TOKYO – Japan, usually a high-tech model for China, is learning from its neighbor how people can pay without cash.
Old-time paper money has reigned supreme in Japan, but that is beginning to change thanks to a flood of Chinese tourists who expect to pay with a phone like they do back home. To spur adoption, Japanese internet companies are tying up with the companies that dominate China’s digital payments system, including Alibaba Group Holding Ltd.-affiliated Ant Financial and Tencent Holdings Ltd.
It is a sign of how China’s growing economic might is influencing its neighbor – not through any overt pressure, but by the power of example. By contrast, payment methods offered by United States companies, such as Apple Inc.’s Apple Pay and Amazon Pay, a service from Amazon.com Inc., have yet to make significant inroads in Japan.
“All payments in China are electronic, so when I first moved to Japan, I would always complain about having to use cash,” says Lin Huiyang, 24 years old, a Chinese student studying in Tokyo. “Today I find more and more stores trying to appeal to Chinese consumers by offering payment services such as Alipay” from Ant Financial.
With household spending of nearly $3 trillion annually in Japan, anyone who can get even a fraction of payments is poised for a windfall. A plan by Prime Minister Shinzo Abe to give a rebate of up to 5 percent for consumers who pay with cards or smartphones is pushing more companies into the business.
Payment and e-money companies are hoping that Japan, like China, will make the jump straight from cash to smartphones. A government estimate in 2016, the most recent available, found credit and debit cards were used in only about one in five consumer payments in Japan, compared with nearly half in the US, according to a Federal Reserve survey. Consumers’ privacy concerns and businesses’ reluctance to pay transaction fees accounted for the low credit-card penetration in Japan.
In payments, the challenge is always to set off a virtuous cycle in which stores adopt a method because consumers are using it, and consumers use it because they know stores will accept it.
That is where Chinese tourists come in. In 2018, more than eight million Chinese visited Japan, many of them carrying a phone with a payment app linked to their bank account such as Alipay or Tencent’s WeChat Pay. They spent $14 billion and served as a built-in user base to push Japanese merchants into accepting smartphone payments.
Japanese internet companies are hoping to bring local consumers on board by introducing smartphone apps tied to familiar local internet brands such as Yahoo Japan Corp. and the messaging app Line.
Under an alliance between Line Corp. and Tencent, store owners who install a specialized QR code reader or use a reader app can accept payments from both Japanese Line Pay users and Chinese visitors using WeChat Pay.
A similar tie-up enables stores to accept both Alipay and PayPay, a payment app for Japanese consumers introduced by Yahoo Japan and SoftBank Group Corp. PayPay recently signed up nearly 15,000 Lawson convenience stores in Japan.
The move into Japan by Alipay and WeChat Pay echoes their approach in the US, where they have built partnerships with US companies that process payments. A deal between Alipay and First Data Corp. in 2017 made it easier for US businesses that already use a common credit-card processing platform to add Alipay to the lineup. Walgreens recently said it plans to accept Alipay at more than 7,000 US locations.
There are still hurdles to adoption by Japanese consumers, whose privacy fears extend to smartphone payments. When Mizuho Financial Group Inc., which runs the third-largest bank in Japan, recently introduced plans for a payment-app partnership with Alipay and China’s UnionPay, it had to assure potential users that their private lives wouldn’t be revealed to Beijing.
“We’ve heard a lot of comments such as, ‘Won’t information leave Japan?’ and ‘Won’t Japanese information go to China?’” said Mizuho executive Daisuke Yamada at a February news conference. He said it was impossible and “there is no need for worry.”
Another challenge is getting consumers to sort through the proliferation of new payment methods and persuading retailers to invest in staff training and equipment.
Abe’s government acknowledges it is behind China and says it wants to double the percentage of noncash transactions to 40 percent by 2027, in part as a measure against tax evasion.
The government plans to give a tax rebate of up to 5 percent for purchases made at small and midsize retailers using noncash methods like a smartphone or credit card starting Oct. 1, when the national sales tax is set to rise to 10 percent from 8 percent. The discounts are meant to reduce the risk of recession from the tax increase and last for nine months, costing more than $2.5 billion.
UBS analyst Toru Ibayashi says it is a turning point for Japan toward noncash payments, “given this is the only transaction that the government will subsidize.”