Will QR code payment be the key to push cashless forward in Japan?
In December 2018, PayPay – a QR code payment app established by Softbank and Yahoo! Japan, launched a cashback campaign estimated at USD 100 million in Japan. This resulted in extensive news coverage and mirrored the explosive popularity of QR code payment in China over the past few years. In fact, 60% of the payment in China was done cashless in 2015, while it was only 18.4% in Japan.
Cash is still dominant in Japan
Despite the increasing popularity of QR code payments, many people in Japan still prefer to pay traditionally in cash. This is mainly because of the reassurance that Japan’s printing technology is advanced enough to prevent the circulation of counterfeit bills on the market. Japan’s relatively low criminal rate also enables people to carry cash around. Another reason is how additional costs relating to QR code payments have discouraged smaller businesses to go cashless. For example, retail stores are charged a transaction fee of three to five percent of the payment made with credit cards and electric cards as well as incurring the system installation costs.
However, the negatives of sticking to cash are quite obvious. Manpower and costs are required for cash to circulate and it can be tedious and time-consuming when retail stores have to close the till at the close of each business day. Considering that Japan is suffering from a serious labour shortage, cashless payment could therefore be beneficial.
The Government of Japan is aiming to increase the cashless ratio to 40% by 2027 despite its concerned that the cashless penetration rate in Japan is currently low when compared to other neighbouring countries. Ahead of the Olympic and Paralympic Games in Tokyo in 2020 and the Expo in Osaka in 2025, the government is promoting cashless payments in a move to accommodate the high number of tourists who will contribute to the Japanese economy during this period.
Reason why contactless Integrated Circuit (IC) cards has not been very successful
Before QR code payment broke into the Japanese market, contactless IC card equipped with a communication technology system called Felica, has been one of the most dominant cashless payment methods. Felica was developed by Sony for Tokyo's public transportation which handles the biggest number of passengers in the world. Its processing speed is 0.1 to 0.2 seconds, which is incredibly fast compared to other contactless IC card adopted in other countries.
In fact, the world's leading companies like Apple and Google have adopted Felica for their own payment services - Apple Pay and Google Pay respectively. However, the popularity of these services has not really taken off since their launch in Japan in 2016 due to the country’s strong cash-dependent culture.
From the consumers’ point of view, there is a plethora of similar services such as Suica, PASMO, Edy, WAON, nanaco, au wallet offering electronic money – which makes it even more difficult for consumers to narrow down to one service. Carrying multiple IC cards can also inconvenience the user as not all electronic money is compatible with smartphones. In addition, many retail stores still offer paper-based loyalty cards for customers which in turn encourages them to bring a wallet and carry cash.
Can QR code payment go beyond the existing cashless methods?
QR code payment does not have to be a financial burden on small businesses. LINE Pay - a leading QR code payment service provider in Japan, announced in June 2018 that it will make the payment app and transaction fee free within the next three years. PayPay has also launched a similar policy, with the aim of lowering the hurdle for stores to introduce cashless system to enhance the penetration rate.
Current domestic QR code payment services include LINE Pay, PayPay, Origami, Rakuten Pay, d Barai. Family Mart, a major convenience store chain, recently announced that it’s planning to launch its own payment service called FamiPay in summer. Since QR code payment is a relatively new field in Japan, there is no constraints from existing vendors, thereby making it easier for new starters to enter the market. It is predicted that various services will come and go for a while. China’s current two giants, WeChat Pay and Alipay, have also gone through this phase initially. It is expected that Japan may also see such selection of services in the near future.