On March 29, 2024, Japan's Ministry of Economy, Trade and Industry announced the proportion of non-cash payments in Japan in FY2023 and the proportion of transactions by payment method. According to the latest data, Japan's non-cash payments will account for 39.3% of total personal consumption in 2023, an increase of 3.3% from 2022, and only one step away from Japan's original target of 40% in 2025.
Among the various means of payment, credit card payment still occupies the "top spot" of non-cash payment with a proportion of 83.5%, but the proportion has shrunk by one percentage point compared with 84.5% in 2022. The scanned code payment ranked first in the growth list with an annual growth rate of 37.5%, and the proportion of scanned code payment also increased from 7.1% in 2022 to 8.6% in 2023.
In the application scenario, Visa and other international card brands have joined credit card companies to conquer the city in non-contact transportation scenarios such as subways and buses, in order to replace the contactless transactions of Sony, which is dominated by JR watermelon cards, but the scale is still far from formed. PayPay-based QR code payment has begun to make a difference in cross-border payment, but it is mainly to attract other countries' QR code wallets to enter Japan, and the exit of Japanese QR code wallets has not yet started. This article provides a detailed analysis of the latest data on Japanese payments in 2023.
2023 Japan Payment Overview
On March 29, 2024, Japan's Ministry of Economy, Trade and Industry, which is in charge of the payment sector, announced that the proportion of non-cash payments in 2023 will be 39.3%, an increase of 3.3% from 2022. In 2017, the Japanese government announced its Vision for Cashless Payments, which stated that it wanted to increase the proportion of non-cash payments, which was only 20% at the time, to 40% by 2025. The 39.3% figure for 2023 is just one step away from the 40% target, and it is expected to be achieved in 2024 a year ahead of schedule.
Figure 1: Percentage of non-cash payments in Japan over the years
Note: Data from the Ministry of Economy, Trade and Industry of Japan on March 29, 2024.
Looking at the annual growth rate, the percentage of non-cash payments in Japan increased by about 1% before 2017, but after 2017, this growth rate quickly increased to about 3%, and it will continue to do so in 2023. However, it is worth noting that the 3.3% growth in 2023 is slightly lower than the 3.5% growth in 2022, indicating that 2022 was the peak of the cashless payment rollout in Japan, and the annual growth rate will gradually decrease after that (Figure 1).
Assuming that the growth rate decreases by 0.2% each year after 2024, the proportion of non-cash payments in Japan will exceed 50% in 2027 and more than 60% in 2032 (Table 1). If this is achieved, Japan's cashless payment strategy will achieve phased results, followed by trade-offs between payment instruments, and the following is a comparison and forecast of credit cards that account for the largest share of value, as well as the largest increase in QR code payments.
Table 1 Forecast annual increase in the proportion of non-cash payments in Japan from 2024 to 2032
Note: The formula for calculating the non-cash payment ratio in Japan is too harsh, for example, rent payment is not excluded from the denominator of personal consumption, which makes the ratio too low compared to other countries. Therefore, the Japanese government has proposed another calculation formula, according to which the proportion of non-cash payments in Japan in 2023 will be 60%, which is 21% higher than the 39% mentioned earlier. The corresponding non-cash payment projections for 2027 will be 70% and 80% in 2032.
Credit card VS code scanning
Globally, credit cards and QR code scanning have always been a hot topic for payment innovation, and this is no different in Japan. In the data released by the Ministry of Economy, Trade and Industry (METI) introduced above, there is a figure that is very noteworthy, that is, about a quarter of the transactions from credit card top-up to QR code payment, which are recharged by credit card.
It may be that the Ministry of Economy, Trade and Industry thinks that this figure is from the source of credit card recharge to scan code payment, so in order to avoid double counting, credit card recharge is counted as a credit card transaction, and this amount is deducted in the scan code payment.
However, from the author's point of view, users want to use the scan code before using the credit card to recharge, and the merchant side naturally treats this part of the transaction as a scan code, so the author is more inclined to put the credit card recharge transaction into the scan code payment for calculation. According to the results of the recalculation, QR code payments in Japan already accounted for 11.7% of non-cash payments in Japan in 2023, an increase of 2% from 2022, while the proportion of credit card payments was 80.3%, a decrease of 1.6% from 2022 (Table 2).
Table 2 Proportion of QR code payment and credit card payment from 2018 to 2023
Note: Based on data released by the Ministry of Economy, Trade and Industry on March 29, 2024, credit card top-up transactions will be adjusted.
In the previous analysis article "The Development Status and Challenges of Japanese Credit Cards" (Editor's note: see "Golden Card Life" Issue 8, 2023), the author predicted the future growth rate of Japanese credit cards and QR code scanning, and predicted that credit cards will increase by 14% year-on-year in 2023, and QR code payment will increase by 41% year-on-year. In terms of the actual growth rate in 2023, it is lower than the forecast figures, at 12% and 38%, respectively, mainly because Japan was still in the epidemic in 2021, so the year-on-year growth rate in 2022 is higher, and the increase in 2023 tends to be normal.
To this end, this paper partially adjusts the previous model (assuming a 10% decrease in annual growth) to assume that the annual growth rate of credit cards and QR code payments decreases by 15% from the previous year's increase, as shown in Table 3.
Table 3 Growth of credit cards and QR code payments in Japan from 2023 to 2032
As calculated in the table above, although the annual growth rate of QR code payment in Japan is faster than that of credit cards, ten years from now, credit cards will still be the mainstream of payment, and the transaction volume of scan code payment will be about 40% of credit cards. This result shows that the wrestling between credit cards and QR code payment in Japan will be in a long-term state.
The latest developments in Japanese payments
After 2023, Japanese payment will still show strong innovation momentum, mainly in the two fields of credit card and QR code payment.
In the field of credit card payment, international card brands such as Visa (including UnionPay) and credit card companies such as Sumitomo Mitsui have continued to make efforts in contactless business, especially in transportation applications such as subways and buses, and so far, they have realized contactless credit card payments in nearly 50 transportation projects.
Visa's efforts in the field of transportation are mainly aimed at replacing the Sony contactless payment based on the JR watermelon card, but Sony contactless payment has been penetrated in the transportation field for more than 20 years, so at present, the main applications that can accept Visa contactless payment are some small buses and local city subways, and have not yet entered the mainstream railway transportation systems in Japan such as the Tokyo and Osaka subways and JR.
At the same time, after several years of merchant expansion, the contactless use of credit cards has gradually been accepted by Japanese customers, and the frequency of merchant transactions has also increased, for example, in March 2024, data released by Osaka Kansai Airport Duty Free Shop showed that two-thirds of customers in credit card payments at airport duty free shops used contactless payment.
In the field of QR code payment, there are more changes, mainly in the following three aspects.
The most typical is that Aeon, the king of supermarket retail in Japan, launched a mobile wallet with a QR code scanning function in September 2021, and has 9.5 million users in November 2023.
Before 2022, Aeon's mobile wallet interface only had a few simple functions such as payment, but after a year of polishing, by the end of 2023, Aeon has been able to use the wallet very proficiently to push various marketing information, and the UI interface has improved rapidly. At the same time, Aeon Group uses this wallet as a traffic gateway for other businesses, and the business volume of residential loans, unsecured loans and insurance businesses that pass through this wallet at the end of 2023 has increased by 3.7-4.3 times compared to the end of 2022.
Secondly, the functions of mobile wallets are becoming more and more diverse, in addition to daily payments, they have begun to extend to other functions such as user insurance and asset management. For example, in March 2024, PayPay launched a financing service for merchants, stating that it would provide credit of up to 1 million yen at any time based on merchants' transaction data.
For example, in January 2024, PayPay opened 8 QR code payment wallets in South Korea, Singapore's "OCBC Digital", including 8 QR code payment wallets.
However, at present, the cross-border scanning code in Japan is mainly based on entry, and in terms of opening method, except for Alipay+, which is opened in a unified manner, all other inbound wallets are connected by a single line point-to-point, which is less efficient. Moreover, in order to minimize the transformation of the merchant side, the main merchant currently opened is the static main sweep merchant.
This year, it is rumored in the industry that Japan's major QR code scanning wallets are actively preparing for border payment. Among them, in March 2024, Rakuten Bank, Japan's largest online commercial bank, officially loaded the UnionPay QR code scanning payment function in its App, becoming the first Japanese mobile phone QR code scanning product to leave the country, and covering all UnionPay QR code scanning merchants, including the main scan and the scanned.
epilogue
In 1944, Benedict was commissioned by the U.S. government to write "The Chrysanthemum and the Sword", which is still a classic for the study of Japan, and its main expression is that there are very obvious dual character traits in Japanese culture.
In fact, this is also the case in the field of payment, between 1960 and 2010, Japan's payment industry changed very slowly, and a large number of people are still accustomed to using cash, even after the author went to Japan in 2006 to carry out UnionPay business, the Japanese people's impression of credit card payment is still stuck in the impression of "borrowed money" and "don't use too much", the speed of change in the payment industry is embarrassing.
However, from 2015 to 2017, the Japanese government saw the rapid development of payments in neighboring countries, especially South Korea and China, so it took three years to quickly form a social consensus and launch the "Cashless Payment Vision". Since 2017, Japan's payments have grown at a very rapid pace, increasing the proportion of non-cash payments by 3% per year, and by 2024, the target of 40% non-cash payments will be reached one year ahead of schedule.
Japanese society is constantly changing in the midst of this slow conservatism and rapid reform.
(The author works for UnionPay International)