Abu Dhabi, UAEMonday 21 October 2019

Japan pitches cashless purchases to shoppers in bid to boost spending

With cash settling 80 per cent of Japan's transactions, the government plans to double cashless transactions by 2025

An advertisement for Rakuten Pay, a QR code mobile payment system operated by Rakuten, in a coffee shop in Tokyo, Japan. Reuters
An advertisement for Rakuten Pay, a QR code mobile payment system operated by Rakuten, in a coffee shop in Tokyo, Japan. Reuters

When the baseball season kicked off in Japan this spring, fans of the Tohoku Rakuten Golden Eagles were faced with an inconvenience they'd never encountered before: the food and drinks stalls did not accept cash.

The team's owner, internet commerce firm Rakuten, was trying to promote its QR code – a type of barcode which can be read by a digital device and stores information – payment system. But the marketing ploy quickly turned out to be much more than that.

In April and May, food, beverage and merchandise sales at the Eagles' stadium in the northeastern city of Sendai jumped 20 per cent from the same two-month period of 2018, in part because taking cash out of the equation changed spending habits.

If we change how we pay, we can change society as a whole.

Masamichi Ito, Japanese Economy Ministry

"We consider it to be a success story," says Hayato Morofushi, marketing manager for Rakuten's mobile payments. "Using QR codes for payments has only just started in Japan, so we don't expect everyone to jump on the bandwagon. As we get more success stories, this will win more people over."

Experts say that when queues move faster, more people join. Customers don't see cash leaving their wallets and focus on the satisfaction of a purchase, so they spend more.

That psychology could be crucial for Japan's economy, locked for decades in a deflationary mindset, where consumers delay spending in hopes of stable or lower prices. The Bank of Japan has spent more than $3 trillion (Dh11.01tn) since 2013 on bonds and other assets to attain a 2 per cent price growth rate, without success.

A scheduled increase in the sales tax to 10 per cent from 8 per cent in October could hurt spending. Aware of that risk, the government is betting big on mobile payments, an industry only just taking root in Japan.

As soon as the tax increase kicks in, the government will offer points redeemable for future discounts to shoppers who use QR codes and other cashless payments for nine months.

The project has a six-month budget of 280 billion yen (Dh9.55bn), which will be reassessed in the new fiscal year.

"If we change how we pay, we can change society as a whole," says Masamichi Ito, director of the Japanese Economy Ministry's cashless promotion office, set up in October with the goal of doubling cashless transactions to 120 trillion yen by 2025.

Cash settles 80 per cent of Japan's transactions, with the rest shared among credit cards, mobile and pre-paid swipe cards. That is the highest cash usage rate in the developed world after Germany.

Low crime rates - Japanese are comfortable carrying large amounts of cash - and an ageing population are seen as the main obstacles for deeper adoption.

In India and China, two of the world's most voracious spenders, mobile payments are 30-35 per cent of transactions, according to Statista.

On average, cashless payments increase per-customer sales by 1.6 per cent, according to the Nomura Research Institute (NRI). Domestic consumption in Japan has grown an average of 0.5 per cent each year in the past six years.

The government says going cashless could alleviate other major economic headaches, such as a labour shortage and the falling profitability of banks, simply by virtue of being more efficient.

Cashiers spend on average more than two hours a day managing cash, while Japanese banks spend around 1tn yen a year on their ATM network and physically moving cash, NRI says.

Tourism spending, especially from China, has been one of the few economic bright spots in Japan, and Chinese tourists use the mobile payment system AliPay, run by Ant Financial Services Group, at over 300,000 Japanese merchants.

Some duty-free counters at big department stores deposit tax refunds directly into AliPay accounts. The app uses targeted advertisements to help users find what they want to buy and recommends related products nearby. When users return to China, they get a recommendation to buy similar Japanese goods online.

South Korean mobile payment firm Kakao Pay is looking to enter Japan, betting on Tokyo's push to go cashless, Ryu Young-joon, chief executive of Kakao Pay, said in a May interview.

"When I go to Japan, they do not accept credit cards in many stores," Mr Ryu says. "So I thought if I can use Kakao Pay in Japan, it's going to be good."

Experts say customers spend more when they don’t see cash leaving their wallets and focus on the satisfaction of a purchase. Reuters
Experts say customers spend more when they don’t see cash leaving their wallets and focus on the satisfaction of a purchase. Reuters

PayPay, a Japanese QR code system launched in October, is compatible with AliPay, which may smooth the path towards local adoption.

Satoshi Komiya, 39, who runs a Tokyo curry restaurant, got PayPay three months ago - signing a deal that guaranteed he would be charged no fees for three years - and since then, said he had noticed a "slight" increase in sales. "So far, so good," Mr Satoshi says.

But other Japanese payment providers, including Origami, messaging app Line and auction site Mercari, typically charge fees of about 3 per cent.

Because smaller retailers in Japan have average profit margins of around 2 per cent, such fees are a major obstacle for adoption, says Yuki Fukumoto, a researcher at NLI Research Institute.

Japan also has a network of ubiquitous vending machines and meal ticket dispensers that relies on cash and cannot be replaced or upgraded overnight.

"People say shoppers spend more when they use QR codes, but I don't think this will happen in my shop," Tomoko Yokoyama, 50, who runs a Tokyo tennis shop, says as she re-strung a racket. "I have to pay fees on every purchase, so it is the same as selling goods at a discount," she adds. "That would be a disaster."

Updated: July 6, 2019 10:59 AM

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