In my last column, I talked about who could play a leading role in the near future if a payment revolution were to occur in Japan in which the cashless ratio would increase sharply. At the time of writing (3/12), there are almost 200 days left until the consumption tax hike from October, and almost 500 days until the Tokyo Olympics. It is hoped that one event will trigger a significant increase in the cashless ratio.
As for the former, point redemption in cashless payments has become a hot topic as a measure to mitigate the negative impact of the consumption tax hike on both the supplier side and the consumer side. Independent small and medium-sized retailers are expected to have a 5% return rate, franchisees affiliated with major chains are expected to have a 2% return rate, and large stores are not eligible. Eligible applications are expected to be credit cards, electronic money, and code payments (QR code payments, barcode payments, etc.). The period is scheduled to be nine months from October 2019. It is led by the Ministry of Economy, Trade, and Industry, which is keen to improve the cashless ratio, and it is clear that this is for purposes other than mitigation measures. Given that 279.8 billion yen of national funds are expected to be invested, I hope that both sides will have a significant effect.
The above period is said to be conscious of building bridges to the Tokyo Olympics starting in July 2020. By continuing the economic stimulus effects of both the easing measures and the Tokyo Olympics, the government hopes to contain the economic downturn after the consumption tax hike for nearly a year.
The government is aiming to spread it to small and medium-sized retailers, which are currently not very advanced in cashless payments, in the wake of mitigation measures, in order to virtually eliminate the burden of introducing cashless payment terminals for those businesses. The government supports two-thirds of the cost, and the card company bears the rest. Asks the card company to limit the fee to those businesses to 3.25% (maybe for a limited time). It seems that the policy is to raise the penetration rate by implementing measures such as the government paying about 1% of the total (the actual upper limit of the burden is 2.25%).
Newly introduced payment terminals and other devices are naturally (other than Type F, which is currently mainstream in Japan), and the contactless Type A/B is widely used internationally. It is considered to be compatible with IC payment, QR code payment, etc., and also contributes to the elimination of the Galapagos state of settlement that overseas visitors to Japan (along with the mobile environment, etc.) feel great stress, There are also hopes that it will support the economic effects of inbound tourism expected in the Olympic year.
Currently, in Japan, there are large groups that are bottlenecks in order to increase the ratio of cashless payments, both on the store and merchant side and on the user side. The former is small and medium-sized enterprises (SMEs) and the latter is the elderly group. In retail, small and medium-sized enterprises account for about 40% of the sales of the industry as a whole, and about 60% of the sales in food and beverage. In these businesses, the difficulty in introducing services and equipment in terms of initial investment, profit margin, cash flow, etc. is large compared to major companies, and the fee is often set higher than that of major companies (up to about 5%), Until now, the spread of cashless payment has been delayed.
On the other hand, Japan is a major elderly country, and as of September 15, 2018, the total population is 126.42 million, while the number of elderly people aged 65 and over is 35.57 million, or about 28%. Currently, people in their 50s and younger are not so reluctant to use various payment methods, while those in their 60s use less electronic money, and those in their 70s use fewer credit cards, and cash and bank account payments (cashless statistics). It is said that the use will increase. The proportion of consumer spending among the elderly aged 60 and over in total personal consumption is larger than the population ratio, and according to the statistics of the Cabinet Office, it accounts for about half.
In such a situation where nearly half of the sales and expenditures on both the store/member store side and the user side are reluctant to make cashless payments, it is reasonable that the cashless ratio does not rise easily. It seems reasonable prioritization that the government is now focusing on the former and trying to improve the situation. If nothing is done about the former, no major improvement can be expected except for the slow natural increase in the ratio of large companies to consumer spending sales, while the latter can be expected to improve naturally in the future. This is because the current situation is not so much as not using cashless payments because they are elderly people, but because it is difficult to start using new payment methods when they are old, which they did not use when they were young. The elderly population will continue to increase, but as the current age group with less resistance to cashless payments is approaching the elderly group as they grow older, the use of cashless payments is progressing even in the same group. I think I will go.
In my last column, I mentioned the expectation that it would be difficult for government officials to play a leading role in the payment revolution. If government-led measures such as those mentioned this time were successful at the timing of the consumption tax hike and the Tokyo Olympics, it would open the door to a cashless society. It would be a turning point, if it is said, the government would be evaluated as having played a certain role in the cashless revolution (reform, to say the least) in Japan. We hope the payments industry will grow further, so if it happens in a way that isn’t what we expected, that’s fine.
On the other hand, as a hindrance to such a consumption tax hike and the movement toward the Tokyo Olympics, whether the consumption tax hike will be carried out as planned in October in the first place, and the measures that are considered to accompany it will be actually implemented as appropriate. Other than the basic question of whether we can get results in the limited time left, we think that the issue of fees is still big. For businesses that are doing business with low profits, for example, with profit margins of 5% and 10%, even if the commission is about 2%, 40% or 20% of the profit will be taken as a commission. I think this remains a big wall for many SMEs. We believe that truly revolutionary progress is likely to occur only when the forces that bring about the price destruction of fees that can capture such groups gain power.
In any case, 2019-2020 is likely to be a year to keep an eye on, both for the payment industry and for the Japanese economy.