The cashless society seems to be passing the Japanese by. Despite a reputation as a technology loving nation that adopts and discards gadgets on a weekly basis, the vast majority of consumer payments still use notes and coins. Where contactless and chip-and-pin terminals are available, they’re usually ignored in favour of large wads of notes.
There’s something reassuring about cash, my Japanese friends have told me. A thousand Yen note in a wallet means you have the money to pay for that cup of coffee you’d like. Paying by credit card feels less real and offers no reassurance how much you have left to spend. Those with cards use them for large purchases or infrequently and usually they plan to use them.
Kakeibo: The art of managing money
Careful management of money is an art form in Japan. At the start of the month many will sit down with their wage slip, bank statement and a notebook and jot down exactly how much they spend. They will note everything down, from rent to groceries to allowances for frivolities. Maybe this careful attention to detail is why Japan’s population have modest levels of personal debt.
This isn’t the whole picture. For over 10 years the Japanese have enjoyed a form of cashless payment – the IC card. Originally offered by train companies to reduce overcrowding in ticket halls, the cards extended their utility and became interoperable. Purchase a Suica card in Tokyo and you’ll be able to use it in Hiroshima, Osaka and almost everywhere else IC is accepted as payment. My Suica card has served me well for these past 5 years as I’ve travelled the country.
IC – a cashless society
IC is predominantly used for small purchases, those below about 3,000 Yen (for context, a latte is usually around 250-300 Yen and a local train fare about the same). Transport features heavily in usage, unsurprising given it’s origins and the ubiquitous availability of readers and charging machines in ticket halls. This may also account for the high proportion of people who use it at least once a week. Yet the cards are also used in convenience stores, supermarkets, restaurants and drug stores. Most vending machines seem to have an IC reader.
Anyone with an Oyster card will know how IC works. After “buying” your card (there’s a small deposit to pay that’s refunded if you hand it back), you can add money to it. Money is added using machines in ticket halls or via online apps and websites. There are no penalties or upfront fees, so every Yen you add is a Yen you can use.
As the card is used, the user is shown how much is left. Take the train from Kobe to Osaka and when you go through the barrier you will see your balance reduced by the cost of the fare. Buy at a vending machine or in a Konbini and again you can see your balance. It’s like having a wallet and counting out how much money you have after each purchase.
Paying by IC can also provide a more accurate price. The 1 Yen coin is small, light and expensive to mint (it costs 3 Yen). The central bank has been reducing the number in circulation, which has led to a rounding effect. Buy a handful of items or a meal and you may find your bill rounded out the nearest 5 or 10 Yen. Not so with IC. To-the-Yen prices are possible. Sometimes this works to the consumer’s favour, sometimes not. I’ve found it balances out.
Not that IC is dependent on having a plastic card. For those who want to use their mobile phone or watch, Suica is available in the Apple Wallet. Others are expected to follow.
A solution for the UK’s financial woes?
With concern growing about the “digital divide” and an increasingly cashless society leaving people behind, could e-money be a way forward? Could a payment system that performs more like cash and less like credit help with the high levels of indebtedness?
Prepaid cards are available in the UK, but they’re expensive with the user having to forfeit a percentage of their “top-up” each time they load money onto the card. They also don’t provide the immediate feedback of available funds because of the limitations of the terminals.
However, this isn’t just a technology problem. Culturally we in the west would need to change our attitude to money for the discipline of e-money to work. We’d need to manage our money proactively, not react when the credit card bill or bank statement arrives. Given the low levels of financial education and awareness, a sweeping change in consumer behaviour is unlikely to arrive soon.
For the time being at least, Japan’s adoption of e-money looks like it will be an anomaly on the digital payments scene.