Unseen Japan

The Japan You Don't Learn About in Anime.

Less than 20% of all financial transactions in Japan are cashless. Learn why that is, and why the government wants to change it. (Picture: Macc / PIXTA(ピクスタ))

Will Japan Ever Go Cashless?

Posted on October 15, 2018 in business, finance, money, cultureJay Andrew Allen

For a modern, highly technological society that prides itself on the convenience of everyday life, Japan lags behind the rest of the world in several areas. One that is readily apparent to anyone who visits is public wi-fi. Publicly available hotspots are not nearly as ubiquitous as they are in the rest of the world, leaving travelers who fail to pick up a mobile hotspot or buy a local SIM card for their smartphone high and dry. I remember even having a hard time when I first arrived in the country even connecting to the wi-fi at a Starbucks; the process wasn't nearly as seamless as Google and Starbucks have made it in the US.

Another area where Japan woefully lags behind the modern world is electronic money. Japan is a cash culture (現金主義; genkin shugi). While the number of retail outlets that take cards has increased in recent years, there are still a large number of shops even in Tokyo where you won't be able to cash out unless you're holding physical yen. Compared to the rest of the world, the number of cashless transactions in Japan - including debit cards, credit cards, and contactless payments - is astonishingly low. In South Korea, 96.4% of all financial transactions are electronic; England comes in at 68.7%, Australia at 59.1%. Japan, by contrast, comes in at just 19.8%.

To be fair, Japan isn't rock bottom - Germany comes in even lower at 15.6%. But it's still very low for a country known for its stellar customer service, its 24/7 convenience stores, and its ubiquitous vending machines that sell everything from soda to hot pizza. The low level of cashless and contactless payments, and a concomitant problem - the prevalence of cash hoarding - is becoming a pressing problem for Japan, and one that the government is keen on solving in order to avoid deleterious impact to Japan's economy.

Why Cash is King in Japan

Before diving into those problems, it's good to ask: How did Japan become such a cash-centric culture? As with all such social questions, there are few clear-cut answers. A write-up by Kubota Hiroyuki for Mag2's Money Voice provides a good overview of what most experts believe to be the top causes.

(JP) Link: Why Is Japan Cash-Centric? The State of Conversion to Cashless Payments Through the Eyes of a Bank of Japan Report

なぜ日本人は現金主義なのか?日銀レポートにみる国内キャッシュレス化の現状=久保田博幸 | マネーボイス
なぜ日本ではキャッシュレス化が進まないのか? 日銀のレポートをもとに、海外の事例とも比較しながら、あらためて日本の現状について論点整理を試みたい。

The first is, paradoxically, one of the reasons why Japan is so lauded by the rest of the world: its safety. Japan crime rates remain relatively low. With a strong moral sense of right and wrong and social responsibility inculcated from childhood, neighborhood police boxes (交番; kouban) placed ubiquitously in every city, and a justice system where a stunning (scary?) 99.9% of prosecuted cases result in a conviction, it's fair to say that your average Japanese citizen feels a high sense of personal safety. This means there are no qualms about walking around even a large city like Tokyo or Kyoto with your pockets stuffed full of cash.

Koban (Public Police Station) in Hiroo, Shibuya, Tokyo
The koban (交番), or public police box, at 5th Ave. in Hiroo, Shibuya Ward, Tokyo. As of 2006, there were 6,362 such local police stations located across the country. (Picture: Caito / PIXTA(ピクスタ))

This sense of personal safety has a knock-on effect: cash hoarding. As Emma Ford discussed in her piece on Japan's savings culture, cash is not just used for spending - it's a primary form of savings for many. It's estimated that the Japanese public has 43 trillion yen (appr. USD $420B) stuffed away in its dressers. This isn't an old practice that's falling by the wayside, either: a 2016 survey by the Bank of Japan found that cash savings that year increased by 4.8%.

But aren't people losing money by not accumulating interest? This leads to the second reason cash is king: Most people in Japan are convinced that the bank's savings rate is so low that it makes as much sense to keep it close at hand as it does to leave it in a bank vault. And, as noted above, the high sense of safety that people feel in Japan means that few people are concerned about their panty drawers being raided by thieves.

Additionally, cash is seen as reliable. I recently went to a Subway in my neighborhood in Seattle that felt it had to put up a sign stating that it would confiscate any cash it considered counterfeit. You'd never see such a sign in Japan. There is little counterfeiting in the country, a high level of confidence in the stability of the banking system, and a high degree of conviction that people can get cash from the bank whenever they need it.

Another reason why cash is king is the attempt to keep things as cheap as possible in Japan. This particularly applies to food. With many people in Japan leaving their homes at 6am or 7am and not returning until 10pm, the availability of cheap food and drink is critical. The "one-coin meal" - a lunch or dinner that can be bought using a single 500-yen (around USD $5) coin remains a point of cultural pride. This means that many small businesses eschew credit cards to avoid the financial overhead of transaction fees.

While I didn't see this reason cited anywhere, I wonder if Japan's susceptibility to major natural disasters - such as earthquake and tsunami - also plays a role. The recent earthquake that hit Hokkaido, for example, unexpectedly took out power to some areas for days. In a country where infrastructure might be taken offline on any day by an unexpected catastrophe, I can see the allure of always having cash on hand.

Why the Japanese Government Wants to Break the Cash Habit

Whatever the cause, this dependence on cash has several drawbacks that are hurting Japan economically, or that stand to threaten Japan in the near future.

The first is that, with so much money held in cash and literally stuffed under people's mattresses (well, okay, usually in their sock drawers - but same concept), there's $420B in Japan that's permanently out of circulation. That's money that banks can't lend to businesses to start innovative new enterprises.

In an article for Forbes Japan, investor Fujino Hideto cites a study by the Financial Services Agency showing that over half of all Japanese have had no education in the basics of investment - and that just as many have no intention of learning. "And that's why," Fujino says, "people are putting money in their dressers and vases." He notes that the troubled Toshiba can't find a buyer for its semiconductor unit - even though the cost, at around 2 trillion yen (appr. US $20B), is less than 5% of what the Japanese public has stuffed away in their houses.

(JP) Link: "Dresser Savings" Will Pave the Way to Japan's Future

「タンス預金」が日本の未来を切り開く
積もり積もって、その額なんと約43兆円。日本中のタンスの中に現預金が眠っている。この“タンスの肥やし”を世に引き出せるか否か。それが日本の未来を決めると筆者は説く。日本の個人金融資産は約1800兆円もあるが、そのうち

The second is that, as discussed above, Japan is well behind the rest of the world in cashless payments. This was semi-embarrassing in the era when credit cards were gaining popularity. But now, most people are accustomed to using, not only debit cards, but contactless payment methods like Apple Pay and Samsung Pay, and online services such as the US's Venmo. Factor in the growth of virtual currencies, such as Bitcoin, and Japan's dependency on cash seems positively antiquated.

The third is the impact on tourism. With the Tokyo Olympics rapidly approaching, the lack of cashless payment options represents a crisis for Japan, as it will be mobbed with foreign visitors accustomed to the convenience of never carrying cash. While most Japanese may feel at ease walking around with tens of thousands of yen in their pockets, the same isn't true of visitors from abroad, many of whom will have become culturally accustomed to never needing currency.

As Toyo Keizai's Iwasaki Hiromitsu reports, the Japanese government is gung ho to reverse course. Its goal is to have 40% of all payments be cashless by 2025, with an eventual goal of raising that number to 80%. A driving factor behind this is the rapid de-population of Japan, which has left Japanese industries short-staffed across the board. A move to cashless payments could open the door to people-less convenience stores and food outlets - an area where some large Japanese chains, such as Lawson, have already begun experimenting. An added benefit, Iwasaki notes, is that banks could reduce the number of ATMs they have to maintain, which could free up resources in Japan's banking system.

(JP) Link: Will a "Flight from Cash Payments" Really Take Root in Japan?

日本人に「脱・現金払い」は本当に定着するか | 金融業界
クレジットカードや各種の電子マネーなど、小売店や飲食店などで現金を使わずに、代金を支払う「キャッシュレス化」の波が、日本でも少しずつ広がってきている。スマホでQRコードやバーコードを使って決済ができる…

Will Suica Rule Them All?

Suica card from Japan
My own Suica card. I never leave America without it...

Part of the problem, Iwasaki says, is not that Japan lacks the technology for contactless payments. On the contrary, it has an embarrassment of riches. Suica and PASMO, the primary cards supported on Japan's public transit systems, can be used in lieu of cash at many convenience stores and vending machines. LINE, the premier social messaging service in Asia, supports payments by QR code. Edy, iD, nanao, AU, and other companies all support some form of cashless transaction. The problem is that none of these competitors has yet to take root the same way that, for example, Apple Pay has in the US.

But, says Money Voice's Iwata Akio, that might be changing. Of all of the options above, Suica, the card sponsored by the JR East Railway company, seems to be rising above the crowd. There are over 66 million Suica cards in distribution, making it the clear leader among its competitors. Suica has taken its service a step further by integrating the technology into a series of credit cards such as the View Card, which supports features such as auto-charging at terminal gates, and accrual of additional membership bonus points when used inside JR railway stations. Suica wins high points with foreign visitors, who love the convenience of a single card that can be used to pay for groceries in addition to rail fare. And, in an obvious nod to cash culture, JR East's station machines make it dead simple to use cash to reload your Suica.

But it hasn't been all smooth sailing for Suica. Iwata says that Apple loved the Suica technology and wanted to integrate it directly into Apple Pay. The problem was that, technologically, Suica was something of a contactless Odd Man Out:

順調に会員数を増やしているSuicaでしたが、Suicaが採用しているFeliCaは非接触ICの国際標準規格ではなく、日本以外では使えないガラパゴス規格としていずれ淘汰されてしまう運命にあったのです。最終的には、国際標準規格であるNFC(タイプA/B)に変更しなければならないといわれていました。

Suica is steadily increasing its users, but FeliCa [the contactless technology used by Suica] isn't an international standard, and has met a dead-end fate because it's a Galapagos Island standard that can't be used outside of Japan. [Experts] say that, eventually, Suica must move to an international standard such as NFC (Type A/B).

(JP) Link: Visiting Tourists Give Suica High Praise. The Bright Future of Alignment for Technology Praised by Apple

訪日観光客が「Suica」をベタ褒め。アップルが惚れた技術と世界統一への明るい未来=岩田昭男 | ページ 3 / 5 | マネーボイス
電子マネー「Suica」の勢いが止まりません。日本全国で使えることはもちろん、iPhoneを介して世界へ羽ばたいています。その進化と普及への道のりを解説します。

Despite these issues, and some strict conditions placed by JR East, the two companies were able to iron out their differences, and, thanks to a lot of technological trial and error, Suica has been supported on the iPhone since 2016.

Iwasaki thinks Suica's win with Apple has wide-ranging implications that could include Suica becoming a standard, not just in Japan, but at railway stations around the world. With Japan still behind the 8-ball on contactless payments, that seems a little far-fetched - at least for now. But if JR East and the government of Japan can collaborate to make Suica a de facto standard for foreign visitors by 2020, Japan could find itself taking a giant leap forward in abandoning cash culture and moving into the future.

I'm the publisher of Unseen Japan. I hold an N1 Certification in the Japanese Language Proficiency Test, and am married to a wonderful woman from Tokyo.