In Japan, where four out of every five purchases are still made with cash, PayPay — a barcode-based smartphone payment app — is cashing in on some unexpected success. Despite the general reluctance among the country’s fast-ageing population to give up using wads of currency notes to make purchases, PayPay, launched by Noida-based One97 Communications and backed by SoftBank and Yahoo Japan, has managed to sign up 15 million customers within 10 months of its launch, a credible success story in a rapidly-ageing country with a population of 126 million.
With the Tokyo Olympics just over seven months away, a government-backed push to wean people away from cash by way of a point-based tax rebate system for customers using digital payments options could help PayPay build on its initial success in Japan and other similar app. These include LINE Pay, a digital payments arm of messaging app giant LINE (which has 79 million users in Japan), Rakuten Pay — the payment app of Japan’s largest e-commerce platform — and others such as Origami Pay, D-barai, as well as Apple Pay and Google Pay.
Tokyo Governor Yuriko Koike, a big proponent of the cashless push in Japan’s capital, said the city’s metropolitan government is focused on improving the supporting infrastructure for enabling cashless transactions. This includes making available 8,297 buildings and 4,502 land lots for installing base stations for 5G high-speed wireless communication networks.
“In order to enhance cashless transactions, the TMG (Tokyo Metropolitan Government) is building these 5G (base) stations … We aim for Tokyo’s sustainable growth as a city with the world’s most advanced internet infrastructure and promote Tokyo as a global financial city,” Koike told visiting mediapersons.
Paytm, the flagship brand of One97, partnered SoftBank and Yahoo Japan in October last year. PayPay’s claimed user base of nearly 15 million users till October 2019, includes consumers of an existing wallet inherited by the Paytm app on launch.
At the time of the launch of the collaboration, Yahoo Japan had suspended its own wallet, giving PayPay direct access to all its wallet consumers. Chinese e-commerce major Alibaba-backed Paytm has a significant investment exposure from Softbank, which, in 2017, had made its biggest bet in the Indian startup ecosystem by investing $1.4 billion in the online firm.
In Japan, where a nation-wide consumption tax was hiked to 10 per cent from 8 per cent this October, Prime Minister Shinzo Abe’s government is pushing a digital rebate program to offset the impact of the levy and promote cashless payments at the same time.
The 280 billion yen government plan ($2.6 billion), which incentivises people who make purchases at small stores by way of a 2-5 per cent rebate for credit card, debit card or smartphone payments, is being widely advertised at shopfronts across the country’s ‘shotengai’ (the traditional shopping streets) such as the Togoshi-Ginza Shopping Street in Shinagawa Ward, the Ueno Ameyoko Shotengai and Harajuku, where most shops display the PayPay code and those of the other apps at the counters. PayPay’s initial success is being attributed to the high brand awareness following a reward promotion campaign it conducted in December 2018, two months after launch.
In downtown Tokyo though, the reason behind the cash spending spree is evident almost everywhere. ATMs, alongside vending machines hawking everything from drinks to hot meals, are ubiquitous and given the low crime rate, carrying wads of cash is not seen as a problem. The ageing population is averse to adopting new digital technology, another major impediment.
Japan is estimated to have more than 2,00,000 ATMs and most small shops and kiosks will only accept cash, citing high transaction costs charged by credit card companies and payment services firms. Another disincentive is the memory of a much-publicised hacking at retail giant Seven & I Holdings Co, which was hacked shortly after it launched its QR code-based payment system.
The government’s cashless push comes amid a realisation that Japan is falling further behind its neighbours in adopting mobile app payments and electronic money, given that Tokyo wants to double the ratio of cashless settlements to 40 per cent by 2025. In comparison to Japan’s 20 per cent, an overwhelming 96 per cent of transactions in South Korea and 65 per cent in China are cashless, according to data by industry lobby Payments Japan Association.
For a society with nearly 30 per cent of people aged 65 or over, the digital push, unlike in countries such as India, is proving to be the biggest hurdle. In India, about 72 per cent of consumer transactions take place in cash, a better cash transaction rate than Japan’s 80 per cent, according to a March 2019 estimates issued by Credit Suisse Group AG.
“Cashless solutions is a big area for us, and we are trying to overcome the hurdles to this in Japan,” Yoshinao Ogawa of the Tokyo Metropolitan Government said. According to Yano Research Institute’s estimates, the mobile payment market size in Japan is expected to increase from $8 million in 2017 to $48 million by 2023.
The slow adoption of cashless solutions notwithstanding, Japanese technology has had a big impact for enabling digital adoption globally.
Hiroshi Nakaso of Fincity Tokyo, a fintech promotion body, said that while the cashless transformation in Nordic countries was inspiration, much of basic technologies that catalysed this transformation came from the island nation.
Japanese firm Denso Wave, in the 1990s, developed the first QR code, a key enabler in cashless payments in countries such as India. Sony microchip designed for commuters to use on public transport and commuter cards were issued in Tokyo and other cities for people to make purchases at vending machines and ‘combinis’ (or convenience stores) in the late nineties , while the first mobile wallet in history was launched in Japan by DOCOMO in 1999. NFC — near field communication — was launched by Sony and NXP Semiconductors in 2002.
The writer is in Tokyo on a trip organised by the Tokyo Metropolitan Government