An industry-government-academia entity with participating companies and organizations numbering more than 250 as of October, the association is expected to play two major roles. One is to prepare an environment to further spread alternative means to cash, which include credit cards, electronic money and payments by smartphone. The other is to gather information, which is essential to draw up future policies.

Above all, what the association urgently needs to address is the standardization of technical and operational specifications for smartphone payments through QR codes, including bar codes. These services have been rapidly expanding with a wave of newcomers to the field.

Competition and cooperation

Currently, QR code payments are divided into the following three types — customers show a QR code on their smartphones to be read by the devices at outlets; outlets show a QR code to customers, who then scan them with their smartphone cameras; and customers scan codes printed at outlets. As payment options increase, retailers need to address each standard, adding another burden to employees operating cash registers.

If QR codes, which have been set by each company, were standardized and payments using them were processed with a simple operation of a corresponding device, it could advance cashless payments in Japan a step further.

Payments Japan Association Vice Chairperson Koji Fujiwara, who serves as president and CEO of Mizuho Bank Ltd., called for association member companies to cooperate on QR code standardization, saying, “Each company should work together in the payment infrastructure area, while competition among them is welcome in the service field.”

Guideline draft by April

In a guideline draft the association aims to create by the end of the 2018 fiscal year, it has been nearly agreed upon to introduce a system for a type of QR code, dubbed the Consumer Presented Model (CPM). This CPM will use the initial eight digits of codes to identify settlement companies.

This would enable shoppers to likely avoid situations where they are forced to address system changes as new settlement companies using QR codes enter the market. On the other hand, companies already accepting QR code payments need to work on how to incorporate the new eight-digit identification figures into their own systems.

Another important task is how cashless payments should be handled in case of emergency. Some pointed out the vulnerability of such systems citing a failure in proper information processing of credit card and electronic money transactions during power outages caused by the powerful earthquake in Hokkaido in September.

Although a legitimate concern, it is possible that cash settlements might also not work properly following disasters. For example, there could be change shortages and people may not be able to withdraw cash at all.

In light of such scenarios, the association plans to consider how society can have a strong cashless system in time of disasters. For example, it will study the possibilities of cashless payments during power outages through the communication lines of mobile phones and others.

Consumer benefit promotion

The METI Journal asked Payments Japan Association Secretary-General Yoshio Fukuda for his perspective. The following is an excerpt of his comments.

Though a technical system is almost fixed for the code to identify the operators in QR code payments, there are also other points that need to be addressed for standardization. One of these is how to review business operations for shoppers on introducing QR code payments.

For instance, there is discussion over which Japanese description should be adopted in referring to “the remaining balance”; “zangaku” or “zandaka.” Another example is what to do with the display format when downloading usage details.

We know these details matter to conventional commercial practices of each company, but we think it’s essential to proceed under a philosophy of “harmonized fields” that seeks streamlining through keeping pace in cross-corporate efforts, rather than competing with each other’s different ways.

Although QR code payments have garnered attention, there are still fundamental issues in spreading cashless payment efforts in the first place. We have heard of an instance that a customer requested using Edy (Rakuten Inc.’s prepaid e-money service) for payment, but the retailer misheard it as “iD” (NTT DoCoMo Inc.’s e-money payment system). Amid increasing numbers of inbound tourists, as well as a rapid increase of foreign workers, we have many issues to address from the customer viewpoint, including unification of address terms and easy-to-understand displays of payment menus.

We also plan to work on promoting paperless efforts on cashless payments, as well as popularizing such payments in vending machines and automated service devices such as parking lot payment machines.

People might wonder what Japan’s cashless society would look like after all of these efforts. In my personal opinion, I expect Japanese people to use different payment methods meticulously according to need and their lifestyles. Namely, they would use credit cards to purchase something expensive; they would use non-contact electronic money for quick payments; and they would use smartphone payments for such things as bill splitting, transactions among individuals and use of services and perks.

What’s important is to offer customers options so they can freely choose modes of payments, as well as an abundance of locations where such services are available.

We’d like to reflect the opinions of consumers more in our association’s activities. We hope for further, active participation of not only financial institutions and internet-related companies, but also supermarkets, restaurants and accommodation services. We expect them to convey what kind of opinions of those on their front lines.

A major experimental project on cashless payments using QR codes has been underway at Fukuoka’s yatai food stalls, which are iconic features of the city. Some stalls even accept Alipay, a smartphone payment platform with more than 500 million active users in China, in addition to similar services provided by Rakuten Inc. and Line Corp.

Fukuoka Mayor Soichiro Takashima pledged to “create a new money flow from a local city.”

The city plans to increase the number of locations that accept payments via smartphone such as payments at public and commercial facilities, food stalls and taxis.

Cashless payments collectively refer to means of non-cash transactions. Other than credit cards, electric money and mobile wallets such as osaifu keitai (cellphone wallet), smartphone payments utilizing QR and bar codes have been rapidly gaining popularity.

The code payments are conducted through various means, including charged cash in applications, bank accounts and credit cards. Its advantages lie in convenience, as users can use the service once they obtain certain apps regardless of their smartphone model. Code payments do not need to depend on near-field communication standards such as FeliCa that is used in osaifu keitai. Offering less burden for shops, code payments offer functions for not only settlement, but also cash transfers and bill splitting; features that credit cards don’t offer.

There are basically two types of code payments. One is that customers are asked to show a code on their smartphones, which is read by the shop’s device, while the other has customers read the code shown by the outlet. Related internet companies have competed in showcasing their functions and services to court customers through these payment systems, aiming to establish their own “economic sphere.”

In line with these moves, there are growing groups of customers who receive advantages for cashless payments, such as discounts, point reward systems and decreased time for payments. On the other hand, compared to the rest of the world, the cashless economy has not made much progress in Japan.

Low cashless payments ratio

Cashless payments account for about 90 percent of transactions in South Korea, known as the most advanced country in introducing the technology, with the ratio ranging from 40 to 80 percent in other developed nations. Meanwhile, the ratio stands at just 20 percent in Japan, making it unique in the world as a cash-based country.

One of the reasons behind the low ratio might be attributed to Japan’s typical “good aspect.” This includes the well-maintained public peace, high public trust in cash thanks to relatively clean bills and few counterfeit bills, and a well-structured financial infrastructure such as automated teller machines.

Additionally, there are some Japanese who choose not to use credit cards out of concern over personal information leaks, and also to avoid overspending. Some small retailers are not willing to accept credit card payments as it requires an initial outlay to install relevant devices, as well as service charge costs.

On the other hand, the trend in the world is toward cashless payments. Especially in China, using smartphones for any payments — from eating and drinking at street stalls to purchasing luxury items — have become prevalent through services such as Alibaba Group Holding Ltd.’s Alipay and WeChat Pay by Tencent Holdings Ltd. that operates the messenger app WeChat. This is because the number of shops accepting such payments has explosively increased. These apps have become daily necessities, expanding beyond payment infrastructures.

Alipay was introduced in 2015 in Japan as an essential platform to attract Chinese customers who are already familiar with such a payment environment. Around 50,000 outlets, including convenience stores, department stores and drugstores, have already introduced the service. What pushes this is the compelling desire of outlets seeking to accommodate the needs of Chinese tourists.

At the moment, those who want to use Alipay need to open a bank account in China. But if this situation changes with Alipay allowing Japanese, not visiting Chinese travelers, to use its service in Japan, some Japanese business operators have concerns that overseas business giants could deprive them of Japanese customer information.

Sense of crisis

Japan could be left out as an underdeveloped country in terms of cashless payments if it fails to catch up with this international trend. The national government also has a profound sense of crisis toward Japan’s current situation. What got the ball rolling toward widespread prevalence of cashless payments in Japan was the Cashless Vision report, compiled by the Ministry of Economy, Trade and Industry in April.

This report sets an ambitious target of raising the ratio of cashless payments to 40 percent by 2025, pointing out that necessary infrastructure should be put into place to increase convenience and boost a sense of security.

In July, a promotion association featuring an “all-Japan” effort was launched with participation from industrial, public and academic sectors. Relevant parties are accelerating the creation of systems that would offer benefits to various users and business operators, including standardization of QR codes and efforts to go paperless in cashless payments.

Movement toward the extensive introduction of cashless payments has just started in Japan. Countries with an advanced rate of cashless payments have a history of working toward such a direction with national determination, in which there were a variety of factors intertwined; these include the individual economic situation and social background at the time. Studying each country’s situation could probably show an indication of what kind of cashless society Japan should aim for.