats the original Bitcoin that handles the same number of transactions but in 10 minutes.

The MUFG Coin is currently in its testing stage, and is pegged to the yen which may include the use of both QR codes and FeliCa, a contactless IC card technology. With that, it hopes to enable peer-to-peer (P2P) along with point-of-sale payments and transfers when the project is officially launched.

Apart from the above partnership, MUFG has also invested in Coinbase, the biggest U.S. cryptocurrency exchange, and worked on blockchain pilots and projects with IBM, financial industry consortium R3, Japanese conglomerate Hitachi, Japanese IT firm NTT Data, and digital payments firm Ripple, amongst others.

  • Money Tap

SBI Ripple Asia launched a mobile application called Money Tap, which enables customers to conduct cash transfers instantly around the clock. This platform is powered by Distributed Ledger Technology (DLT) developed by Ripple.

Money Tap accepted funding from 13 banks this March and its use would be limited to domestic transactions first, while it looks to have an overseas expansion in the future.

Riding on a cashless vision for the future of Japan, Money Tap would be the first consumer-end retail payments product that involves a partnership between modern cryptocurrency technology and the traditional banking system.


What are the limitations of going completely cashless?

This is a concern amongst consumers that the government would have greater control of their holdings at banks. This fear stems from the ability that authorities may have to charge them negative rates – where they deduct or charge fees from accounts without legal recourse.

But these concerns can be managed with greater transparency by authorities, and heightened cybersecurity efforts which would provide both parties an extra layer of protection.


Is going cashless the path for the future?

Going cashless is also a form of cost-savings and this is especially so for banks in the long-run. Going cashless is said to save banks about 1 trillion yen (USD9.4 billion) a year, reported Mizuho Financial Group Inc.

Thus, the Japanese Government made a target in 2017, to double cashless settlements – defined as credit cards, debit cards and e-money – to 40% of transactions over 10 years, as part of its ‘Society 5.0’ future investment strategy.

Ultimately, banks that move too slowly towards a cashless society would lose its competitive edge. But this is also highly dependent on the ability of banks to maintain data security whilst ensuring technological reliability.

Achieving a cashless society requires more than just the wide availability of digital wallets. It requires a concerted effort by all sectors of society including sufficient government support to facilitate digital cash.

If you are interested to find out more on how you can play a part in growing your data security, software technology and cryptocurrency teams to support Japan’s cashless vision, please feel free to contact us from the contact form below. We will be able to elaborate more on the exciting projects and opportunities that are open at hand. Alternatively, if you’d like to stay up to date with the latest happenings within the digital banking space, do follow our LinkedIn page and visit our website for more industry-related insights.


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