Can Japan Repay the Stigma of a Cashless Under-developed Country?

The domestic cashless payment ratio reached a record high of 29.7% in 2020(※1). Cashless refers to credit cards, debit cards, e-commerce, and QR codes, including payments using smartphones.

29.7% can be said to be high or low. It was 13.2% 10 years ago, so it can be said that it is 2.25 times (= 29.7 ÷ 13.2), which is a lot. However, South Korea already reached 96.4% in 2016, and the United Kingdom also reached 68.6% in the same year, which is quite low compared to these.

Japan is clearly a cashless underdeveloped country, and the Japanese government is not satisfied with the status quo. Can Japan return this stigma? And why should we become a cashless society?


A Record High of 29.7% is Far From the Government Target

The cashless payment ratio is the ratio of the cashless payment amount to the amount of personal consumption (private final consumption expenditure). The breakdown of the cashless payment ratio of 29.7% in 2020 is as follows.

  • Credit card 25.8% (up 1.8 points from the previous year)
  • Electronic money 2.1% (up 0.2 points)
  • QR code 1.1% (up 0.8 points)
  • Debit card 0.8% (up 0.2 points)

Overall, it increased by 2.9 points (= 1.8 + 0.2 + 0.8 + 0.2, with error) from the previous year, and the rate of increase is also increasing (* 2). The latest changes in the cashless payment ratio are as follows.

  2014年 2015年 2016年 2017年 2018年 2019年 2020年
Settlement Ratio(%) 16.9 18.2 20.0 21.3 24.1 26.8 29.7
Year-on-Year   1.3 1.8 1.3 2.8 2.7 2.9

Compared to 2014, the year-on-year rate of increase in 2020 is also the highest ever.

The government aims for 40% by 2025, and the final target is 80% (* 3). If it increases at a pace of 3 points a year, it will exceed 40% in 2024 and reach 44.7% in 2025. The calculation formula is as follows.

●2020 29.7% + 3 points x 5 years = 2025 44.7%

However, at a pace of 3 points a year, it will reach 80% in 2037, and I have the impression that it will take more time. Other countries are as follows(※3). The data is for 2016.

<Cashless payment ratio in other countries in 2016>

1位、Korea 96.4%
2位、UK 68.6%
3位、China 65.8%
4位、Australia 58.2%
5位、Canada 56.3%
6位、Sweden 51.5%
7位、USA 46.0%
8位、France 40.7%
9位、India 34.8%
10位、Japan 19.9%
11位、Germany 15.6%

Only Germany, which still prefers cash payments, is below Japan.

Why does the Japanese government want to promote cashless payments? The reason will be explained later. First, let’s consider the reason why cashless society is not progressing.


Why cashless

Assuming that the cashless society is in good condition, let us consider why cashless society is not progressing in Japan.

High Fees are a Bottleneck

The brakes on cashless payments are high fees. When it comes to fees, consumers shouldn’t get it. Most cashless payments, including credit cards, do not charge a fee when used.

Fees are collected at merchants, that is, retail stores and restaurants.

No matter how much consumers want to use cashless, it cannot be used unless retailers and restaurants have introduced a cashless system. According to the Nihon Keizai Shimbun, in the case of credit cards, member stores pay a 3.25% commission to the credit card company(※4).

3.25% is the ratio to sales. In other words, if all the customers of the member store use the credit card, the sales of that store will automatically decrease by 3.25%.

Some pay-based cashless companies do not collect fees to popularize pay-based cashless payments, but they will eventually be charged.

This does not strengthen the motivation for retailers and restaurants that have many customers who think that they do not have to pay cashlessly to introduce a cashless system. The Ministry of Economy, Trade and Industry, which is the flag-bearer of cashless promotion, is also concerned about high fees (※4).


Ministry of Economy, Trade and Industry considers the mechanism of increasing fees as a problem

Within the Ministry of Economy, Trade and Industry, there is a debate about whether to impose an upper limit on interchange fees (IRF) (※4). RF is a fee paid by the credit card company that manages the merchant to the credit card issuer.

According to a survey by the Nihon Keizai Shimbun, 2.3% of the 3.25% paid by merchants to merchant-managed credit card companies is said to be IRF. 29% (= (2.3 ÷ 3.25-1) x 100) of the commission paid by the member store is for IRF.

If you listen to this explanation alone, you may feel that “IRF is too high” and “Reducing IRF can reduce fees, reduce the burden on merchants, and promote the introduction of cashless systems.” At the meeting of the Ministry of Economy, Trade and Industry, IRF may have been on the table.

However, credit card issuers use IRF as a financial resource to give points to consumers. Since point redemption has great benefits for consumers, it is a major driving force for promoting cashless payments.

In other words, the current cashless business has a structure that imposes a burden on merchants because they have tried to increase the benefits of consumers too much.

The time to deposit is also an obstacle

For retailers and restaurants, the cashless, long time to deposit is also an obstacle.

If customers pay in cash, retailers and restaurants can get cash as soon as they sell goods and services. However, when customers pay cashlessly, it takes time for cashless companies to make payments.

However, retailers and restaurants may have to pay for raw materials and goods before selling goods and services. In other words, the money that goes out goes out early, and the money that should come in is hard to come in. With this, some retail stores and restaurants will have trouble raising funds.

Why should we catch up with the world?

Why should Japan aim for a cashless society? What kind of good things will the spread of cashless society bring to the people and businesses?

●Advantages of non-contact
Corona has the advantage of non-contact. Since objects such as banknotes and coins contribute to the spread of infection, cashless payments are advantageous because all you have to do is hold your card or smartphone over the reader.

●Advantages of
Converting the flow of money into data Another advantage of cashless is that the flow of money is converted into data. If you pay cashlessly, the data will be who bought what, when, how many, and how much. This will be an important marketing resource. In addition, if the flow of money becomes transparent, it should contribute to fair tax collection.

●Advantages of not having to count banknotes and coins
And retail stores and restaurants do not have to count banknotes and coins. For cash payments, banknotes and coins are accumulated at the cashiers of retail stores and restaurants. Most retailers and eateries should count banknotes and coins every day after work. Some companies will keep it in the bank’s night safe every day. If cashless progress, this work can be greatly reduced.

The Ministry of Economy, Trade, and Industry summarizes the significance of popularizing cashless society as follows(※5).

<Improved convenience for consumers>
・You can shop empty-handed
・You do not have to carry a large amount of money
・It becomes easier to manage consumption history
・The risk of losing cash is reduced

<Improved convenience of retail stores and restaurants>
・Eliminates the hassle of cash management
・Reduces cash imports and exports
・Easy to capture inbound demand
・Purchasing data can be used for marketing and new service development

It seems that a big economic effect can be expected.


Summary-How to break cash loyalty

Perhaps some people are already spending very little cash. Others may not be able to enter retail stores or restaurants where cashless payments are not available. People who use cash less frequently feel that they cannot go back to a cash-based life.

It’s clear that cashless is convenient, and we know it has great potential. Even so, it does not lead to explosive spread because of its strong cash loyalty.

For those who think that “cash is better somehow”, it will be necessary to take further measures to make them cashless.