Back in October, I wrote about how Japan’s traditionally cash-centric culture was a barrier to the advent of cashless technologies. At the time, I also noted that the Abe government was seeking to accelerate the trend towards cashless as one way to address the country’s labor crunch.
What a difference a few months makes.
The end of 2018 saw a considerable boom in cashless payments in Japan. Much of the credit goes to PayPay, which made headlines by running its “I’ll Give You ￥100M!” campaign during this past holiday season. The smartphone cashless app company raised its normal offer of 0.5% cashback on purchases to 20% cash back up, to ￥50,000 (appr. $456), with a total target of giving back ￥100M to customers. The promotion was a huge hit, and received tons of media attention, leading to an explosion in the use of cashless payments in a short period of time.
PayPay’s campaign turned out to be a little too good, though. As Ishikawa Tsutsumu writes for Mag2News, adoption was so intense that PayPay hit its ￥100M target in a mere 10 days. This led to confusion and anger on the part of customers, who continued to make purchases with PayPay unaware that the special cashback promotion had ended.
Additionally, the short campaign didn’t do PayPay any favors. The entire goal of the campaign was to get people who weren’t familiar with digital payments to use them for the first time. In that respect, Ishikawa argues, the campaign was way too short; if it had gone on longer, it would have won even more converts to cashless. Paypay was, in a critical way, a victim of its own success.
Still, the success of the campaign can’t be underestimated. PayPay has only existed since June of 2018, when it was spun off under the Softbank corporate umbrella. In just a few months, the company managed to get a large number of new consumers using cashless tech, and also increased awareness of the importance of digital transactions among shop owners. PayPay users now have a collective ￥100M in they PayPay accounts. That’s a boon for shopkeepers who accept PayPay, as well as for the future of cashless itself.
Cashless Payments: Cash Back to Offset Consumption Tax?
Various snafus notwithstanding, PayPay’s campaign turned “cashless” into a buzzword. And the Abe government is seeking to capitalize on that momentum.
Prime Minister Abe Shinzou’s government has pushed through an increase to the country’s consumption tax, which currently stands at 8%, to 10%. The new tax is scheduled to go into effect in October 2019. While the government sees the move as necessary to fund its ambitious social programs, such as the promise of universal child care for families, it’s an unpopular move with the Japanese public, which feels that it’s not benefiting from the current economic upswing.
So Abe is now cleverly attempting to kill two birds with one stone by proposing that the government give between 2% and 5% back to consumers in the form of cash back points, so long as consumers use some form of cashless payment. This special campaign would last until the start of the Tokyo Olympics.
The move is fiendishly clever. Japanese consumers are already big fans of points systems, such as the ubiquitous T-Card, and the lack of points or cash back incentives has been a blocker to the adoption of cashless. A government incentive would help spur the adoption of cashless payments, which would help relieve the pressure of Japan’s labor crunch – all while making the consumption tax increase more politically palatable.
However, some critics are lukewarm to the idea. First, after the Tokyo Olympics begin, consumers will still have to factor the consumption tax increase into their budgets. Second, some consumers are still resisting the move to cashless due to fears that it’ll lead them to spend more. They worry that the combination of the ease of use of cashless systems, the perceived lessened ability to understand how much they have available to spend, and the temptation to accumulate points will all lead to binge-buying.
Even The Elderly Are Adopting Cashless
It remains to be seen whether the government’s points rebate system will drive more Japanese consumers into the cashless economy. However, it’s undeniable that Japan is seeing a spike in cashless payments – and, surprisingly, a big part of that spike comes from elderly consumers. Nikkei reported recently that, in the past five years, usage of electronic money among people 70 or older has risen by 87% – well beyond the world average of a 58% increase for the same time period.
What’s driving this boom? After all, it’s an axiom among many that older citizens are more attached to cash, and more apprehensive towards technology.
One reason for the boom is the increase in electronic payments to elderly citizens from their kids. Another reason is that seniors are realizing that, as they age and arthritis sets in, cash becomes harder to handle; using a smart phone is faster, and requires much less dexterity. Finally, cashless is safer. Walking around with a bunch of cash puts people at risk for being robbed. Cashless, by contrast, is givign seniors peace of mind that they won’t become easy targets for muggers.
According to Nikkei, companies are putting more efforts into specifically targeting seniors to move to cashless payments, including special points promotions. More seniors using cashless means less fumbling and confusion by seniors at the cash register, which businesses say will speed up transactions and reduce customer dissatisfaction.
Is The One Yen Coin Doomed?
An interesting consequence of all of this, reports Nippon.com, is that it may just kill the one yen coin.
When the government introduced a 3% consumption tax in 1989, it minted a crapload of one yen coins. With the consumption tax increasing to a nice, round 10%, however, the need for one yen coins will decrease. Production of the coins is already declining, however, thanks to the uptick in cashless payments, as data from the Japan Mint demonstrates.
This might disappoint some folks, and awaken feelings of nostalgia. Personally, I won’t miss the little buggers. I always have a pile of one yen coins whenever we come back from Japan, and they pretty much sit in a jar, collecting dust. If I could get by completely on some form of e-money in Japan, I’d be a happy camper.
There’s Still Work to Do
There are still numerous hurdles to the advent of cashless technology in Japan. It’s not clear, for example, how the government and cashless providers intend to lower the barrier of entry for small and medium-sized businesses. A preponderance of small businesses that don’t accept any form of electronic payment – in some cases, even credit cards – is a barrier to reducing the public’s dependence on cash.
That said, when I wrote about cashless back in October, I didn’t expect to see the progress we’ve seen in just the past few months. The success of PayPay created a lot of momentum, and the Abe government is wisely moving swiftly to capitalize on cashless fever before it fades. I suspect that you’ll see a huge shift towards cashless technologies even before the Tokyo Olympics start.
