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 often 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 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 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.
Time for a top-up
In normal “IC mode” it works through a system of top-ups. You add money to it to grow your balance, and each purchase applies a debit. Unlike some pre-paid debit cards there are no fees or penalties: every yen you’re in credit is a yen you can spend.
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.
What you see is what you pay
Paying by IC also provides a more accurate and certain price. The central bank has reduced the number of 1 yen coins in circulation as they cost more to mint than they’re worth. This has led to a rounding effect where prices are often nudged to the closest 5 or 10 yen. Sometimes the rounding works in your favour, sometimes not. I’ve found it usually balances itself out.
With IC the rounding effect is removed. If something costs 399 yen that’s the price you pay.
The non-plastic solution
My Suica is a plastic card that I got from a station in Tokyo. It has my name printed on it. When I’m in Japan it’ll sit in the bit of my wallet where my Amex usually is, ready to be tapped without removing it.
There’s no need to have a plastic card. Suica works with both Apple and Google pay platforms. It’s become as easy to use as any credit or debit card in a phone’s wallet, with all the benefits of tracking purchases and alerts when balances are getting low.
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.
This article was updated on Wednesday 3rd June, 2020.