As a continuation of my previous column, the field of payments, as well as many other industrial fields, is experiencing a wave of internationalization and technological innovation, and many experts seem to think that a major change that can be called a payment revolution is taking place.
In considering what kind of change this will be, the Ministry of Economy, Trade and Industry’s goal of increasing the ratio of “cashless payments” to 40% by 2025 (from about 20% in 2016) and 80% in the future I would like to think here about whether it is actually possible to realize this goal.
Statistically, the household final living expenditure that is the denominator for calculating the cashless settlement ratio does not include land and buildings (often settled by electronic remittance between bank accounts that are not included in cashless settlement), but the imputed rent of self-owned housing that is not originally paid by virtual living expenditure (about 50 trillion yen, about 17% of household final living expenditure) ) is included. With this in mind, we can see that the 80% target is very ambitious to cover most of the consumer spending that payments actually incur.
40% is an extension of the status quo and is achievable without major (and in some cases revolutionary or disruptive) changes, while 80% are goals that are likely to require such changes. In order to realize the latter, it is necessary to eliminate almost all the elements that currently hinder the spread of cashless payment on both the merchant side (accepting cashless payment) and the consumer side (who pays) or to overturn such impediments and give strong incentives for merchants and consumers to move toward cashless payment.
As an example of neighboring countries where cashless payment has grown dramatically, in South Korea, in the wake of the currency crisis in 1997, the government took the initiative to prevent tax evasion and stimulate consumption, etc., an income deduction of 20% of the annual credit card usage amount (up to 300,000 yen), The case of a nearly seven-fold increase in the amount of credit card spends in just three years from 1999 to 2002 by giving incentives such as lotteries, the recent cases in China that I covered in my previous column. The rapid spread of QR code payment can be mentioned, but one of the main factors of the rapid spread of the latter (especially to small businesses) is almost zero initial investment (small businesses such as individuals can put paper printed on QR codes in stores and manage payment information with smartphones) and fees (0.1% only for certain amounts from Alipay, WeChat Pay accounts, withdrawals (cashing) above a certain frequency).
It is interesting to note that as a result of the strong incentives granted in neighboring countries and the significant removal of impediments to the spread of cashless payments, there have been examples of the rapid spread of cashless payments. Looking back on Japan, the cashless ratio has gradually increased over the nearly 60 years of history since the first half of the 1960s, when credit card use began in Japan, and in order for the cashless market to grow significantly in the payment market in Japan, which can be said to have matured in a sense, We believe that we need a strong impetus that will have as much impact as we have seen in the above two cases.
The cost of handling cash is said to be several trillion yen in Japan as a whole. The cost ranges from the issuance of banknotes, transportation, management, equipment such as ATMs, and personnel expenses for handling cash at financial institutions, stores, etc. In this way, it can be seen that it is appropriate for the government to take the lead in activities that solve the situation where a wide range of costs are incurred in society as a whole by going cashless, but in Japan, the government agencies involved in payments are divided into the Ministry of Economy, Trade, and Industry and the Financial Services Agency in the vertically divided administration, and each government office values the order of related industries and tends to lean towards the protection of vested interests. It seems difficult to achieve dramatic growth led by the government and policies as in South Korea.
On the other hand, there are many existing players in the already mature Japanese payment industry, such as issuers, acquirers, brands, and information processing and network operators. In the current situation where multiple players are involved in processing a single transaction and sharing the revenue from it, it seems difficult to think that there will be major changes among existing players that could destroy that order, and rapid progress will be made.
In addition, many new players who aim to spread new payment methods such as QR code payment and biometric authentication payment are also entering the market. In particular, players who have already achieved success in other IT fields such as SoftBank, Yahoo Japan, LINE, and Rakuten, who are well-funded and distancing themselves from the existing industry order, are expected to have the potential to make a big difference. It’s the same pattern as Alibaba and WeChat, which have achieved great success in the IT field, started a payment revolution in China.
Compared to the above three scenarios, we believe that the most likely scenario is that the payment market in Japan will change significantly in a short period of time due to foreign-led developments. GAFA (Google, Amazon, Facebook, Apple), which has an order of magnitude more money, has also set its sights on this area.
In addition, if cashless movement progresses rapidly in the next few years in countries such as the G7 and G20 (this is actually something that has already happened in some countries or is currently happening, it can be said that it is a highly feasible prediction rather than an assumption, only Japan will become Galapagos, Can we maintain a situation that can be called cash heaven? IT hardware such as PCs and smartphones, Google search services, and IT such as Facebook While services closed in the world quickly swept the world and spread in Japan, it takes time for new payment services that are strongly related to the real world and are influenced by legal systems and business customs, and it is certain that it will take longer to spread in countries like Japan that have many unique elements. On the other hand, it will become increasingly difficult to maintain the Galapagos state for a long period of time.
As an international company with bases in approximately 40 locations around the world, and as a group engaged in software design and development in the payment field across Japan and China, we would like to provide optimal payment solutions into the future with a firm eye on such global trends.