How Japan Embraces Cashless Economy
Steeped in tradition and culture, Japan is known for its balance between maintaining ancient customs and embracing technological advancements. However, Japan has long been a predominantly cash-based society in financial transactions. A few years ago, one could only imagine stepping out with substantial cash in their wallet. It was a quintessential part of Japanese life, fueling a cash-centric economy that needed to be faster in embracing digital payments than some Western nations.
Nonetheless, a fascinating transformation is taking place over all of Japan. As a result of technological advancement, Japan’s economy has transitioned toward greater digitization. There is a clear need for easier, more efficient transaction methods in today’s fast-paced culture. The country is abandoning its cash-centric culture; one example is the rise of cashless payments.
In 2022, a trend we had been observing for some time gathered steam, as evidenced by statistics from the Bank of Japan, the Japan Consumer Credit Association, and the Payments Japan Association.
In 2022, the total value of cashless transactions in Japan was 111 trillion yen.
The total amount of money spent electronically in Japan last year was an astounding 111 trillion yen ($838 billion), an increase of 17% from the previous year. This enormous growth, which marked the first time our total cashless transactions exceeded the 100 trillion yen barrier, shows a notable shift in our consumption patterns. Currently, 36% of all purchases made in Japan are made without using currency. Even though Japan still has a way to go before it reaches the cashless percentages seen in Western countries (which approach 60%), the country is moving toward a more digitalized payment landscape.
The Cashless Wave
Cashless payments in Japan, which had been gradually increasing, gained significant momentum during the pandemic. As stated by Kanetsugu Mike, the chairman of the Japanese Bankers Association, this trend picked up speed in reaction to the global health crisis. Further highlighting this shift, data from the Bank of Japan, the Japan Consumer Credit Association, and the Payments Japan Association show that cashless purchasing reached 111 trillion yen in 2022. This marked a 17% annual increase, crossing the 100 trillion yen mark for the first time. Although still below Western markets’ average of 60%, cashless payments accounted for 36% of all consumption in Japan, a ratio that continues to rise.
The Digital Payment Palette
Digital payments, broadly defined as those made using a credit card, debit card, QR code app (such as PayPay), or prepaid e-money (such as transport cards), are rapidly gaining traction. Credit card use has increased by 16% over the past year and is the most popular payment method. By 2022, though, the use of QR codes for financial transactions will have grown by 50%, exceeding the use of digital currency for the first time. The 19% increase in debit card usage shows the wide adoption of cashless means.
The Impact of the Pandemic to the Cashless Trend
The COVID-19 pandemic has boosted the development of online payment methods. As more people stopped using coins as a safety measure, their circulation rate declined by 2%. Programs like Japan’s My Number reward point registration drive incentivized cashless transactions by allowing customers to redeem points for payment options.
Challenges and Caution as Japan Shift to Online Payments
While Japan is enthusiastically embracing the cashless wave, the rise in unauthorized use of credit cards highlights the need for robust security measures. The Japan Consumer Credit Association reported a record 43.6 billion yen in damages from illicit card use in 2022. The Credit Transaction Security Council has mandated biometric or other identity authentication for all online credit card payments by March 2025.
As Japan advances towards making 40% of all expenditures cashless by 2025, the emphasis on secure transactions will remain paramount. The unfolding cashless transformation offers exciting prospects, marking a new chapter in Japan’s economic narrative.
Challenges and Caution as Japan Shift to Online Payments
While Japan is enthusiastically embracing the cashless wave, the rise in unauthorized use of credit cards highlights the need for robust security measures. The Japan Consumer Credit Association reported a record 43.6 billion yen in damages from illicit card use in 2022. The Credit Transaction Security Council has mandated biometric or other identity authentication for all online credit card payments by March 2025.
As Japan advances towards making 40% of all expenditures cashless by 2025, the emphasis on secure transactions will remain paramount. The unfolding cashless transformation offers exciting prospects, marking a new chapter in Japan’s economic narrative.
"Otsumami" - a bite size snack:
The cashless transformation in Japan is positively embraced by the market, due to its convenience, efficiency, and potential for fostering a more digital-centric economy.
